FireEye – FEYE Stock Lights Up on Billion-Dollar Blockbuster

Security operator FireEye (FEYE) just extended its post-IPO momentum, jumping more than 30% on Friday with a $1.05 billion deal to buy out Mandiant, an endpoint security provider.

Fireeye 185FireEye has had a nice ride since going public in late September, with FEYE stock jumping 80% on its first day of trading, then climbing another 15% or so before Friday’s blockbuster deal.

FEYE, which was launched about a decade ago, is part of a new generation of security companies. The founder was Ashar Aziz, a veteran of the industry (he also launched Terraspring, which was sold to Sun Microsystems). His belief was that the old-school approach of signature-based security systems would ultimately fail because of the flood of data from the cloud, social networking and mobile. To solve the problem, he created a technology that leveraged machine learning and advanced algorithms to deal with threats in real-time.

That approach has certainly gotten the attention of many customers — FEYE’s customer base is more than 1,500. Just yesterday, FEYE upped its guidance on Q4 revenues from $52 – $54 million to $55-$57 million — another contributing factor to the spike in FEYE stock.

But the success of the company is more than just whiz-bang technology. FEYE also has one of the top CEOs in the tech industry, David DeWalt. Before coming on board, he was at the helm of McAfee, which he sold to Intel (INTC) in 2011 for a cool $7.7 billion. In other words, he knows how to build shareholder value. And of course, as seen with the performance of FEYE stock, he’s wasted little time.

Yet to keep up the momentum — and compete against rivals like Check Point Software Technologies (CHKP), Cisco (CSCO) and IBM (IBM) — he understands that there will need to be some big bets. Hence the deal for Mandiant. While FEYE focuses on prevention, Mandiant takes a different tactic. It helps companies deal with the after-effects of security breaches. As we’ve recently seen with the debacle at Target (TGT), this is a critical service.

As for Mandiant, the company has also been around for about a decade and has a top-notch team with deep ties to the U.S. government. For example, the CEO, Kevin Mandia, was previously a special agent in the U.S. Air Force Office of Special Investigations unit. Interestingly enough, DeWalt was also on the board of directors of the company.

It’s not clear how fast Mandiant is growing. But it looks like it has posted more than $100 million in revenues during last year. More importantly, it’s services will likely remain in high-demand for the long haul. After all, Mandiant uncovered a Chinese-based cybertheft ring that targeted American trade secrets.

“The FireEye acquisition of Mandiant is continued evidence that the cybersecurity industry is still looking to expedite the development of innovative defenses beyond traditional antivirus,” said James C. Foster, CEO & co-Founder of ZeroFOX. “Expect to see further M&A in 2014 … as long as the attackers continue to grow in numbers and sophistication.”

DeWalt’s dealmaking isn’t likely to stop at Mandiant, either. Wall Street’s response to the Mandiant is certainly encouraging, and with FEYE stock sporting a market cap of $6.5 billion, it has even more firepower to push consolidation in the security industry.

FireEye is one to watch in 2014.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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