From: allin
Google has acquired the cloud security company Wiz for $32 billion in cash, marking the largest deal in Google’s history [00:33:00]. This acquisition is seen as a “starters pistol” for mergers and acquisitions (M&A) in the tech industry [00:32:56].
About Wiz
Wiz provides security services that operate across multiple cloud platforms, including Microsoft’s Azure, Amazon Web Services, Google’s Cloud, and Oracle Cloud [00:33:06]. The company demonstrated significant growth, going from zero to 500 million, and it is projected to hit $1 billion in ARR this year [00:49:51].
The acquisition price represents roughly 60 times their current run rate, or 30-32 times their forward-looking projection [00:50:00].
Prior Acquisition Offer and Breakup Fee
Wiz had previously turned down a $23 billion offer from Google, citing desires to IPO [00:33:58]. Reports now suggest that the rejection was due to antitrust concerns under the Biden administration and in the UK [00:34:08].
The current deal includes a substantial breakup fee of $3.2 billion in cash, which Google would pay to Wiz if the acquisition does not go through [00:49:28]. This fee is 10% of the deal size [00:49:33].
Strategic Rationale for Google
The acquisition is seen as a strategic move for Google, which has been lagging in the cloud market compared to Microsoft and Amazon, whose cloud revenues are around 40 billion annually [00:50:26].
The deal employs a “beachhead” strategy, where acquiring Wiz allows Google to:
- Cross-sell: Integrate Wiz’s security product into its existing customer base and offer additional Google Cloud services to Wiz’s customers [00:51:10].
- “Trojan Horse” into other clouds: Wiz’s value comes from its multi-cloud capabilities across Azure, GCP, and AWS. This allows Google to gain customer traction and visibility into workloads in competing cloud environments, potentially pulling these workloads back to GCP [00:53:01].
Wiz’s strength lies in its exceptional “taste” and design, making its product intuitive, beautiful, and well-integrated, which allows it to create significant value even in a market with other products [00:37:08].
Financial Implications for Google
With a Return on Invested Capital (ROIC) of approximately 30%, Google expects to generate about 30% of incremental profit per year from capital investments [00:52:04]. To justify the 10 billion in annual profit [00:52:31].
Impact on M&A Landscape
This acquisition suggests a shift in the M&A environment, possibly indicating a “Trump premium” where a more open-minded administration may be more permissive of tech M&A [00:36:05]. Previous attempts at large tech acquisitions, like Adobe’s acquisition of Figma, were blocked in the UK [00:33:51]. The deal could also encourage companies to build goodwill by volunteering to develop software for the government, potentially easing regulatory scrutiny [00:36:08].
From a venture capital perspective, Wiz represents a “contrarian investment” as security was an underinvested category when the initial investment was made [00:56:44]. The acquisition is believed to be the largest exit ever in the security space [00:57:08]. It also highlights the strategy for VC firms to continue investing in high-growth outliers within their existing portfolios [00:56:04].