When a mega M&A is DOA

Wiz has left Google at the M&A altar, walking away from a $23 billion deal.

While the company was “flattered by [the] offers we have received,” it decided to go it alone, Wiz’s CEO Assaf Rappaport said in a note to team members, teasing a path to the public markets. “Next milestones are $1 billion in ARR and an IPO,” he added.

Implications for the ecosystem? Many of the lessons Topline highlighted last week still stand, but this about-face, which happened in the same week that Wiz rival Crowdstrike had its operatic glitch, begs a whole new set of questions.

Why the snub?
It would be irresponsible to not consider a $23B offer for a company that’s barely 4 years old, but the final decision requires a comprehensive risk-reward analysis, and some soul searching.

Khan touch this
When thinking of risk, the number one consideration here was the FTC. Big Tech has had a torrid time trying to get acquisitions done since Lina Khan took over at the watchdog, and the gutsy few who still attempt it are signing up for a long and painful process.

By moving ahead, Wiz’s CEO would be signing the company up for a 1-2 year-old cavity check that has been known to wreck management teams. And if the deal were blocked, the distraction could have cost them their category-leading perch. Considering that Wiz thinks of cybersecurity as a “winner takes all” market, that’s a big risk to take.

The Figma-Adobe case would have been top of mind. Figma plays in a space that at the time Adobe tried to acquire them was just a $30M/year business unit for Adobe, i.e. insignificant. It wouldn’t have made any difference to the competitive landscape, and yet the FTC blocked it.

Introspection
Important to note that the Wiz founders have had a $350M exit before. That company was acquired by Microsoft, and its product, today known as Microsoft Defender, does $20B in ARR. With that kind of track record, the founders likely think they have what it takes to now take a crack at building a world-class public company.

Thirst for liquidity
Jason Lemkin (check out our Topline episode with Jason) calls the situation in venture “a disaster” because we have now had “3 years of no liquidity.’ He considers the aborted Wiz deal ‘the end of big M&A,’ and I tend to agree unless there is a regime change at the FTC.

Another source of liquidity is the public markets, but IPOs have been few and far between. The bar for a tech company to go public is extremely high at the moment – some analysts believe a firm needs to be at $500M+ in ARR with 30% YoY growth.

There are companies who meet this criteria, such as OneStream, which IPO’d on July 24, popping 34% on the first day of trading. The pipeline of companies looking to go public has been building up, and with rate cuts on the horizon it could gain further momentum.

Also, while big M&A might be dead, small and medium M&A is another story. In the last 4 quarters, 557 deals have taken place, per Carta.

“M&A has not filled the gap in exits left by a lack of IPOs,” Carta added, but it might have been an unreasonable ask to begin with: with 140+ deals in BOTH Q1 and Q2, transaction volumes are the highest they’ve been since 2020, except for a spike between late 2021 and early 2022.

So while the Wiz deal would have released some built up pressure, the liquidity situation is trending in a positive direction. I for one am energized by this trend, and by Wiz’s decision to try and go big, which is a decision every great tech company – from Google to Microsoft – had to make at some point.