FireEye virtual-reality goggles.
Roslan Rahman/AFP via Getty Images
The security software company FireEye has agreed to sell a portfolio of software products—along with the FireEye name—to a group of investors led by the private-equity firm Symphony Technology Group for $1.2 billion in cash.
The deal has met with a cool response from the Street, with analysts suggesting it has come at a discount to other similar transactions.
The transition will allow the company to focus on its Mandiant Solutions business, the highest-growth portion of the business, with a focus on security breach response. FireEye (ticker: FEYE) had acquired Mandiant in late 2013 for about $1 billion in cash and stock.
FireEye said the deal will close before the end of calendar year 2021. The purchase price will be adjusted for taxes and translation-related expenses. FireEye also said its board has approved a $500 million stock-repurchase plan, or a little less than 10% of the company’s current market capitalization.
FireEye shares were down 14.1%, at $19.35, in recent trading. The S&P 500 was down 0.7%.
FireEye CEO Kevin Mandia said in a statement that the deal will “unlock our high-growth Mandiant Solutions business and allow both organizations to better serve customers.” He added that after the deal, Mandiant can focus on “scaling our intelligence and frontline expertise…while the FireEye Products business will be able to prioritize investment on its cloud-first security product portfolio.”
The company asserts that Mandiant Solutions is “the market leader in threat intelligence and cybersecurity expertise from the front lines, serving enterprises, governments and law enforcement agencies worldwide.”
Morgan Stanley analyst Hamza Fodderwala maintains his Equal Weight rating and $19 target price on the stock. While he likes the new focus on the higher-growth part of the business, he adds that the surviving business sports “lower gross margin and scalability.”
Fodderwala also notes that the deal price—about 2.3 times the next 12 months’ sales—comes at a discount to the average multiple of 3.5 times for other low-growth security products transactions. “The discount likely reflects lower margins and ongoing transitions in FireEye’s Product business,” he writes.
Management on Wednesday laid out ambitious long-term targets for $1 billion in revenue by 2025, with 20%-plus annualized growth and better than 20% operating margins, Fodderwala notes. He thinks that goal seems aggressive, “given the investment required in a highly competitive market.”
Mizuho analyst Gregg Moskowitz likewise finds that while the proposed transaction “should enable [the company] to have a singular focus on Mandiant going forward, with the potential to unlock additional growth opportunities…the realized price for the product portfolio is less than we would have expected.” He adds that the surviving company “still has much to prove.” Moskowitz keeps his Neutral rating and $23 target price.
Truist analyst Joel Fishbein repeats his Hold rating and $17 target on the stock. The transaction gives the company more focus on the higher growth part of its business and providing cash for stock buybacks and reinvestment, he writes. But he also thinks that the Mandiant Services business “is capacity constrained,” adding that it “remains to be seen” whether it can hit its 20%-plus growth goal.
Write to Eric J. Savitz at [email protected]
