Google’s cloud division had a successful quarter, generating $10 billion in revenue for the first time. However, the company faced setbacks in its acquisition attempts. The first potential acquisition was HubSpot, a CRM and marketing software company, but the deal fell through. The second attempt was with Wiz, a cloud security startup with a $12 billion valuation. Google reportedly offered $23 billion for Wiz, which would have been the largest deal ever proposed for a startup. However, Wiz decided to turn down the offer, believing that it could achieve even greater success on its own.
There are several reasons why the deal with Wiz may have failed. One possibility is that Wiz wanted to explore other options before potentially going public, as it believed it could receive a higher valuation than $23 billion. Another reason could be that Google discovered something during the due diligence process that made it hesitant to proceed. Additionally, the actual price of the deal may have been lower than the rumored $23 billion. Regardless of the specific reason, some analysts believe that Google needs to revamp its M&A approach to match its size and financial strength.
The regulatory environment may have also played a role in the decision. Many tech firms are taking a more cautious approach to acquisitions due to regulatory and financial constraints. Waiting for regulators to approve a deal can be a lengthy process, as seen with Adobe’s failed acquisition of Figma. It’s possible that Wiz and Google did not want to go through a similar ordeal.
However, Wiz may have seen Google’s offer as validation to remain independent. The company has experienced rapid growth, becoming the fastest startup to reach $100 million ARR (annual recurring revenue). Its ARR is currently around $500 million, and it aims to reach $1 billion next year. If the deal had gone through at $23 billion, Wiz would have been valued at 46 times its current ARR and 23 times its projected 2025 ARR.
Wiz was founded in January 2020 and has already raised over $1.9 billion in funding. Its founders previously had success with another security startup, Adallom, which was acquired by Microsoft. Despite the failed acquisition attempts, Google’s cloud division continues to perform well. However, the company may need to reassess its M&A strategy to accelerate its growth even further.
