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 FirEye shares jumped more than 20 percent after Thursday's
announcement of the $1.05 billion cash-and-stock deal, which FireEye
said closed on Monday. It unites two companies with relatively new
technologies for thwarting cyber attacks, and brings together two of
the most-respected executives in the security industry: FireEye CEO
Dave DeWalt and Mandiant founder Kevin Mandia.
While sales of older anti-virus products have been on the decline,
security experts expect strong growth in both FireEye's cloud-based
systems for detecting malicious software and Mandiant's software
that analyzes cyber attacks.
About a year ago the two companies entered into a technology
development agreement that made it easier to deploy their products
together. With the merger, FireEye will gain Mandiant's team of
forensics investigators.
"They have these very strong Navy 'cyber' Seals who respond to
breaches and are very good at what they do," DeWalt said about
Mandiant. He had previously served as chairman of Mandiant's board.
"My aim is to create the strongest security company in the world,"
DeWalt said in an interview.
FireEye, which has yet to post a profit, said the acquisition will
be immediately accretive to earnings and expects the combined
company's revenue to grow about 50 percent this year. In comparison,
Symantec Corp, the biggest maker of anti-virus software, has said it
expects fiscal 2014 revenue to drop 3 percent to 4 percent.
Mandiant is best known for its forensics services. The company rose
to prominence in February 2013 when it published a report detailing
what it said were links between a Shanghai-based unit of the
People's Liberation Army and a long list of attacks on U.S.
companies. Beijing denied all allegations in the report.
"If you combine FireEye's advanced persistent threat technology with
Mandiant's endpoint protection, it really makes them a major force
in the cyber-security industry," said FBR analyst Daniel Ives.
Mandiant, which has long been profitable, generates sales of more
than $100 million a year, according to DeWalt.
FIREYE FORECASTS
Also on Thursday, FireEye announced preliminary revenue for the
fourth quarter above its previous estimate. It said fourth-quarter
revenue would be between $55 million and $57 million, compared to
its previous estimate of between $52 million to $54 million.
DeWalt has declined to say when he expects the company to be
profitable.
FireEye, which has a market capitalization of around $5 billion,
will pay for Mandiant with a combination of stock and cash. It
issued 21.5 million shares and options, which were worth $939
million on Monday, when the stock closed at $43.69.
A company spokesman said it had about 140 million shares outstanding
after the deal was completed.
It will also pay $106.5 million in net cash to Mandiant's
shareholders, who include Mandia as well as Silicon Valley venture
capital firm Kleiner Perkins Caufield & Byers and One Equity
Partners, the private investment arm of JPMorgan Chase & Co.
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Brenon Daly, M&A research director for 451 Group, said that FireEye
was paying approximately 10 times Mandiant's annual revenue. That is
about the same revenue multiple that Cisco Systems Inc paid in its
$2.7 purchase of Sourcefire Inc, last year's biggest deal in the
information security industry, he said.
"This is one of the first time we have seen one of the new
high-flying IPOs use the currency generated through the IPO process
to pull of this large a transaction," Daly said.
DeWalt said he owns some shares in Mandiant and will disclose the
size of his stake within a few days through a filing with the
Securities and Exchange Commission.
FireEye shares rose 23.51 percent in extended trade after closing
down 5.69 percent at $41.13 on Nasdaq.
FireEye's rivals include Palo Alto Networks Inc, which went public
in 2012 in one of that year's most successful IPOs.
Mandiant was founded in 2004 by Kevin Mandia, a former U.S. Air
Force cyber-forensics investigator who co-authored an influential
textbook on the subject. The company made its name by automating
processes used to investigate computer breaches.
The company was largely unknown outside the computer security world
until February of last year, when it fingered the People's
Liberation Army's Shanghai-based Unit 61398 as the most likely
driving force behind a Chinese hacking group known as APT1.
Other security companies had published reports on cyberattacks, but
had shied away from so clearly identifying their perpetrators.
DeWalt said FireEye would consider releasing similar reports now
that it owns Mandiant.
"You will probably see us continue to do it when it is appropriate,"
he said. "There is some incredibly egregious behavior."
DeWalt is the former chief executive of anti-virus software maker
McAfee who sold McAfee to Intel Corp.
Mandia was named FireEye's chief operating officer. He said in an
interview that he plans to move to Silicon Valley, where FireEye has
its headquarters, from the Washington D.C. area.
"I'm in this for the long-term," he said. "This is as exciting as
heck for me."
(Additional reporting by Noel Randewich
in San Francisco; editing by Tiffany Wu and Grant McCool)
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