All the superlatives have by now been spent on the deal whereby Google is buying Israeli cybersecurity startup Wiz for $32 billion: the biggest ever acquisition of an Israeli company, the biggest ever acquisition of a venture-backed startup, and the biggest ever acquisition by Google.
Now, another superlative can be added: a very high multiple on Wiz's unknown revenue. Certainly the company is not close to profitability, otherwise it would surely have gone for an IPO in the very near future.
"It can be understood that Google is under pressure, given the high sales multiple it gave to Wiz, between 45 and 60 times its ARR (annual recurring revenue)," Orel Levy, managing partner of hedge fund Anek Capital, told "Globes."
The numbers of the acquired company are not clear, but are believed to be between $500 million and $700 million. The sales multiple is substantially higher than those of competing listed companies such as CrowdStrike (Nasdaq: CRWD) — 22, CyberArk (Nasdaq: CYBR) — 16, and Zscaler (Nasdaq: ZS) — 12.
Market responds skeptically
Immediately after the official announcement of the acquisition deal and the investor call held by Google, the company's share price fell by 5%, although it rose somewhat after that, and closed off 3.5%, in line with the performance of the Big Tech stocks.
"This is Google's third cyber acquisition, as it aims to close the gap between it and Microsoft, which offers a broader, more comprehensive platform in cloud security," says Levy. "The market is responding skeptically, mainly because of the high deal price. The price essentially reflects recognition of the fact that Google still lags behind Microsoft in this area, which strengthens investors' fears about its strategic shortcomings."
According to details published on The Information website yesterday, Google CEO Sundar Pichai kept in touch with Wiz CEO Assaf Rappaport and other senior managers at the company during the eight months that elapsed between the cancelation of Google's previous acquisition attempt in July last year and the current deal.
According to the report, Google was not the only company interested in buying Wiz, but a few weeks ago it came along with a serious offer that elicited a serious response from the other side. Wiz did not abandon the dream of being acquired (despite Rappaport's talk of a flotation).
It hired a CFO with expertise in mergers and acquisitions, enhanced its own value through acquisitions of other companies, and hired the services of investment bank Goldman Sachs, signaling to the market that it was still for sale.
Google agreeing to take on Wiz as an independent unit that maintains ties with Google's competitors, Microsoft and Amazon, indicates weakness, or simply recognition of the fact that most customers don't use Google Cloud. Google is more keen to buy Wiz than to lock its customers into its cloud.
With a 12% market share, the search giant still lags behind Amazon and Microsoft, which have shares of 30% and 21% respectively.
Google is struggling to close the gap, and is still perceived as a niche player among mid-size and large companies. In a call with analysts about the Wiz acquisition, Google Cloud CEO Thomas Kurian said, "Multicloud is something our customers want. Our commitment to multicloud means that new IT projects an organization does with Google Cloud can work with their existing IT investments, and allows them to choose different vendors for products in the future. Customers don't want to be locked into one vendor."
It may be that, in the era of AI, it isn't important to have a single cloud environment, and that Google recognizes this.
A new era for companies
In the new era, companies work with many cloud environments, and with several language and inference models each of which serves a variety of AI applications and agents, and therefore cloud security, which is where Wiz's expertise lies, is in principle multicloud.
Such tolerance of competing clouds will certainly make it easier for Google to overcome the regulatory hurdles facing the acquisition, which will be taken seriously by the authorities in the US and Europe but which are not expected to be the obstacle they would have been under the Biden administration.
Wiz took care of compensation in the event that the hurdles are not overcome. Should the deal fall for any reason, it will receive 10% of the price, $3.2 billion.
Shachar Cohen, founding partner of hedge fund Lucid Capital, adds that Google is at a crossroads, with problems on several fronts at once.
"In artificial intelligence, its competitors benefit from broad utility — all of OpenAI's inference activity is on Microsoft Azure servers, while Amazon benefits from open source models such as Llama and DeepSeek, and closed source models such as Claude, which has become a popular product among software developers.
Bread and butter under threat
"Few entities run models on Google, so in artificial intelligence too the company is being left behind. But Google's concerns don't just arise from cloud deals, which are a big growth engine, but also from its bread and butter, advertising.
Potential competitors in that area such as Perplexity and OpenAI are coming up with advertising-based search engines and signing deals with computer manufacturers to install them as defaults, and Meta is due to launch an intriguing search engine that could threaten Google's soft underbelly.
The agreement between Google and Apple on integrating its search on iPhones is under challenge in the courts, and if Google's monopoly in smartphones unravels, that will be a severe problem for it."
