Splunk Inc. today said that it has secured a $1 billion investment from Silver Lake to support growth initiatives and buy back shares.

Splunk climbed more than 12% in trading on the news. The jump can likely be explained in part by the fact that the $1 billion investment values Splunk’s shares well above their current price, which sends other shareholders a signal that Silver Lake is optimistic about the company’s future.

Silver Lake is receiving convertible senior notes in return for the capital. The deal’s terms specify that the firm will be allowed to exchange them for Splunk common stock at an initial rate of $160 per share, considerably higher than the company’s $139.60 closing price on the Nasdaq today. The notes will mature in July 2026 unless Silver Lake repurchases them earlier and will bear interest at a rate of 0.75% per year.

Splunk provides a popular software platform that processes automatically generated data such as server error logs from companies’ infrastructure. Cybersecurity teams use it to sift through infrastructure data for signs of a breach. Application engineers, meanwhile, rely on Splunk to help them spot performance issues in workloads, and the company’s platform supports a number of  additional use cases as well.

Similarly to other established players in the enterprise software market, Splunk has spent the last few years adapting its technology to the cloud. The company introduced a new cloud-based offering just this morning in conjunction with the announcement of the Silver Lake investment.

The cloud-centric product strategy is already paying dividends. Last quarter, Splunk’s recurring revenue from its cloud solutions surged 83% year-over-year, to reach a $877 million annual run rate, and the business now contributes more than half its total sales. 

The path to the cloud hasn’t been entirely without challenges for the company. Splunk’s losses increased last quarter because the company boosted spending to support its cloud strategy and, as a result, earnings per share missed expectations. However, Splunk Chief Executive Doug Merritt (pictured) told investors at the time to expect positive cash-flow later this year, a message that the investment from Silver Lake reaffirms.

“We’ve significantly evolved our business since we began our transformation to become a cloud-first company over two years ago, and today’s announcement reaffirms the strength of our business fundamentals, cloud strategy and high-growth trajectory,” Merritt said in a statement today. “Silver Lake has a strong reputation and track record of investing in innovative technology companies, and with their support, we are accelerating toward our goals as we deliver the most scalable and powerful data platform in the cloud.”

The product roadmap Splunk has been pursuing as part of its cloud-centric strategy places particular emphasis on expanding its cybersecurity capabilities. Enterprises are boosting their spending on breach prevention tools in response to the increasing sophistication of online threats.

As a result, the cybersecurity segment is a fast-growing market. That makes it a natural focus for Splunk given that the company is not only looking to boost the growth of its cloud business but also has a sizable set of existing threat detection features.

The new cloud-based offering the company introduced in conjunction with the Silver Lake investment today is called Security Cloud and provides tools for investigating breaches. Earlier, in March, Splunk bought a startup called TruSTAR Inc. that had created a platform for managing the cybersecurity data administrators use to investigate threats.  

Photo: SiliconANGLE