Money talks, as they say, but even $23 billion of it did not convince the founders of Wiz Inc to sell the business to Alphabet Inc, parent of Google.
Wiz, a New York-headquartered cybersecurity company that until recently would have been confused with a Hungarian low-cost airline or the name of a rapper, has apparently made the mother of all jiujitsu moves against the acquisitive tech giant. It has walked away from what would have been Google’s biggest-ever purchase two months after the start of talks.
In a memo to Wiz employees, Wiz’s co-founder Assaf Rappaport said Google’s offer was “humbling,” but the company wanted to focus on growing its recurring revenue to $1 billion (it is currently at $550 million) and pursue an initial public offer at some point.
Cue frustration among Wiz employees who likely aren’t thrilled about missing out on a big payday. The fallout may be worse for Google, which is floundering in its efforts to bolster its cloud business and catch up with Amazon.com and Microsoft Corp, its principal rivals in this market.
This is the second time in a month that Google has lost out on such an acquisition. Earlier in July, the company ended its efforts to acquire HubSpot Inc, a customer-relationship management software maker that would have helped it compete with Microsoft, Oracle Corp and Salesforce Inc, in another mega deal.
Though its unclear why that deal fell apart, it likely would have attracted antitrust scrutiny at a time when Google already faces a lawsuit from the US Justice Department over its dominance in search and advertising.
Wiz’s rejection, combined with the testy regulatory environment, puts Google in an even more awkward position in its effort to grow its cloud business, which has 11% of the market behind Microsoft’s Azure (with 25%) and Amazon’s AWS (the leading player with 31%), according to Synergy Research Group, a market intelligence firm. But grow it must, as the company’s longtime reliance on advertising leaves it exposed to slowing growth or interest-rate hikes.
Acquisitions are the way to go, since Google has a spotty history in turning its own innovations into lucrative products. Remember, Google researchers invented the Transformer, for instance, but it was OpenAI that first commercialized it successfully. ‘Transformer’ is the T in ChatGPT. Two years ago, Google managed to buy cybersecurity firm Mandiant for $5.4 billion.
The addition of Wiz, which specializes in cybersecurity for cloud-based applications, could have rounded out that security offering and given Google Cloud a strong selling point against its bigger competitors. Google didn’t respond to requests for comment.
Wiz will have its own price to pay for the snub. According to people close to the company, its founders haven’t walked away from Google as a negotiating tactic, but genuinely want to become as big as rival Palo Alto Networks Inc, which similarly has Israeli founders, went public in 2012 and has a market cap of $100 billion.
Wiz’s founders previously sold a security company to Microsoft for $320 million and are already multi-millionaires who aren’t lured by the prospect of a sudden jump in personal wealth, or keen on being plugged into a legacy tech giant, two people close to the company tell me.
Fine, but in the meantime, many of Wiz’s engineers will be disgruntled at having lost out on a windfall. Snubbing an acquirer isn’t unheard of in Silicon Valley. Mark Zuckerberg said ‘no’ to $1 billion from Yahoo in 2006, and the founders of Snap Inc declined $3 billion in 2013 from Zuckerberg. But $23 billion is an entirely different conversation.
A founder of WhatsApp once explained to me that when Zuckerberg came to him with a $19 billion takeover offer in 2014, the Facebook billionaire “made us an offer we couldn’t refuse.”
The WhatsApp founders surmised that if they rejected the offer, they’d face a revolt from their staff. Of course, WhatsApp’s tiny workforce of 50 stood to become multi-millionaires, and Wiz has a larger staff of 1,200—but they are still missing a life-changing payout.
Appeasing Wiz’s employees in Israel will be especially tricky, given that many local tech-sector workers have been leaving the country, and Israel is where some of the world’s best hackers reside, thanks to the country’s mandatory military service that often involves cybersecurity training.
It’s hard to overstate how audacious Wiz appears by leaving $23 billion on the table, but it does leave both companies in a something of a bind.
Google must find another route to augmenting its lagging cloud business. Wiz must also live up to the high expectations it has set for itself. ©bloomberg
