Wiz turns down Google’s $23bn takeover offer
Reading time: 6m 16s
What happened?
Wiz, a cyber-security firm has rejected a £23bn (£17.8bn) takeover offer from Alphabet, Google’s parent company.
Assaf Rappaport, Wiz’s founder and CEO stated, he was “flattered” by the offer. He said the company will take the route of reaching $1bn in revenue (£775mn) before deciding to sell its shares to the public.
Had the deal gone through, it would have been Google’s largest ever acquisition, eclipsing its $600mn acquisition of DeepMind in 2014.
Image courtesy of CNN
Wiz would like to attempt to become the largest cyber-security company in the world.
In 2024, the company reported an annual recurring revenue of $500mn (£387). Wiz also believes that it’ll be big enough to reach its ultimate goal without help from a company such as Google.
Wiz is looking listing on a stock exchange, as an alternative to being bought by Google.
Wiz: A quick glance
Image description: Wiz’ CEO, Assaf Rappaport speaking at the Web Summit
Image courtesy of: the BBC
What? A cyber-security firm.
Founder/s and current CEO: Assaf Rappaport
Annual revenue (2023): $500mn (£387mn)
An interesting fact: Wiz became the fastest-growing software company in history in 2022
Why did Google want to acquire Wiz?
Google’s cloud division has been feeling the pressure. Google’s cloud arm of the business has been under a lot of pressure to compete with stronger cloud divisions from competitors, such as Microsoft and Amazon Web Services. Microsoft’s Intelligent Cloud business, which includes Azure, turned in $25.8bn in the last quarter of 2023. During the same quarter, Google’s Cloud brought in $9.2bn, up 26% year-on-year. Sundar Pichai, Google’s CEO, he stated, “Our robust growth has been driven by strong direct and indirect channels With ISV’s, we have nearly tripled the number of co-sell deals from 2022 to 2023. ”In Google’s most recent earnings report, their Cloud revenues passed a record $10bn for the second quarter of 2024. The news has been met with some positivity; however, Google still lags behind major names within the Cloud division segment. Acquiring Wiz would have helped to boost Alphabet’s cloud division services and make it a greater competitor within the industry. Wiz also claims that a large proportion of Fortune 100 companies are among its client base- had the deal gone through, it would have been Alphabet’s. For companies, the more customers, the better. Had the deal gone through, the competitive environment of cloud security would have been altered too, Google would’ve gotten a great boost. Now that the deal has fallen through, Google could continue to purchase smaller and strategic companies, and they can invest into their own internal processes and systems to increase its competitive edge among rivals.
Image courtesy of CNBC
AI is still very popular. A large part of Microsoft and Google’s quarter four results in 2023, was due to the popularity of artificial intelligence (AI). The use of AI can really help to boost cybersecurity company’s presence, processes and customer base. According to an industry report by Darktrace, 96% of cybersecurity professionals agree that AI solutions are the future. By purchasing a company who is putting AI at the forefront of its business and one that has a decent chunk of the cybersecurity market share, it again, would have bolstered Google’s own cybersecurity and Cloud division arm of its own business. On the other hand, what goes up, must com down at some point...and the craze over AI is not exempt from this. The question isn’t whether AI stock prices and investors interest in AI will decrease-it's when. I believe this is something investors and companies who sue AI in some sort of way should keep this in mind.
Image courtesy of: Datamatics Blog
What implications could this story have?
We have been hearing about many large companies wanting to make strategic and smart acquisitions from many industries. Some of them have gone through, but many have them have fallen through, thanks to regulatory bodies intense scrutiny on such deals. For example, in June of this year, the FTC lost its bid to block a $320mn hospital merger in North Carolina.
It could cause companies to think twice about acquiring another company. I believe this is especially the case for larger companies, who want to buy smaller companies. Since larger companies will have more staff, resources and financial capital, they are more likely to make tempting offers to smaller companies they’re interested in. More larger companies thinking twice about buying companies could mean less activity within the mergers and acquisitions market and less work for those who work within such industries.
Image courtesy of: CNBC
Regulatory bodies could step up their efforts. In a letter to Representative Thomas Tiffany, from the Federal Trade Commissions (FTC) Enforcement Strategy, they stated, “As a law enforcer, I believe that firms should first assess whether a deal would violate the antitrust laws before pursuing it. The fact that the FTC’s work is driving this type of deterrence is a real mark of success.” After facing a string of losses, this is a win for the FTC and they may want to hold onto it tightly-and replicate this conclusion even more in the future. On the other hand, it could discourage such large companies from treading down such paths and lead to less activity within the market, due to the fact that regulatory bodies can just stop a potential deal from happening. The path Wiz ultimately chose, is a path the FTC is happy with. They want smaller companies to opt for going public and realise its potential. This does have its benefits. For example, it highlights the idea that many businesses do have a good recipe for success, and they should take more risks, without the help of being swallowed up by their bigger rivals. At its Series E funding round, Wiz was valued at $12bn. In 2023, Arm wanted to buy Nvidia for $40bn. After the deal fell through, Arm now has a market cap of $175bn. Wiz’s leadership believes that pursuing an IPO would be more beneficial in the long term, something that is worth taking, than a multi-billion-dollar deal.
Image courtesy of: BankInfoSecurity
The global cybersecurity market:
Wiz wants to become the world’s leading cybersecurity firm. They currently hold the third spot in terms of estimated annual recurring revenue (ARR) at $350mn. CrowdStrike and Palto Alto Networks hold the second and first positions, with the companies holding $425mn and $550mn in ARR respectively. Launched just four years ago and having received investment from top venture firms, such as Sequioa Capital, Index Ventures and Thrive Capital, Wiz is definitely a strong company to contend with for the top spot.
Wiz’s journey does a good job to highlight what the startups venture capital firms, and angel investors are interested in. It also helps to signal what they would like to see in a startup (currently AI related products and services) that has the potential for high growth in the future. According to Wiz, it hit $100mn in annual recurring revenue after just 18 months, which is a great milestone to achieve.
In 2023, the global cybersecurity market size was valued at $172.24bn in 2023. The market is projected to grow from $193.73bn in 2024, to $562.72bn by 2032. With the world becoming increasingly interconnected and online (for example, information stored in the cloud), the demand for cybersecurity products and services is increasing.
I believe that Wiz has the potential to become the world’s largest cybersecurity firm. CrowdStrike could lost the second spot, especially due the global IT disruption that occurred recently. Wiz being portrayed in a mostly positive light in the news has also done a good job of advertising the company to a wider audience (the first time I heard of Wiz was writing this write-up!). With also getting an encouraging push from the Department of Justice, as well as the FTC in terms of the deal falling through, I’m sure Wiz has enough momentum needed to make their ultimate goal a reality.
Closing thoughts:
Regulatory bodies around the world seem to be on a roll. What I mean by this, is that they have a done a relatively decent job of blocking a wide range of mergers and acquisitions, in a wide range of industries. As I stated above, it could discourage larger companies from wanting to make strategic moves, and affect a market more broadly.
What comes to mind, is the next US administration could look like, in terms of the FTC and DoJ’s powers and ability to block potential mergers and acquisitions. We know he has experience in business, and has started many successful ones. Could a Trump administration be more friendly to large companies who want to buy smaller companies? Could a Harris administration become more unfriendly to such businesses' in the future? To me, this is something we need to take into consideration, because both offer alternative views to M&A activity.
We will have to see how Wiz will fare in the next few years. I personally believe they will hold the number one spot, it may just be a matter of time.
That’s it for this week!
Until next time, remember to stay curious!
What are your thoughts on this story? Do you think Google could make another attempt to buy Wiz once they reach their $1bn valuation? What other implications could this story have? I’d love to know your thoughts. You can comment below, message me on any of my social media platforms, or send me an email: hello@parahinsights.com
Further resources:
‘Cyber-security firm rejects $23bn Google takeover.’-Article by the BBC
‘Wiz rejects $23B Google deal-YouTube video by CNBC
‘Google-Wiz $23bn deal collapses”-Article by Tech Informed
‘Microsoft cloud revenue rises, but Google Cloud reports stronger year-on-year growth rate’ - Article by Diginomica
‘Google Cloud breaks records-CapEx climbs to $13 billion’-Article by The Stack
‘Google near $23 billion deal to acquire cloud security company Wiz- Video by CNBC
‘Cybersecurity market analysis 2032-Article by Fortune Business Insights
‘FTC loses bid to block $320 million hospital merger in North Carolina’- Article by Reuters
‘US sues to block merger of Coach and Michael Kors handbag makers’-Article by Reuters