Google to buy cyber-security firm Mandiant for $7.4 billion

Google will pay US$23 a share for Mandiant in the all-cash deal. PHOTO: REUTERS

MOUNTAIN VIEW (BLOOMBERG) - Google agreed to purchase cyber-security company Mandiant for US$5.4 billion (S$7.4 billion), adding Internet security products that will bolster the technology giant's cloud-computing business as it takes on larger rivals Amazon Web Services and Microsoft.

The acquisition, Google's second-biggest ever, signals that the Alphabet company has stepped off the sidelines of large dealmaking despite intense regulatory scrutiny. As it seeks to expand its third-place cloud-infrastructure unit, which sells computing power and storage via the Internet, buying Mandiant will give Google a fuller range of software tools to protect clients by responding quickly to online threats.

Building up the cloud business is one way Google is working to diversify from digital advertising, which comprises the bulk of its revenue and profit. Under Mr Thomas Kurian, who took over as the cloud division's chief executive officer in 2019, Google has aggressively pursued new business, working to make the service more reliable and revamping its partnerships to engineer bespoke projects for more clients.

Mandiant will help Google sell a more holistic set of security programs that seek to prevent cyber intrusions and help cloud-computing customers detect and fight any attacks that do get through.

Google will pay US$23 a share for Mandiant in the all-cash deal, the Mountain View, California-based company said in a statement on Tuesday (March 8). Mandiant will be organised under Google's cloud business at the close of the acquisition, expected later this year, Mr Phil Venables, Google Cloud's chief information security officer, said in a briefing.

He brushed off concerns that the regulatory review process may be a long slog, saying that the deal enhances competition in cyber security and suggesting it will pose a more serious challenge to and Microsoft.

Microsoft was also interested in Mandiant, but pulled out of talks more than a week ago, said two people with knowledge of the deliberations who asked not to be identified because the negotiations were private.

Google's cloud division sales grew 47 per cent in 2021, but competitors maintained stubborn leads - as of the fourth quarter of 2021, Google held 10 per cent of the cloud-infrastructure provider market, while Amazon Web Services commanded 33 per cent and Microsoft's Azure captured 21 per cent, according to data from Synergy Research Group.

Mr Kurian has targeted cyber security as a key area for growth, with Google buying security automation and response company Siemplify for a reported US$500 million in January, meant to complement an in-house product called Chronicle.

The deal "shows Google's commitment to becoming a viable, competitive security vendor", said Mr Neil MacDonald, a research vice-president at Gartner. "Mandiant fills in a missing piece, which is strengthening up the security research capabilities of Google and it brings a detection and response platform to Google that Chronicle alone did not have."

There has been a flurry of dealmaking in cyber security in recent months, as governments and companies contend with a growing number of hacks and global anxiety escalates over the potential ripple effects in cyberspace from Russia's invasion of Ukraine. Mandiant has frequently detailed nation-state hacking activity, including cyber-espionage from Russia and China, as part of its threat-intelligence offerings.

The biggest recent cyber-security deal was private equity giant Thoma Bravo's purchase of Proofpoint for US$12.3 billion last year, followed by NortonLifeLock's purchase of Avast in a deal valued at as much as US$8.6 billion.

"Organisations are facing cyber-security challenges that have accelerated in frequency, severity and diversity, creating a global security imperative," Mr Kurian said in a blog post. "The cloud represents a new way to change the security paradigm by helping organisations address and protect themselves against entire classes of cyber threats, while also rapidly accelerating digital transformation."

Mandiant has more than 600 security consultants to help clients and 300 intelligence analysts, and chief executive officer Kevin Mandia said at the press briefing that he hopes the tie-up with Google will broaden its reach and automate expertise.

"What excited Mandiant about this partnership with Google is we can scale our expertise and intel at Google scale to secure the cloud, and we also can automate our expertise," Mr Mandia said. The company can automate more by applying data about the threats some organisations are facing to defend others, he added.

The security company was founded almost two decades ago by Mr Mandia, a former United States Air Force officer, and has gained a reputation for its incident-response services.

Its discussions with Google, first reported by the Information website, sent shares of Mandiant up 16 per cent at the close of trading on Monday.

But Mandiant slid more than 2 per cent Tuesday, signalling investors had been anticipating a bidding war. Microsoft ended its takeover discussions on concerns that Mandiant's collection of security businesses was not a good enough strategic fit, according to a person familiar with the situation.

Mandiant became a stand-alone company last year when FireEye sold its security-product business for US$1.2 billion to a consortium led by Symphony Technology Group. FireEye had acquired Mandiant in 2013.

The deal will dwarf every previous Google transaction other than its 2012 acquisition of Motorola Mobility for about US$12.5 billion. Still, "Google has ample capacity for a growing M&A (mergers and acquisition) appetite," Mr Robert Schiffman, an analyst at Bloomberg Intelligence, wrote in a note. The company is able to generate more free cash flow in just one month than the cost of Mandiant, he said.

For Google, the biggest challenge may lie ahead - getting regulators to sign off on the deal during numerous anti-trust investigations. It took more than 14 months for Google to complete its US$2.1 billion purchase of tech wearable company Fitbit because of regulatory scrutiny, and Google may be in for more of the same with Mandiant.

Meanwhile, rival Microsoft has been on an acquisition tear, snapping up Activision Blizzard, Nuance Communications and 14 other businesses in the past year, according to its website.

"This deal was a shot across the bow from Google to Microsoft and Amazon," Mr Dan Ives, an analyst at Wedbush Securities, wrote in a note.

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