Wiz Demonstrated Remarkable Courage in Declining Google’s $23 Billion Proposal

Last week brought mixed fortunes for Google, with the cloud division — encompassing both Google Workplace software as a service and Google Cloud infrastructure services — crossing the $10 billion mark in quarterly revenue for the first time. However, this achievement was somewhat overshadowed by the company’s failure to secure what would have been its second acquisition worth over $20 billion in less than a month.

The initial acquisition attempt that fell through involved the speculated purchase of HubSpot, a Boston-based CRM and marketing software firm. Although the exact price was never disclosed, considering HubSpot’s market capitalization is around $30 billion, one can estimate the scale of the deal. This speculation kick-started in April and continued for several months until a report by Bloomberg on July 10 indicated that the two companies decided to part ways.

Shortly after, rumors began circulating that Google had shifted its focus to Wiz, a prominent cloud security startup valued at $12 billion. Google, historically having never spent more than $12.5 billion on an acquisition, was rumored to be offering $23 billion for Wiz, setting a new precedent for startup acquisitions.

Facing such a monumental offer, one might wonder why it wasn’t accepted. Wiz’s CEO, Assaf Rappaport, conveyed to his team via email that he and the other co-founders are aiming for greater heights and are betting on themselves to achieve more.

He expressed, “Despite the attractiveness of the offers we’ve received, we’ve decided to pursue our ambition of growing Wiz. To put it bluntly: our eyes are set on achieving $1 billion in ARR and then going public. Rejecting these generous offers is challenging, but I’m confident in our exceptional team to make this choice.”

Numerous factors could derail a transaction of this size. A source disclosed to TechCrunch following the onset of the rumor that there was a fifty-fifty chance the deal would dissolve, indicating the presence of significant obstacles from the get-go.

Chirag Mehta, an analyst at Constellation Research, outlined three potential reasons for the deal’s collapse: Wiz might be exploring its worth in the market ahead of a potential IPO; Google could have uncovered undesirable findings during due diligence; or the actual offer might have been below the rumored $23 billion. Mehta suggested, “This could provide Wiz a base to generate interest from other entities or bolster its valuation for future funding rounds and an eventual exit,” in dialogue with TechCrunch.

Mehta believes regardless of the specifics, Google needs to revamp its M&A strategy to align with its stature and economic prowess for more effective competition and to meet its objectives for growth and revenue diversity.

Matthew Eastwood, an IDC analyst monitoring Google, pointed out that the complex regulatory landscape also likely played a role in the decision-making process. With many tech giants taking a strategic and cautious stance towards acquisitions due to regulatory and financial reasons, Eastwood speculates Wiz likely chose independence to further increase its valuation.

The attempt to navigate through regulatory approvals can often be longstanding and fruitless, as seen in Adobe’s $20 billion bid for Figma, which was eventually abandoned after a prolonged regulatory review. Eastwood, however, suggests that Google’s offer might have reinforced Wiz’s potential and its prospects as an independent entity, especially if it can organically double its ARR, thereby significantly boosting its valuation.

Eastwood might be on to something, considering Wiz’s rapid growth. The company, launched at the brink of the pandemic in January 2020, quickly became the fastest startup to reach $100 million in ARR, achieving this milestone merely 18 months post-launch. As of May, its ARR stood at around $350 million, with current figures reaching approximately $500 million, according to a knowledgeable source cited by TechCrunch. With plans to reach a $1 billion ARR by next year, accepting a $23 billion deal would have pegged Wiz at 46 times its present ARR and 23 times its expected 2025 ARR.

Wiz’s inception in January 2020 marked a rapid ascent, following the successful security startup venture, Adallom, by the same founders, which Microsoft acquired for about $300 million in 2015. After contributing to Microsoft for more than four years, the founders embarked on the Wiz journey.

Having raised over $1.9 billion since its establishment, as reported by Crunchbase, Wiz’s trajectory has indeed been remarkable. The breakdown of this deal, whether due to Wiz’s reluctance or Google reevaluating its stance, underscores Google’s challenge in consummating large-scale acquisitions, even as it celebrates a triumphant quarter in cloud revenue.

Contributions to this piece were also made by Marina Temkin and Ingrid Lunden.