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 The deal brings together two of the world's most prominent cyber
firms: FireEye's Mandiant forensics unit is a leader in helping
companies investigate cyber attacks, while iSight has uncovered
major cyber campaigns from Iran, Russia and other nations.
It follows a steep decline in valuations of public and private cyber
security firms, which some investors consider too richly valued
after a series of high-profile cyber attacks on the U.S. government,
Sony Corp and Target Corp spurred interest in the sector.
Many private tech companies in other sectors have also seen steep
drops in valuation in recent months.
The iSight deal, which closed Jan. 14, calls for paying another $75
million in cash and stock to iSight shareholders if the business
meets certain sales targets through mid-2018.
Even then, the total of $275 million would be less than a third of
the $1 billion valuation that iSight Chief Executive John Watters
said last year he was hoping to get in a potential 2016 initial
public offering.
ISight has 250 experts in 17 countries tracking about 16,000
adversaries, or about 20 times the number currently followed by
FireEye. In 2015, it had about $50 million in billings, an indicator
of future sales based on signed subscriptions, according to FireEye.
Both companies already have significant government businesses, but
FireEye is stronger in the corporate market and said it hopes to
distribute new intelligence products to those customers.
Watters said in August he hoped to raise another $100 million in
financing during 2015 and then take iSight public in late 2016 at a
valuation of at least $1 billion.
Watters told Reuters in an interview that he decided to sell after
the market for funding became more difficult.
"Investors are more discerning," Watters said. "I thought our
ability to execute alone was risky and would not give us the full
leverage of what we could achieve through a merger."
FireEye shares have been among the biggest victims of reduced hopes
for cyber firms, tumbling 67 percent in the past six months. The
PureFunds ISE CyberSecurity ETF fell 27 percent and the Nasdaq
Composite Index dropped 14 percent during the same period.
FireEye Chief Executive Dave DeWalt declined to say whether the firm
had been approached by potential buyers, but did not rule one out.
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"My job is to run the company as best I can and to create the best
shareholder value," he said. "If big companies come along to acquire
us and they give us a great payout, you've got to consider it."
Venture investors said that record M&A activity for the sector
should continue to accelerate thanks to lower valuations and
start-ups struggling to get additional private funding.
"Companies are taken out before they want to get taken out," said
Sean Cunningham, managing director with Trident Capital
Cybersecurity.
In the first three quarters of 2015, security firms signed some 211
M&A deals, more than the 192 record number of deals for all of 2014,
according to AGC Partners.
FireEye also released preliminary fourth-quarter results, saying it
expects to report quarterly revenue of $184 million to $185 million,
compared with the average forecast of $186.9 million according to
data from Thomson Reuters I/B/E/S.
It also projected fourth-quarter billings of $257 million to $258
million, at the high end of its previous forecast of $240 to $260
million.
The better-than-expected earnings pushed FireEye's shares up more
than 5 percent in after-hours trading, the stock at one point
reaching $16.30, a $1.43 climb from the closing price.
"There were death-like expectations going into this quarter," said
Daniel Ives, FBR Capital Markets analyst. "This gave the Street
something to hang their hat on."
(Reporting by Jim Finkle in Boston and Heather Somerville in San
Francisco; Editing by Jonathan Weber, Bill Rigby and Dan Grebler)
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