Will Google's $23 billion Wiz acquisition fuel an M&A boom and reignite the Israel debate?

Google parent Alphabet said it would make its largest-ever $23 billion acquisition offer for cybersecurity cloud software company Wizz, potentially shaking up the mergers and acquisitions industry that dominates a struggling tech market in 2023.

But the deal could also spark new protests following the company's contract with the Israeli government during the Gaza war, which led to employee firings. Wizz was founded in Israel and is now headquartered in New York, but most of the company's engineers still work in Tel Aviv. The Times of Israel reported in February that Wizz has about 900 employees worldwide, including 150 in Israel, and plans to increase its workforce by 400.

The potential M&A bonanza, first reported by The Wall Street Journal on Sunday, citing anonymous sources, could signal that tech companies are pursuing deals despite persistently high interest rates and a broader tech sector slump.Wizz's outlook has soared since the company's 2020 founding, with annual recurring revenue (ARR) expected to reach $350 million in 2023.

Reuters, citing anonymous sources, reported that the acquisition will be primarily funded with cash. Google's latest financial report showed that it expects revenue of more than $79.9 billion in the first quarter of 2024, up more than $10.5 billion from the same period in 2023. Google also reported that it has $108.09 billion in cash on hand. According to the New York Times, Google Cloud CEO Thomas Kurian orchestrated the acquisition of Wizz.

Related: Google bows to EU antitrust pressure and changes data practices

M&A could change Google Cloud strategy

Chris Pearson, CEO of executive cybersecurity firm BlackCloak, said in an interview with InformationWeek that Google's move may signal a new strategy for tech M&A deals: Instead of focusing on acquiring struggling companies or smaller intellectual property interests, Google is looking at deals that can restructure the company.

It's a move for Google that solidifies its position as a cloud powerhouse for decades to come, Pearson said. “It's very smart and very well timed. And it shows that the market is completely open and deals are happening, which is a good sign for the entire cybersecurity economy.”

Chris Stafford, an M&A expert at business and technology consultancy West Monroe, calls the deal the company's biggest move yet in the cloud cybersecurity space. In an interview with InformationWeek, he said the company's ambitions are clearly big. The $23 billion price tag is nearly double the company's valuation just a few months ago, when it raised $1 billion in venture capital at a valuation of $12 billion.

Related: Tech M&A value to plummet 55% in 2023: Report

Of course, any agreement would depend on strengthening antitrust approval worldwide — and Google is already embroiled in an antitrust lawsuit by the U.S. Department of Justice — and the EU has taken a tougher stance on antitrust, signaling its willingness to take on big tech companies as it seeks to cement its position as a leader in global tech regulation.

But Blackcloak's Pearson thinks Wizz's unique position could create a business that doesn't attract antitrust heat. “Wizz is working on a very specific, deep-rooted technology that can advance certain aspects of the overall Google Cloud platform. We think that's really category-defining and will set it apart from other deals that are attracting more regulatory attention,” Pearson said.

Possible dispute over Israeli ties

In April, some Google employees staged sit-ins at offices in New York and California over the company's involvement in $1.2 billion Project Nimbus, a 2021 contract with Amazon to provide cloud computing and artificial intelligence services to the Israeli government.

To break up the sit-in, Google called in the police, who arrested the protesters, and according to No Tech for Apartheid, the group that organized the protest, the arrests have resulted in the firing of more than 50 employees.

Related: 5 Big Cloud Security Deals That Will Shape the Industry in 2023

Wiz still has strong ties to Israel: Before founding Wiz, the company's four founders — Assaf Rapaport (current CEO), Ami Luttwak, Yinon Kostika and Roy Resnick — served in the Israel Defense Forces' elite intelligence unit, Unit 8200. If the valuation holds up, the four founders stand to make $2.3 billion each, Haaretz reported.

According to Israeli business news site Globes, Israel stands to earn at least $2.5 billion in tax revenue from the acquisition, not just on the founders' profits but also on those of other Israeli shareholders.

In a post on X (formerly Twitter), New York Rep. Ritchie Torres said the purchase would be a vote of confidence in Israel — a $23 billion middle finger to BDS. [Boycott, Divestment and Sanction] It was a movement against the Jewish state, he wrote.

Google's stance on the protests

In an April blog post, Google and Alphabet CEO Sundar Pichai said the company puts its mission above politics: “We have a culture of robust and open debate. But ultimately, we're a workplace, and our policies and expectations are clear. This is a business, not a place to disrupt or make colleagues feel uneasy, to try to use the company as a personal platform, to fight over confusing issues, or to discuss politics.”

In a press release, No Tech for Apartheid accused Google of trying to intimidate its employees and stifle free speech. Google's objective is clear: The company is trying to stifle dissent, silence its employees and reassert power over them, a spokesperson said.

InformationWeek has reached out to Google and Wiz for comment on the potential acquisition and will update if we hear back.

InformationWeek will also be reaching out to No Tech For Apartheid, which aims to divest companies from Israeli interests surrounding the Gaza war, to provide an update.

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