FireEye's $1B Mandiant Buyout: Is the Price Too High or Too Low?

NEWS ANALYSIS: When you understand that you can't stop all attacks, but you can detect and remediate them before they do serious harm, the value proposition of Mandiant becomes apparent.


Security is one of the great market segments of the technology world as it's not typically driven by seasonality or cyclical demands. Security needs are constant and evolving. Simply put, no enterprise on the planet can afford not to invest continuously in security—for fear of being attacked and embarrassed in a public breach.

It's in that context that security vendor FireEye acquired security firm Mandiant this week for the sky-high sum of $1 billion in stock and cash.

On the surface, $1 billion seems like an absurdly high price for a company that has only 500 customers. It's also somewhat ridiculous that FireEye, a company that generated $160 million in revenue for all of 2013, is paying so much and has the ability to do so.

Looking into the details of the transaction, FireEye will pay $106.5 million in cash and issue 21.5 million shares and options to Mandiant, so in a very real sense, Mandiant employees are buying into FireEye, as well.

It's also important to remember that when it comes to company valuations, it's the future value and earnings potential that is paramount, rather than just simply looking at current revenue.

Mandiant's "secret sauce" is a combination of threat-intelligence capabilities as well as the ability to understand how and where a company has been breached. During a call with financial analysts Jan. 2 to discuss the deal, Mandiant founder Kevin Mandia said that he started the company in 2004 on the premise that security breaches are inevitable.

Although that premise wasn't widely accepted in 2004, in 2014 it is, and that's why Mandiant is a valuable commodity. When you understand that you can't stop everything, but you can detect and remediate attacks before they do serious harm, the value proposition of Mandiant becomes very apparent.

What's also interesting to note is the connection between Kevin Mandia and FireEye CEO Dave DeWalt. Prior to founding Mandiant, Mandia was a director at Foundstone, which in its day was an influential security vendor. Foundstone was acquired by McAfee in 2004 for $86 million in cash. Coincidentally, DeWalt served as the CEO of McAfee from 2007 until 2012.

In some respects, Foundstone can be seen almost as a precursor to Mandiant. As such, it's incredible to see the amazing jump in valuation over the last decade for such technologies from $86 million in 2004 to $1 billion in 2014.

In the modern threat economy, time is money and so is intelligence. As nation-states, hacktivists and cyber-criminals all continue to attack targets big and small, the value of security technologies and the vendors that build, support and service them will only grow in the years ahead.

Sean Michael Kerner is a senior editor at eWEEK and Follow him on Twitter @TechJournalist.

Sean Michael Kerner

Sean Michael Kerner

Sean Michael Kerner is an Internet consultant, strategist, and contributor to several leading IT business web sites.