Valuation Details Of KKR's Optiv Acquisition A Good Sign For FireEye

Private equity firm KKR announced it has entered into an agreement to acquire Optiv Security Inc., although the financial details of the transaction have yet to be disclosed.

In light of the news, D.A. Davidson’s Jack Andrews reiterated a Buy rating on FireEye Inc FEYE, with a price target of $22.

Favorable For FireEye

Andrews believes the relative valuation metrics for Optiv Security are favorable for FireEye.

Optiv Security was created in 2015, with the merger of Accuvant and FishNet Security. The company had filed an S-1 registration statement on November 18 to go public.

Although the financial terms of the acquisition by KKR have not been disclosed, the analyst mentioned that “various media reports have pegged the purchase price at around $2 billion (net of $600 million of debt).”

How The Metrics Pan Out

According to the S-1 filing by Optiv Security, the company generated nearly $1 billion in revenue in 2015, with $644 in revenue year to date.

“This implies an EV/revenue multiple of approximately 2.6x for Optiv, equivalent to FEYE’s current EV/revenue multiple of 2.6x,” Andrews stated.

The analyst pointed out the FireEye’s revenue was expected at $810 million for 2017, with gross margin of 74 percent, which is twice that of Optiv Security, and EBITDA margin of 12 percent, which is 200bps higher than Optiv Security.

Andrews believes that “on a relative basis, the estimated valuation parameters in this transaction for Optiv bode very well for FEYE, since we would expect the company to attract a materially higher price in a similar transaction scenario given superior financial metrics.”