Alphabet, the parent company of Google, is reportedly negotiating again for the acquisition of the Israeli cloud security startup Wiz, this time with the potential price tag soaring to $30 billion. This development follows previous talks last summer when the companies nearly reached a $23 billion deal, which fell apart due to various concerns.
Leading these renewed negotiations is Thomas Kurian, head of Google Cloud, who believes Wiz's innovative products could significantly benefit their customer base. Observers note Google's eagerness, particularly as it continues to contend against competitors like Microsoft and Amazon for leadership in the cloud technology security space.
Last July, Wiz reported annual recurring revenue (ARR) of $500 million, with projections indicating it could surpass $1 billion by 2025. These figures underline Wiz's growth potential, making it increasingly appealing to Google as they strive to fortify their cloud security offerings.
Wiz had closed its last external funding round this past May, raising $1 billion at the company's valuation of $12 billion. Remarkably, by the end of last year, the startup's valuation had jumped to $16 billion, illustrating the rapid growth the company has experienced.
Founded by four former Israeli military personnel, Wiz has gained traction swiftly since its 2020 inception. The founders—Aasaaf Rappaport, Ami Luttwak, Yinon Costica, and Roy Reznik—currently hold about 40% of the company's shares, and as tax residents of Israel, they will likely contribute significantly to the tax payments if the deal goes through.
While Wiz has stated it is not planning to go public (IPO) anytime soon, it has made strategic moves by hiring Fazal Merchant as its CFO, indicating preparations for future financial maneuvers, possibly even public listing at some point.
Despite the promising outlook for the deal, earlier negotiations stumbled on differing opinions on Wiz's structural integration post-acquisition. According to reports from the Wall Street Journal, there was contention over whether Wiz would operate as its own entity or be folded directly under Google Cloud's umbrella. While initial talks ended with the official reasoning pointing to regulatory concerns, CNBC reported the decision by Wiz's management to focus on their initial capital-raising ambition via public offerings played a significant part.
With increasing competitiveness and pressure from regulatory bodies, the future of such mergers remains uncertain. Observers have cited heightened scrutiny from American and European regulators during the Biden administration, making large mergers subject to thorough examination. Nevertheless, the environment is shifting, with hopes rising among investors for more favorable conditions from regulatory authorities compared to previous standards under the leadership of Lina Khan.
The potential acquisition stands as not only significant for Google and Wiz, but also for Israel, which is expected to receive billions of dollars from taxes due to the substantial gains from the sale, should it proceed. This bears considerable economic weight and promotional benefits for the tech ecosystem within the country.
Companies and individuals not classed as Israeli tax residents would not be liable to pay tax on the deal, according to existing tax laws, which adds another layer of complexity to the equation as negotiations progress.
The stakes are high, as Wiz's growing influence and value on the global stage resonate with early investors, including notable firms like Andreessen Horowitz, Cyberstarts, Index Ventures, Greenoaks, Insight Partners, and Sequoia. Each backer remains attentive to the outcome of the negotiations, which could reshape the market dynamics significantly.
With the dialogue continuing and stakeholders remaining engaged, the tech community is closely monitoring developments as they prepare for the possibility of one of tech's considerable acquisitions coming to fruition. Indeed, with conversation reigniting around the negotiations, only time will tell if this investment will prove beneficial for all involved, or if regulatory challenges will halt the renewed discussions.
The next steps for both Alphabet and Wiz will be pivotal, shaping the future of cloud security not only for their objectives but also for diverse stakeholders involved across the globe.
