Why FireEye's Fundraising Could Indicate 'Potential Acquisitions'

A new report by Imperial Capital focuses on FireEye Inc FEYE's recent announcement of a $600 million convertible notes offering. Analysts mention the possibility that the funds could be used for an acquisition down the road. 

The Offering

The $600 million offering will be made up of $300 million in Series A convertible senior notes due in 2035 and $300 million in Series B convertible senior notes due that same year. The notes will be issued via private placement to qualified institutional buyers. The pricing and terms of the notes have yet to be determined.

Related Link: Report: FireEye CEO Sees 'Industry Consolidation'

FireEye will have the option of converting the notes into shares of common stock, cash or a combination of the two.

In addition, FireEye indicated that it intends to enter into a forward stock purchase transaction with one of the initial purchasers of the notes which would result in FireEye purchasing about $150 million of its own common stock with settlements in 2020 and 2022.

The Numbers

Analysts have crunched the numbers on the offering, and have determined that FireEye will see net proceeds from the deal of around $425 million. Imperial Capital estimates that the completed deal will leave FireEye with about $830 million in cash and $600 million in debt. Analysts estimate $119 million in free cash outflow throughout the remainder of 2015, leaving the company with an estimated $710 million in total cash going into 2016.

Takeaway

Analysts are hopeful that the fundraising efforts will be put to use to move FireEye toward breakeven cash flow sometime within the next 2-4 years. “This timetable could be affected by potential acquisitions to bolster the company’s technology portfolio, particularly in emerging segments such as endpoint security, threat analytics and cloud security,” analysts write.

Imperial Capital has an In-Line rating on FireEye and a $45.50 price target for the stock.