Cloud security company Wiz, the most valuable Israeli privately-held company with a valuation of $12 billion, has today announced it is acquiring Israeli unified security remediation company Dazz, which was cofounded by CEO Merav Bahat, one of Wiz CEO Assaf Rappaport's closest friends from when they worked together at Microsoft. Both entrepreneurs, Rappaport and Bahat, have invested in each other's companies and share investors in common including Gili Raanan's Cyberstarts, Insight partners, and Index Ventures who are all gaining value from this deal.
No financial details were disclosed about the size of the deal but sources believe that Wiz is paying $450 million in cash and Wiz shares. This is close to the valuation Dazz was given when it raised $50 million in July from existing investors. Dazz has raised $110 million since it was founded four years ago, so this is a reasonable return for most investors in the company. It also shows that Dazz had to raise huge sums to finance its growth. In addition, the fact that its most recent round was from existing investors indicates that the increase in the company's valuation from $220 million in 2021 to $400 million this summer did not have to be with the consent of a new investor. That a significant component of the deal is in exchange for Wiz shares indicates that investors have confidence in Wiz's continued growth, but also that Wiz needs the cash it has raised for further growth.
There is also much business logic behind the deal. The two companies share common clients such as Priceline and Blackstone, and serve the same security teams at the tech giants. While Wiz built a platform that allows data security managers at companies to simply connect cloud applications – such as Salesforce, HubSpot or Microsoft – and secure them, Dazz's platform identifies security weaknesses in applications developed within those organizations and enables them to be secured.
Wiz recently raised $1 billion for acquisitions to become a platform offering a wider range of cybersecurity products for the cloud and to compete with big rivals like Palo Alto Networks and CrowdStrike. To this end, it acquired two Israeli companies earlier this year: Raft, for an apparently small sum, and Gem Security for $350 million. The two companies work together and have teams that collaborate with each other, although Dazz also works with its competitor Palo Alto Networks, and will likely continue to do so, even after the acquisition. Last July, the two CEOs Bahat and Rappaport held a gala dinner for the US cybersecurity industry in Salt Lake City.
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Although the two companies are synergistic with each other, it is unclear if due diligence was conducted in which Wiz scanned the market for companies suitable for acquisition in the segment in which Dazz operates, nor is it clear if Dazz undertook the reverse process. The companies did not respond to "Globes" regarding any due diligence prior to the acquisition.
Dazz began sales in 2022, and had several million dollars revenue last year. The company's annual revenue rate (ARR) is believed to have crossed the $10 million mark earlier this year. Assuming ARR is about $15 million, the acquisition is for a multiple of 30 times sales. Representatives of Wiz and Dazz declined to provide Globes with financial details about the deal. Dazz declined to provide details about its sales and valuation.
The biggest beneficiaries of the deal are early investors, Greylock and Cyberstarts, one of the dominant investors in Wiz, which invested $10 million in Dazz in its early stage, at a valuation of $16 million. Insight Partners also holds a similar stake after leading the company's second round of funding in 2021. Insight Partners sold a large stake in Wiz earlier this year as part of its efforts to raise its 13th fund, apparently after negotiations for its acquisition by Google for $23 billion fell through.
Each of the three funds is estimated to own about 15% of Dazz, while other investors such as Index, and private investors such as Assaf Rappaport himself are estimated to own another 20%. The founders Bahat, along with Tomer Schwartz and Yuval Ofir – are estimated to own about 20% of Dazz's shares, and the 125 employees (50 of whom are in the US) are estimated will rake in over $60 million on the 15% they own. This is an average of $500,000 per employee.
Bahat did not come from the same background from which most cybersecurity experts in Israel emerge. She did not serve in 8200 or any of the elite IDF intelligence units. Bahat was born in Beersheva, and served in the IDF Givati Division, before enrolling in industrial engineering and management studies at the Technion. She served in senior product management positions at companies such as Comverse, and communications company Flash Networks, where she was chief product officer.
The turning point in her career began when she became product director in Microsoft Israel's cloud security group, where she worked alongside Rappaport, who was head of cybersecurity in Israel – a division established after the acquisition of Adallom, the startup he founded, by Microsoft. Rappaport became general manager of Microsoft Israel R&D and Bahat became his deputy with both reporting separately to managers of Microsoft's cloud division in the US, including Bharat Shah, then Microsoft VP and head of the Azure cloud operation. Rappaport left his position in early 2020 to found Wiz, while Bahat stayed until the end of the year, then left to found Dazz. Bahat and Rappaport continued to maintain good relations even after Microsoft. Bahat invested a modest amount in Wiz at its founding, while Rappaport later invested in Dazz.
Wiz pulled out of its large acquisition by Google, in order to move ahead with an IPO. It claimed that it wanted to become a company that generates annual revenue of $1 billion. Meanwhile, Wiz is still a company without a senior and experienced CFO, carrying out deals that in the publicly traded world would be called "party-at-interest," simply because they share a long list of joint investors. Senior sources in the cybersecurity industry say that a company planning an IPO must work with greater transparency towards the public and media. Both companies are incorporated in Delaware in the US and operate R&D offices in Israel.
Bahat dismisses any criticism of the acquisition. "The deal was born from requests from joint customers," she tells Globes. "Instead of dealing with two suppliers, from now on they will deal with one company. Of course, our investors, like Gili Raanan, are familiar with the details of the deal, but none of them "pushed" for it to happen – the deal is good and will serve customers, investors, and the founders. The relationship between Dazz and Wiz is very professional and based on appreciation of their team, which is exceptional."
Earlier Bahat said in a press release, "Exposure management and remediation are top priority for cybersecurity teams across the industry, from Fortune 500 companies to high-growth businesses. Our team’s commitment to solving real customer needs, combined with unparalleled technology, has translated into Dazz’s hyper growth over the years. We’ve revolutionized this space with innovations centered on prioritization, root-cause analysis and AI remediation capabilities. Now, we are excited to join Wiz to pursue the shared mission of simplifying cloud remediation, while building the world’s leading cybersecurity company together."
Rappaport said, "Wiz has always been committed to empowering organizations to genuinely improve their security posture-not just to report on risks, but to prioritize and resolve them. Dazz is a powerful addition to Wiz’s mission, bringing an industry-leading solution that’s gained strong market momentum through relentless innovation and AI-driven capabilities. The talented team at Dazz has already collaborated closely with Wiz, and we’re thrilled to deliver this unified offering to our customers, marking a new era in application security and vulnerability management."
Published by Globes, Israel business news – en.globes.co.il – on November 21, 2024.
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