By Danny Yadron
FireEye Inc. is announcing a deal worth roughly $1 billion to buy closely held Mandiant Corp., a computer security firm known for fingering Chinese hackers, in the latest sign that cyberattacks on some companies can mean big money for others.
FireEye, a Silicon Valley maker of security software, said it is issuing 21.5 million shares and options in the transaction, which have a current value of nearly $900 million. It said it will also pay about $106.5 million in net cash to Mandiant investors.
The deal underscores generous valuations in the computer security business. FireEye, which went public in 2013, has achieved a market valuation of about $5 billion. Last summer, Cisco Systems Inc. bought another Washington-area security firm, Sourcefire Inc., for $2.7 billion.
The Mandiant transaction is also a sign of forces pushing security firms together. FireEye Chief Executive Dave DeWalt has faced calls from analysts to broaden his company's offerings. Mandiant's CEO Kevin Mandia, who was recently featured on the cover of Fortune magazine, had mulled going public but decided to combine with FireEye.
Mr. Dewalt said Mandiant booked about $100 million in sales last year. He is the former chairman of Mandiant's board, and owned Mandiant stock prior to the sale.
Mandiant and FireEye market themselves to businesses, not consumers, and focus on blocking highly skilled hackers who can evade traditional antivirus software.
But they have unique specialties. Mandiant has become famous for investigators that act like a cyber-SWAT team for companies that have been hacked. They focus on figuring out how hackers got in and removing them from corporate systems.
The firm, based in Alexandria, Va., attracted attention last year when it released an unusually explicit report on an elite Chinese hacking team that it said worked out of a 12-story building on the outskirts of Shanghai. The Chinese government denied the report, which featured spy-level intelligence on the group.
FireEye pioneered a type of software that specializes in quickly finding malicious software from elite hackers as it enters a network. But other security companies since have created similar software, said John Kindervag, an analyst at Forrester.
FireEye is expected to file documents elaborating on the deal Thursday afternoon with the Securities and Exchange Commission.
Avivah Litan, a vice president and analyst at Gartner, said similar acquisitions can be expected in the future given the constant headlines about malicious hackers.
"There's so much paranoia about advanced threats," Ms. Litan said. "These large companies aren't able to ride this big wave of spending with limited products."
Mr. DeWalt stressed the bright future ahead for all companies in the business. "Security models right now aren't working," he said. "If you're Kevin and I you go, 'Wow, what an opportunity to build a company."
FireEye's shares were recently trading before news of the acquisition at $41.17, off $2.44, or 5.6%.
Write to Danny Yadron at email@example.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires