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Alphabet (GOOG -3%) slides to six-month lows as it is swept up in the broader sell-off today and encounters a relatively adverse reaction its announcement to acquire cybersecurity startup Wiz for $32 bln. Midway through last year, Wiz said no to Google's initial offer, which, at the time, reached $23 bln. The offer would have already made it the tech firm's largest ever, let alone stepping it up to $30 bln.

Last year, instead of being absorbed by Google, Wiz was seeking to go public while aiming to achieve $1.0 bln in annualized recurring revenue (ARR) by the end of 2025. Furthermore, regulatory barriers were elevated, especially surrounding Google, which dealt with an antitrust ruling finding that the company illegally maintained a monopoly on search. That is not to say that regulatory scrutiny has died down. In January, the Department of Justice under the Trump administration sued to block Hewlett Packard Enterprise's (HPE) $14 bln acquisition of Juniper Networks (JNPR), illustrating a potentially tougher stance on Big Tech M&A than the markets may have thought. Google could encounter similar hurdles when purchasing Wiz.

• However, there are several reasons to like Google's purchase of Wiz. Unlike other cybersecurity firms, Wiz focuses exclusively on cloud security. This tailored approach has proved a compelling competitive advantage as Wiz already touted $500 mln in ARR last July when Google was initially seeking to purchase the firm despite being founded just four years earlier. In fact, Wiz stated in late 2022 that it was the fastest startup to scale to $100 mln in ARR.
• Wiz already partners with prominent hyperscalers, such as Amazon (AMZN) and Microsoft (MSFT), which is a testament to its cybersecurity technology. Given how fast Wiz has been expanding its revenue, Google is likely feeling squeezed to get a deal done now before valuations become even more stretched. Wiz was reportedly valued at around $16 bln last year.
• The addition of Wiz would also immediately make Google a meaningful contender in the cybersecurity market. Furthermore, given Google's R&D and other proprietary technology, including AI, Wiz's tools could be enhanced to unlock further growth.

Still, at a 32x estimated ARR valuation, Google is accepting a hefty premium associated with acquiring Wiz. Additionally, regulatory hurdles may ultimately lead to the deal falling through. Lastly, given the ongoing market pullback, investors may continue to avoid Google until economic uncertainty eases, keeping selling pressure elevated.