Why I Like Google’s Mandiant Deal (NASDAQ:GOOG)
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Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL) is acquiring Client, Inc. (NASDAQ:MNDT), which is an SaaS cybersecurity company. In addition to its SaaS platform, it also provides consulting on this topic. The company serves enterprises, governments, and law enforcement agencies globally.
The company used to be known as FireEye, Inc. and changed its name to Mandiant, Inc. at the end of 2021. Mandiant, Inc. was founded in 2004 and is based in Milpitas, California. Alphabet is paying $23, while Mandiant is trading at around ~$22. Alphabet has received a 2nd request from the Department of Justice (or DoJ) about the planned takeover. These requests delay closing in a meaningful way, but it was also a widely anticipated inquiry.
Dealreporter says Alphabet doesn’t expect to require a Chinese antitrust review even though the Chinese regulator has cast an increasingly wide net over the past few years. Around 80 days have passed since the transaction has been announced. I think this is an attractive deal to allocate a bit of cash towards with the idea of generating a bit of return in a tough market.
I believe this deal is actually quite likely to close as planned. People are somewhat wary of big tech deals for good reason. Regulators are increasingly concerned and preventing, choking out, or outright killing deals by the big tech companies. Anti-trust laws are in the process of being reviewed and overhauled to deal with the new reality of how tech businesses have a tendency towards monopolizing or at least decreasing competition in markets where they operate.
I don’t think this is deal regulators are likely to want to squash because it seems to promote competition instead of detracting from it. The client acquisition should beef up Alphabet’s security offerings through Google Cloud. The Cloud market is another one of these markets that naturally tends towards oligopoly because there are scale and soft network advantages. But Alphabet is the third player here. Microsoft (MSFT) and Amazon (AMZN) are considered leaders, and Alphabet has some catching up to do within this market.
I’d be quite wary of Alphabet attempting to acquire a (social) media property like Twitter (TWTR) or Pinterest (PINS) at this stage (although Microsoft still managed to get LinkedIn a few years ago). I’d put a very low probability on Alphabet being allowed to acquire some kind of ad-tech. Data is a nuanced story, I’d say. Alphabet got away with Fitbit in 2020, although the DoJ required Alphabet to make concessions about caring for the data in a certain way. The market was generally more skeptical of that acquisition (judging by the generally wider spread), but I reviewed it favorably several times.
Cybersecurity is not the worst-performing area of the tech spectrum, and I’m estimating the client to settle around $14 if the deal were to break. I’m estimating there is a 95% probability the deal will ultimately close. I’m not expecting it to close swiftly, but think it could get done in under 120 days. It is possible I’m too optimistic here, but if I’m ballpark right about the above assumptions, this deal has an expected annualized yield of nearly 8% here. If you take the annualized yield to the closing price that comes in at 15%.
This seems like a fairly straightforward deal to me. If there’s a lot of unexpected trouble, there’s quite a bit of downside because this isn’t priced like a “problem deal.” I like to have an array of M&A deals that are highly likely to close in my portfolio and I’m happy to have this one among them.