Last week, Google had mixed news. The good news was its cloud division, including Google Workspace and Google Cloud services, reached a significant milestone by generating $10 billion in quarterly revenue for the first time. The bad news? Google missed out on another potential acquisition worth over $20 billion within a month.
The first missed opportunity was the rumored acquisition of HubSpot, a Boston-based CRM and marketing software company, whose market cap hovers around $30 billion. After months of speculation, Bloomberg reported on July 10 that the companies decided to part ways.
Shortly after, another rumor emerged: Google had its sights set on Wiz, a rapidly growing cloud security startup with a $12 billion valuation. Reports suggested Google offered a staggering $23 billion for Wiz, marking it as one of the most lucrative deals ever proposed for a startup.
So, why did Wiz walk away from such an enticing offer? In a message to employees, Wiz CEO Assaf Rappaport explained the decision, emphasizing the company’s belief in its potential to grow even bigger. “While we are flattered by offers we have received, we have chosen to continue on our path to building Wiz. Our next milestones are $1 billion in ARR and an IPO. Saying no to such humbling offers is tough, but with our exceptional team, I feel confident in making that choice.”
Deals of this magnitude often face numerous challenges. A source indicated there was only a 50% chance the deal would succeed from the start, signaling potential hurdles.
Chirag Mehta, an analyst at Constellation Research, proposed three possible reasons for the deal’s collapse: Wiz might have been exploring better offers before a potential IPO, Google could have found issues during due diligence, or the actual offer might have been less than the rumored $23 billion. “Wiz could use this baseline to create M&A interest from other players or for future VC rounds leading up to a possible exit,” Mehta suggested.
Mehta also pointed out that Google needs to revamp its M&A strategy to align with its size and financial strength. “To compete effectively and meet their growth and revenue diversification goals, Google will have to overhaul their entire M&A approach and operations,” he stated.
Regulatory concerns could have also played a role. Matthew Eastwood, an analyst at IDC, noted the complex market environment. “Many tech firms are adopting a more strategic and cautious acquisition approach due to regulatory and financial constraints,” he explained. Eastwood believes Wiz likely pulled away because they see greater potential in staying independent for now.
Eastwood further suggested that Google’s offer might have validated Wiz’s strategy. “Wiz is a fast-growing hybrid cloud data security platform. If they can double their ARR organically, their market valuation will rise significantly,” he said.
Wiz has indeed shown remarkable growth. It was the fastest startup to reach $100 million ARR, hitting the milestone just 18 months after its launch. In May, Wiz announced its ARR was around $350 million, and according to a source, it now stands at approximately $500 million. The company aims to achieve $1 billion ARR next year. If Google’s $23 billion offer had gone through, it would have valued Wiz at 46 times its current ARR and 23 times its projected 2025 ARR.
Founded in January 2020, just before the pandemic, Wiz took off rapidly. Its founders previously founded Adallom, a security startup sold to Microsoft for around $300 million in 2015. They stayed with Microsoft for over four years before leaving to start Wiz, which has since raised over $1.9 billion
Regardless of why the deal fell apart, it highlights Google’s ongoing challenges in closing significant acquisitions. While a successful cloud quarter and a $40 billion run rate are positive, effective M&A could accelerate that growth even further.
