Cyber-Security Specialist KEYW Files for an IPO

Leonard Moodispaw has the kind of track record that attracts investment capital in any type of market environment. From 1965 to 1978, he was the senior manger of the U.S. National Security Agency (NSA). He then eventually moved into the private sector and became in 2000 the CEO of Essex, a provider of advanced technologies to the U.S. government. Seven years later, he sold the company to Northrop Grumman (NOC) for $580 million.

Soon after, he decided to start his own operation: KEYW, whose goal was to capitalize on the growing demand for cyber-security solutions. Moodispaw didn't waste any time and struck a variety of deals to build the company at lightning speed.

Now Moodispaw is taking KEYW public. The offering could raise as much as $100 million. The underwriters include Bank of America Merrill Lynch (BAC), Morgan Stanley (MS) and Stifel Nicolaus.

A New Approach for Dealing with New Threats

The traditional model for intelligence has relied heavily on a fragmented assortment of federal agencies. While this approach worked for dealing with the Cold War, it looks outmoded when confronted with the emerging threats of cyber security and global terrorism. To be effective, intelligence must be integrated and deal with protecting key digital assets.

Moodispaw has been buying up some top companies in the cyber-security sector. Some of the deals include: ICCI, S&H, Embedded Systems, LEDS and the Analysis Group.

What kinds of services does KEYW provide? The company's IPO prospectus indicates that most of the work is classified and must therefore be described in a general way. Basically, KEYW says it helps with things like software design and hardware components -- which must withstand hostile environments. Furthermore, the company upgrades many of its products every 90 to 120 days. In the world of cyber-security, speed is critical -- and so is secrecy.

A Secretive Market that Must Be Growing

Last year, KEYW posted pro forma revenue of $116 million and a net loss of $1.4 million. The revenue comes from more than 75 contracts.

And how big is the market? Well, it is actually tough to figure out. Again, because of national security concerns, the details are fuzzy. However, a report from the Office of the Director of National Intelligence showed that the budget for intelligence spending was $49.8 billion in 2009. Then again, given the nature of the global threats of cyber security, it does seem reasonable that budgets will continue to increase.

While this is certainly good news, it does make it tough to value a company like KEYW. Essentially, some of the key details will remain secret and thus investors will need to trust senior management. If anyone, Leonard Moodispaw has the credibility to pull this off.