If you invest in data security companies you need to take note of the acquisition of Mandiant by FireEye (NASDAQ:FEYE). I'm not suggesting you should chase the stock, but you should understand what it means for the rest of the industry. The acquisition is game changing and may make sense from a valuation standpoint.

Mandiant began life as a security services company and made a name for itself exposing the Chinese military as a hacking concern. In late 2012, the New York Times discovered suspicious network activity and called in Mandiant to investigate and halt the attacks. This coincided with the timing of an investigation into the business activities of China's Prime Minister, Wen Jiabao. The Times reported that Wen Jiabao's family had amassed a fortune worth several billion dollars via business dealings.

Hackers had routed their traffic through US Universities, sent malware through email, and planted 45 home grown pieces of malware. Through these attacks, the hacking group was able to create three backdoors and decrypt the passwords of NY Times employees. AT&T, the Times' Internet provider, did not detect all of the intrusions and Symantec, the Times' anti-virus vendor, did not detect the malware.

Normally, when a rapidly growing product company acquires a services company, investors anticipate a lower margin business and slower, human dependent growth but that isn't the case in this instance. To address large customers such as the Times, Madiant needed to productize its processes. On a good day, according to the company, a firm can process 150 endpoints, but that is inconsequential when you have 150,000 to do. The way to get around this is by searching endpoints for malware signatures from a centrally managed server or appliance.

Where FireEye has been focused on the network Mandiant is bringing expertise in endpoint security expertise to the table. And with a claim to fame like exposing Chinese government backed hackers, competitors better sit up and take notice. The most direct competition is with Palo Alto Networks through Wildfire and Cisco through the Sourcefire acquisition announced in July and completed in October.    

In addition to the product synergies, Mandiant brings approximately $200 million in bookings in 2014 and a leaner expense structure that will accelerate the combined company's profitability. This comes at a cost of $106 million in cash and 16.9 million shares which increases FireEye's share count by just over 50%. The key question is whether the cross selling opportunities and the international leverage Mandiant will get by expanding to 20 countries can produce better results than are currently anticipated.

FireEye took this opportunity to substantially raise its guidance for the recently completed quarter and now expects billings of $95 million-$100 million up from prior guidance of $82 million-$86 million. All told, the company expects billings to be $540 million to $560 million in 2014 generating revenue of $400 million-$410 million. This billings growth rate is actually lower than what FireEye was able to accomplish solo, but Mandiant's new international opportunities may accelerate its top-line growth. 

At $410 million in revenue for 2014, shares of the new company will be trading at nearly 6.5 times sales, a hefty multiple for any technology company but a lower one than a day ago when shares were trading at 7.8 times 2013 sales (at the midpoint of guidance). While I would not recommend buying a stock that is up 39% overnight, and this is no exception, this price may, in time, be warranted.