Cisco Systems Inc. does deals at a pace few companies can match: five so far in 2008 and more than 125 since 1993. Under John Chambers, who has been CEO since 1995, the company has executed a string of transactions that have moved it from the world of network backbones into the digital home and teleconferencing.

Obviously, corporate development at Cisco is a large and multifaceted effort. But for all the inherent complexity, the San Jose, Calif., company likes to convey its approach to dealmaking with a pair of simple, three-word mantras.

The first is "build, buy, partner" -- a familiar phrase that means something a bit different at Cisco. At many companies, there's an implied "or" between the words, and the approach is often to choose which tool to use in a particular situation. The Cisco twist is to link the three to a degree that's exceptional even for a technology company. The implied word is "and" -- and the result is the framework behind Cisco's entire innovation strategy, which helps the company identify and capitalize on the market transitions that define its world.

Then there are the three words that sum up the acquisition-integration piece of Cisco's M&A strategy: "consistent, repeatable, adaptable."

It's an approach to folding in targets built upon lessons learned through years of dealmaking, and one that has helped Cisco make good on its plans in deal after deal.

As Ned Hooper, Cisco's senior vice president of corporate development, explains, two fundamental principles are at work: that acquisitions are a core piece of corporate strategy and that Cisco focuses intensely on talent retention.

The first principle is rooted in the build, buy, partner approach to innovation. By building technology through a well-financed internal research and development effort and partnering with and investing in startups and established firms that may offer a window into emerging sectors, Cisco can better identify the right targets to pursue at the right time.

It matters a lot that Hooper oversees not only M&A, but strategic partnerships, minority investments and technology development as well. Significantly, Hooper also runs Cisco's consumer group, where he uses all four means to drive growth in what is still a new sector for the company.

"Acquisition is not the strategy. It's the tool," says Hooper, who leads a global corporate development team of more than 100, only about 50 of whom are focused on transactions. "The premium is not looking for a cheap asset. The premium is being able to identify those new market opportunities."

Cisco's acquisition of Nuova Systems Inc. is a deal that incorporated each aspect of build, buy, partner. Cisco first invested in Nuova in 2006 because the startup's products supported Cisco's ambitions in the data center space. It increased the investment in 2007 and expanded the scope of the R&D partnership. This allowed Cisco to co-develop technology with Nuova that was compatible with existing Cisco products and those in the pipeline. All this built to the April deal in which Cisco bought the 20% of Nuova it didn't already own.

Every general manager in the company is attuned to the build, buy, partner strategy, Hooper says. Business managers perpetually seek acquisitions or partnership opportunities. The mindset also helps facilitate communication between the business managers, who are more closely in touch with market trends, and the corp dev team.

"We collaborate with Cisco business units to understand and anticipate our customers' current and future needs, and to identify new markets and market adjacencies to Cisco's strategy," Hooper says. The corp dev technology group, for instance, works with the businesses "to assess potential acquisitions and investments from a comprehensive technology perspective, which helps reinforce the business case, and ensures that the best choices are made and then fit to Cisco's business needs."

This deal mentality has enabled Cisco to reinvent itself several times over. Best known for bite-sized acquisitions of companies whose products it can quickly bring to market or integrate into its own technology, Cisco has in recent years made a handful of platform acquisitions. It entered small and home office networking with the $500 million acquisition of Linksys Group Inc. in 2003. Three years later it entered the consumer video content delivery market when it paid $6.9 billion for set-top box maker Scientific-Atlanta Inc.

And in 2007, Cisco leapfrogged competitors, including Microsoft Corp. and IBM Corp., in the unified communications sector with the $3.2 billion acquisition of WebEx Communications Inc.

Buying the right company, of course, gets one only halfway to capturing deal value, which is why Cisco has developed an integration model that is consistent, repeatable and adaptable.

The effort is led by director of acquisition integration Ammar Maraqa and executed by cross-functional teams of between 40 and 200 people. The teams methodically work their way through Cisco's integration playbook, filled with thousands of deliverables related to IT, marketing, sales, finance and, most important of all, human resources.

That's where the "adaptable" part comes in. In small deals in Silicon Valley, Cisco learned to move quickly. In bigger ones further afield such as the Scientific-Atlanta acquisition, Cisco has learned to go more slowly. Scientific-Atlanta is a 7,600-employee company based thousands of miles away from Cisco in Lawrenceville, Ga. At the time of the deal -- by far Cisco's biggest in our survey period -- the company had revenues about 100 times the size of the usual Cisco acquisition and a well-established culture built over a nearly 60-year history.

The timetable and variables in Cisco's playbook would need to adjust accordingly to make the Scientific-Atlanta integration a success. What didn't change was the focus on people.

"Acquisitions are about the people," says Hooper. "From day one, our intent is to make the team we're acquiring part of our company and part of the acquisition success. Even before an organization is acquired, we begin focusing on retention of existing employees. "In fact, many of our key leaders come from acquisitions."

That includes Hooper himself, who joined from LightSpeed International Inc., which Cisco bought in 1998. Other examples of acquired talent include senior vice president of the data center switching and security technology group Jayshree Ullal and executive vice president of operations, processes and systems Randy Pond, who both joined by way of Crescendo Communications Inc., which Cisco bought in 1993; and Brett Galloway, senior vice president of the wireless technology group, who was CEO of Airespace Inc. when Cisco acquired it in 2005. All told, nearly one in eight Cisco employees came from a target company.

Promoting acquired employees into important positions can certainly inspire loyalty, which will come in handy as Cisco manages its way through the recession. In November, the company instituted a hiring freeze and announced plans to cut $1 billion in spending. At press time, the stock price was down around 40% for the year.

But don't expect a slowdown in dealmaking. In accepting the Most Admired Corporate Dealmaker award, Hooper had this to say: "Successful companies acquire in both good times and difficult times. And during this challenging economic period, we expect to be particularly active in looking for companies that will position Cisco to capture value for our shareholders and customers during the upturn." - Suzanne Stevens

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