Cisco just pulled off the biggest deal since its blockbuster acquisition of NDS for $5B in 2012, buying publicly traded SourceFire (FIRE) for $2.7B. The move is an interesting push into security as Cisco looks to expand its portfolio of services linked to its vast footprint of networking hardware and software.

Because the San Jose, Calif.-based company has always been driven by M&A, Cisco’s deals are a great sign of where the company is moving. The acquisition of SourceFire, a security solutions firm, shows that Cisco is looking to expand its services portfolio, perhaps taking a page out of IBM’s playbook. It also reinforces the NDS deal, which was about content security.

Sourcefire, based in Columbia, MD, has about 650 employees and is growing rapidly. It markets an intrusions prevention system to notify users of network traffic and threats, as well as a firewall to secure networks. It also offers the Sourcefire Defense Center, a customized software platform that allows network operators to control third-party security systems. The company has grown impressively, having doubled in size since 2010. It’s now running at about a $300M annual revenue run rate.

This deal is reminiscent of the deals IBM has done in more than two decades of acquisitions. After getting stuck in traditional computing markets, IBM underwent a famous transformation in the 1990s and 2000, moving aggressively into software and services. Is Cisco CEO John Chambers now following the Lou Gerstner plan? IBM originally started as a maker of typewriters and mainframe computers. After IBM lost battles in the PC and networking markets in the 1980s, former CEO Gerstner took over and guided the company into a broader portfolio of software, business integration, and services. This transformation continued for decades.

In fact, IBM has bought more than 50 companies in the last 20 years! Notable plays in the last 20 years include PWC Consulting, a consulting play bought for $3.5 billion from PricewaterouseCoopers, in 2002; Rational Software for $2B in 2003; Ascential Software for $1B in 2005; Internet Security Systems (ISS) for $1B in 2006; Cognos, in information intelligence,  for $5B in 2008; and Sterling Commerce for $1.4B in 2010. That’s an impressinve and wide-ranging wide-ranging portfolio focused on software and services, with very little hardware plays.

Cisco is smart, they realized their move into consumer hardware in the mid-2000s, with the acquistion of Scientific-Atlanta for $7B in 2005, was a mistake. The Sourcefire deal is part of a new theme in security and network services for Cisco, which is a healthy, growing business that fits well into the company’s exisiting client base.

All of this comes with a price. Cisco is offering $76 a share for Sourcefire, about 30 percent higher than Monday’s close price. That pegs Sourcefire at nearly 64 times forward 12-month earnings or 8 times sales, which is a pretty pricey deal. Sourcefire was up about 30 percent today, baking in nearly all of the premium and indicating that the market is very confident in the deal or might even think another bidder could appear.

Look for Cisco to continue down this path of focusing on software and services, especially when it relates to cloud networking and security.