FireEye acquires iSight Partners for US$200 million

FireEye said on Wednesday US time it paid US$200 million to buy privately held iSight Partners, in a move to boost its cyber intelligence offerings for governments and businesses as the sector consolidates.

The deal brings together to 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 14 January, calls for paying another US$75 million in cash and stock to iSight shareholders if the business meets certain sales targets through mid-2018.

Even then, the total of US$275 million would be less than a third of the US$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 US$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 US$100 million in financing during 2015 and then take the company public in late 2016 at a valuation of at least US$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.

"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 grow thanks to lower valuations and startups struggling to get additional private funding.

Investments are beginning to slow after VCs plunged some US$6.5 billion into cyber firms over two years, sometimes getting burned because they did not do proper due diligence, according to cyber security investors.

FireEye also released preliminary fourth-quarter results, saying it expects to report quarterly revenue of US$184 million to US$185 million, compared to the average forecast of US$186.9 million according to from Thomson Reuters I/B/E/S.

It also projected fourth-quarter billings of US$257 million to US$258 million, at the high end of its previous forecast of US$240 to US$260 million.

(Reporting by Jim Finkle in Boston and Heather Somerville in San Francisco; Editing by Jonathan Weber and Bill Rigby)