Last week, Google had both good and bad news. The good news is that for the first time, the cloud business made $10 billion for the quarter. This includes Google Workplace software as a service and Google Cloud infrastructure services. With that, it must not have been as painful to miss out on its second possible $20 billion purchase in less than a month.
The first deal that didn’t go through was the long-rumored one to buy HubSpot, a CRM and marketing software company based in Boston. We never got a price for that, but the market value of the company is around $30 billion, so you can figure it out. In April, the rumour began, and it stuck around for a few months. On July 10, Bloomberg revealed that the companies were really splitting up.
Again, it wasn’t long before another rumour spread that Google was interested in Wiz, the hot cloud security company worth $12 billion. Google supposedly wanted to buy Wiz for $23 billion, which would be the best deal ever for a startup. Google has never paid more than $12.5 billion for an acquisition.
If the rumoured number was close to the truth, why would any company back out of such a huge deal? In an email to Wiz workers, CEO Assaf Rappaport said that he and his co-founders were ready to take a big risk because they think the company can grow even more.
Even though the offers we’ve gotten have made us feel good, we’ve decided to keep building Wiz. To get right to it, our next big goals are an IPO and $1 billion in ARR. It’s hard to say no to such humble offers, but I’m sure our great team will help me make that decision.
There are many reasons why a deal this big could fall through. As soon as the rumour spread, a person told Parhlo World that there was a 50% chance the deal would fall through. This shows that there were a lot of problems from the start.
This is what Chirag Mehta, an expert at Constellation Research, thinks could have gone wrong with the deal: Before a possible IPO, Wiz wanted to look around because it thought it could get even more than $23 billion. Either Google didn’t like something it found during its due research, or the price was less than the rumoured $23 billion. Mehta told Parhlo World, “Wiz could then use this baseline to get other companies interested in an M&A deal or even for future VC rounds that could lead to an exit.”
He thinks Google needs to change its M&A unit to match its size and financial strength, no matter what the reason is. “Google will have to completely change how they do mergers and acquisitions (M&A) and how they do business in order to compete effectively and meet their growth and revenue diversification goals.” “Even though they are one of the biggest companies in the world, their mergers and acquisitions strategy has not changed to match,” he said.
The rules and regulations in place could have also played a role in the choice. It’s also important to keep in mind that the market is complicated, and many tech companies are being more strategic and cautious about acquisitions because of financial and regulatory issues, said Matthew Eastwood, a Google researcher at IDC. “However, I think Wiz may have pulled away instead of Google because they see more value-boosting opportunities by staying separate (for now).”
The companies could have wasted a lot of time and energy waiting for officials to decide on the deal. This is similar to what happened to Figma when Adobe’s $20 billion offer got stuck in regulatory purgatory for more than a year. Eventually, both sides gave up and walked away.
Eastwood, on the other hand, says Wiz might have seen Google’s offer as proof that it would be better to stay independent. “Wiz is a hybrid cloud data security plan that is growing quickly. If they can double their ARR on their own, I think their market value will go up by a lot more than doubling.”
He might be right. Not only did Wiz hit $100 million in ARR 18 months after launch, it was the fastest startup ever to do so. The company told everyone in May that its ARR was around $350 million. Someone who knows about this told Parhlo World that the ARR is now around $500 million.
The person said that the company wants to reach $1 billion in ARR next year. If a deal had been made for $23 billion, Wiz would have been worth 46 times its present ARR and 23 times its expected ARR in 2025.
The company Wiz was started right before the pandemic in January 2020, and it took off like a rocket. The founders had already been successful with a security company called Adallom, which they started in 2012 and sold to Microsoft three years later for about $300 million. The founders stayed at Microsoft for more than four years before leaving to start Wiz.
Crunchbase says it has raised more than $1.9 billion since it began.
Also Read: Wiz Turns Down Google’s Offer to Buy the Company for $23b: Read the Note From the Ceo to the Staff
That Google still has trouble finishing big deals is true no matter what caused the deal to fall through—whether it was Wiz or Google changing its mind. Even though having a good cloud quarter and a $40 billion run rate is great, M&A could still help propel that growth even further.
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