Is tech M&A back?

Google announced its intention to buy Wiz for $32b today. If approved by regulators, it would be the 6th largest technology M&A ever.

This transaction would make Wiz the 5th most valuable pure-play security company.

For Google, this would be its largest acquisition ever second to Motorola for about $12b. Notably two of the top three acquisitions are security. Mandiant sold for $5.4b.

Why should Google be so interested in security?

Microsoft’s Security Business generates $20b per year in revenue, so the market is large. A similarly sized business for Google, which trades at about 6x forward would create $120b in market cap.

According to press, Wiz is between $500-1b in ARR. Assume revenue is 2/3 of ARR & it’s growing about 70%, which would imply about $850m in forward revenues.

A premium 30x forward revenue multiple would suggest an acquisition price of about $25.5b.¹ Google is paying a 25% premium for an extremely fast growing business in a core strategic cloud segment.

A recent WSJ post highlighted the new FTC chair, Andrew Ferguson’s stance toward anti-trust may be more of the same for hyperscalers, which suggests a regulatory review is likely & a significant break-up fee likely in the terms.

Does this suggest M&A is back in full swing?

Without a doubt it shows major acquirors aren’t dissuaded by the public markets or the potential regulatory hurdles imposed by regulators. And startups are open to receiving premium offers, both of which are key ingredients to a vibrant M&A market.

¹CrowdStrike, growing at 30%, trades at 18x forward.