Starent, of Tewksbury, Mass., makes equipment that allows carriers to tie their wireless networks to the Internet.
San Jose-based Cisco is paying $35 per share in cash, a 21 percent premium to Monday's closing price of $29.03. Starent's board has accepted the offer, and the parties expects the deal to close early next year.
Starent shares rose $4.93, or 17 percent, to $33.96 in Tuesday morning trading. The shares went public in 2007 at $12 per share, and hit an all-time low of $7.30 in November last year.
Cisco shares rose 12 cents to $23.90.
Cisco said it expects the deal to reduce earnings, excluding items, in the current and next fiscal year, and start adding to earnings in 2012.
Starent will become Cisco's new Mobile Internet Technology Group, headed by Starent CEO Ashraf Dahod.
Ticonderoga Securities analyst Brian White said Starent has a share of about 85 percent in its niche among carriers like Verizon Wireless and Sprint Nextel Corp. who use so-called CDMA network technology. Sales have grown roughly 65 percent annually over the last four years.
"We believe Starent's mobile core network solutions fill a gap in Cisco's product portfolio and enhance the company's offering to service providers," White wrote.
In the second quarter, Starent earned $15.2 million on $78.3 million in revenue.
It is the second major acquisition in two weeks for Cisco, the world's largest maker of computer networking gear. On Oct 1., it announced a deal to buy Tandberg ASA, a leading maker of videoconferencing gear, for $3 billion. Cisco is coming out of the recession with the largest cash balance of any technology company, at $35 billion at the end of July.