Seven months ago, Alphabet lost a major case against the Biden administration’s U.S. Justice Department, which accused the company of illegally monopolizing search. Weeks earlier, Google’s bid to acquire cloud cybersecurity company Wiz, in what would have been its largest ever deal, was scuttled in part due to antitrust concerns. But the Google-Wiz deal hasn’t been forgotten…
As it seems with the change in the White House, Alphabet is back on the offensive. Just last Tuesday, the American tech giant agreed to buy Wiz for $32 billion. $10 billion in cash, nearly $10 billion more than the proposed price in mid-2024, and said it expects the deal to close next year, subject to regulatory approvals.
Wiz will join Google’s cloud division, which is far removed from the company’s dominant internet search business. Google lags behind Amazon and Microsoft in cloud infrastructure, a position that would make the regulatory case against the takeover difficult for any government.
The Federal Trade Commission (FTC) under Lena Kahn has been notoriously tough on tech deals, aggressively blocking deals in ways that have frustrated even key Democratic supporters, CNBC reports. So Google’s pursuit of Wiz could be the first major test for new FTC Chairman Andrew Ferguson as the tech industry weighs how… Trump 2.0 will deal with the industry that houses the six largest U.S. companies by market value.
With Wiz backed by venture capital, the deal would be a major windfall for Silicon Valley venture capital firms, which have struggled to generate returns since the initial public offering market mostly closed in early 2022 and large-scale M&A activity has ground to a halt. After peaking at $780 billion in 2021, the value of VC exits plummeted to $89.2 billion the following year and $71.6 billion in 2023, according to an October report from PitchBook and the National Venture Capital Association. In the third quarter of 2024, the number hit a five-quarter low.
The strategy of large acquisitions is back on the menu for VC-backed companies. Index Ventures is the largest outside investor in Wiz, followed by the likes of Sequoia Capital, Insight Partners and Cyberstarts.
Market Resurgence and Wiz’s Allure
After exiting the Google deal in July, Wiz co-founder Asaf Rapaport wrote in a memo to employees that the company would pursue a public listing. There are some signs that the IPO market is heating up, with AI infrastructure company CoreWeave, digital health startup Hinge Health and online bank Klarna all recently filing prospectuses with the U.S. Securities and Exchange Commission.
Economic uncertainty is the biggest adversary, as President Trump’s tariffs on top trading partners like China, Mexico and Canada, along with massive cuts to government spending, have led to extreme market volatility and raised concerns about business and consumer confidence. The Nasdaq is on track for its fifth straight weekly decline and its worst quarterly performance since 2022.
For Google, the allure of acquiring Wiz appears to be worth the potential regulatory risk. Wiz agreed to a termination fee of more than $3.2 billion, which has been called “one of the highest fees in M&A history.”
Wiz was founded in 2020 and reached $100 million in annual recurring revenue after just 18 months. The company’s cloud security products include prevention, proactive detection, and response, and have become increasingly essential as rapid advances in artificial intelligence have made attacks more sophisticated and potentially more damaging.
That price tells us that Google was almost desperate to bolster its security credentials before the adoption of artificial intelligence gathered even more momentum.
Google said in a statement Tuesday announcing the deal that “the increased role of artificial intelligence and the adoption of cloud services have dramatically changed the security landscape for customers, making cybersecurity increasingly important for defending against emerging threats and protecting national security.”
In Wiz’s blog post, Rapaport said, “Joining Google Cloud is essentially strapping a rocket to our back.”
The deal will face regulatory scrutiny, but Google, in our view, will have a stronger case than consumer-focused acquisitions. Google has less than 15% of the cloud services market.
Google-Wiz Deal and Industry-Wide Control
Google’s biggest acquisition during the Biden presidency was the $5.4 billion acquisition of cybersecurity firm Mandiant. The search giant wasn’t the only big tech company to feel the regulatory heat.
Before Microsoft could finally close its $69 billion acquisition of video game publisher Activision Blizzard in late 2023, the company had to endure a 21-month battle with regulators, including an FTC bid to obtain an injunction. The FTC even sued Meta to block its acquisition of virtual reality company Within, although a California district court blocked the FTC’s efforts.
Beyond the challenges to the deals, Meta, Apple, Amazon, and Microsoft have all been accused of antitrust practices by either the Department of Justice or the FTC. In Google’s case, both agencies have taken drastic action.
The FTC will be keeping a close eye on the tech industry, though it has not offered many details. During Trump’s first administration, the president had a particularly hostile relationship with the industry, routinely bashing Amazon founder Jeff Bezos, notably over his ownership of The Washington Post, as well as targeting Meta and Google for their alleged biases against his administration.
These former foes have gone to extra lengths to change the tone this time, whether that means ending diversity, equity, and inclusion programs or marching in Washington for Trump’s inauguration after previously visiting his Mar-a-Lago resort in Florida.
Who is Wiz’s long-awaited bride?
Wiz, which has offices in New York and Israel and opened its European headquarters in London last year, was founded in 2020 by former members of the Israeli Intelligence Corps’ Unit 8200. It has backing from investors including venture capital firms Sequoia, Thrive and Advent International.
Following the acquisition, Wiz will retain its brand and operate independently of Google, mirroring the way Microsoft operates LinkedIn.
Wiz will also continue to partner with and have its products available on all major cloud platforms, including Amazon Web Services, Microsoft Azure and Oracle Cloud. The startup, which was valued at $12 billion last year, is partnering with companies including Morgan Stanley, BMW and luxury goods giant LVMH, among others, in cloud computing.
Google CEO Sundar Pichai said: “Together, Google Cloud and Wiz will accelerate the advancement of cloud security and the ability to use multiple clouds. Today, businesses and governments operating in the cloud are looking for even stronger security solutions and greater choice in cloud computing providers.”
