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FireEye and Mandiant Deal Combining Of Exceptional Companies

Jan 3 2014, 11:56am CST | by

 
 

FireEye sure delivered good news last night. It announced that 4Q13 revenue will be $1 million to $6 million higher than expected at between $55 million to $57 million. Full year 2013 will be $3 million to $5 million higher than expected at between $156 million and $161 million.

FireEye also announced that it will acquire a startup called Mandiant for $1 billion. Remember Mandiant, a private security company which issued a report last February exposing one of China’s hacking units, APT1?  Although everybody knew Chinese hackers targeted US security intelligence, the report gave in depth coverage of espionage activity within a particular group which targeted US businesses, among other things. Little Mandiant made national headlines like a big company and security executives called Kevin Mandia, Mandiant’s CEO, a brilliant marketer.

FireEye’s stock surged 33% in early afternoon trading today, an unusually high uplift in stock of a rare company to IPO and acquire a billion dollar asset within a few months of each other, noted Brenon Daly, Research Director, M&A, for 451 Research.

Daly estimated FireEye paid 10x 12-month trailing revenue for Mandiant, in line with other recent security deals, like Cisco’s acquisition of Sourcefire. The exceptional aspect to FireEye’s Mandiant purchase was to FireEye’s stock, which now trades at 40x 12-month trailing revenue, Daly said.

FireEye’s began trading in September, pricing 40% higher than original estimates and doubling during the course of the first day. It’s an unlikely “darling” of Wall Street, said Andrew Hay, Director of Applied Security Research at CloudPassage, who assumed it would sell, like most narrowly-focused security startups, rather than IPO.

Both Hay and Daly knew Mandiant had IPO potential two years ago, but Daly said the startup’s services, rather than product, revenue was high to go public in the near-term. Services is usually harder to scale than products because it relies on numbers of employees, Daly noted, implying that Mandiant would need to wait a couple of years before increasing product sales and going public. In the meantime, markets are strong, and Mandiant can participate through FireEye’s stock, rather than risk the wait.

FireEye’s expertise is in malware detection within networks, said Hay, but has little to do with correction of security breaches.  Mandiant brings it a services staff which adds those capabilities to the combined entity.

FireEye and Mandiant did not return phone calls requesting comment.

Source: Forbes

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