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FireEye (Nasdaq: FEYE) Stock Up 30% on Major Cybersecurity Deal

By , Contributing Writer, Money Morning •

FireEye Inc. (Nasdaq: FEYE) stock is up more than 34% today (Friday) after inking one of the largest U.S. cybersecurity deals to date.

Milpitas, Calif.-based global network security firm FireEye - which helps companies detect and stop persistent attacks - announced late Thursday it will buy privately held forensic firm Mandiant in a $1.05 billion deal.

The Alexandria, Va.-headquartered Mandiant is best known for identifying the Chinese military last year in the hacking of 115 American companies and businesses (an accusation Beijing denied).

FireEye will use stock and options, worth some $939 million, and cash to complete the deal. FireEye said the acquisition will be immediately accretive to earnings and anticipates combined revenue to double this year.

"My aim is to create the strongest security company in the world," FireEye Chief Executive Officer Dave DeWalt, best known for revamping antivirus firm McAfee in preparation for a $7.68 billion sale to Intel (Nasdaq: INTC) in 2010, told Reuters. "They have these very strong Navy 'cyber' Seals who respond to breaches and are very good at what they do," added DeWalt, who previously served as chairman of Mandiant's board.

DeWalt said FireEye and Mandiant are the forefront of a new generation of cybersecurity protection that will replace antiquated antivirus models. The synergies will likely change the cybersecurity landscape.

The two businesses effectively complement each other. For example, FireEye can respond in "seconds or minutes" to an advanced threat posed by a "particularly nasty nation state attacker." It can then pass the threatening malware issue to Mandiant to access the damage and "fix it in real time."

Investors applauded the deal, sending shares of FireEye up nearly 30% in early morning trading Friday. FEYE stock is up more than 100% since going public on Sept. 19, 2013, at $20 a share.

Get your 2014 guide for how to profit from cybersecurity right here - it's free, and it has four of the hottest cyber-stock picks today.

Cybersecurity Stocks 2014: More Deals Ahead

Last year was indeed a banner year for cybersecurity deals. Nearly four dozen deals were announced in Q2 of 2013 alone, roughly 7% of all mergers and acquisitions activity, reports Ernst & Young.

That was up from 3% in the same quarter a year earlier and better than 5% for all of 2012. 

Among the biggest cyber deals of 2013 were Vista Equity Partners LLC buying Websense in Q2 for $1 billion; Cisco Systems Inc. (Nasdaq: CSCO) spending $2.7 billion for Sourcefire in Q3; and International Business Machines Corp.'s (NYSE: IBM) $1 billion purchase of Trustee.

And despite a tight budgetary environment, the U.S. government was very active with its investment in cybersecurity technologies amid an increasing number of cyber-attacks perpetrated by criminals, hackers, and foreign nations.

"Federal agencies have spent more on cybersecurity than the entire GDP of North Korea, who some have speculated is to be involved with some of this cyber-attacks," Sen. Thomas L. Carper (D-DE), said in October at the 28th Annual International Workshop on Global Security in Paris. "This issue of Cyber Warfare is not science fiction anymore. It's reality."

Investing in Cybersecurity

One thing's clear for investors: cybersecurity will be one of the biggest profit stories of 2014.

The cumulative U.S. Federal Cybersecurity market (2013-2018), valued at $62.5 billion, is forecast to grow steadily - about 6.2% over the next six years, according to Market Research Media. Moreover, the global smart grid cybersecurity market is forecast to grow at 29.43% over the 2012-2106 period.

Here are some of the players likely to be involved in cybersecurity's billion-dollar deals of 2014:

  • Dominant players in the space include heavyweights such as Cisco Systems Inc. (Nasdaq: CSCO), International Business Machines Corp. (NYSE: IBM), and Juniper Networks Inc. (Nasdaq: JNPR).
  • Newbies and potential takeover targets include Imperva Inc. (Nasdaq: IMPV), Splunk Inc. (Nasdaq: SPLK), KEYW Holdings Corp. (Nasdaq: KEYW), and Palo Alto Networks Inc. (Nasdaq: PANW).
  • Cybersecurity companies that have attracted fresh venture capital over the last 12 months and worth keeping an eye on for possible IPOs include AnchorFree ($500 million), Bit9 ($35 million), Ciphercoud ($30 million), Veracode ($30 million), Bromium ($27 million), Skyhigh Networks ($20 million), and Nok Nok Labs ($15 million). 

Premium Content: The Next Big Cyber Weapon: Your Car?

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