Alphabet, the parent company of Google, is reportedly in advanced talks to acquire cybersecurity startup Wiz for a staggering $23 billion. This potential deal would mark Alphabet’s largest acquisition to date and could have significant implications for the startup M&A market.
The acquisition of Wiz could serve as a catalyst for the startup M&A market, which has been sluggish in recent years. The fear of being the first to make a move has hindered M&A activity, but a deal of this magnitude could revitalize the market. According to PitchBook data, there were 356 startup acquisitions in the U.S. in the first half of 2024, indicating that this year may not surpass the number of deals seen in 2023 (771 acquisitions). However, it’s worth noting that the Wiz acquisition may not have a significant impact on the current liquidity crunch faced by large late-stage startups, as only a few companies have the financial capabilities to make such large acquisitions.
Apart from the potential effects on the M&A market, the acquisition could also impact venture fundraising. The data from PitchBook indicates that U.S. venture firm fundraising is on track to end the year below the total raised in 2023 ($81.5 billion), which was already a significant drop from 2022 ($191.3 billion). The lack of exits has made LPs (Limited Partners) more hesitant to invest capital in the current environment. However, if the Wiz acquisition goes through, it could alleviate some of these hesitations. Wiz is only four years old, while the average late-stage startup in the U.S. is over 12 years old. This acquisition could not only change the numbers but also provide VCs with leverage on the fundraising trail. The shorter exit timelines resulting from the acquisition could entice LPs to come back to the market, potentially reinvigorating VC fundraising.
In addition to the impact on the M&A market and venture fundraising, the Wiz acquisition could also drive VCs to start writing more checks. While pitch deck activity has increased in Q2 2024 compared to the same period last year, actual deals have yet to be closed. An acquisition like Wiz, which is relatively young at only four years old, but has experienced fast growth and secured a massive exit, could have a significant effect. Startups and investors may experience FOMO (fear of missing out) and be inspired by the buzz surrounding a successful acquisition.
However, it’s important to note that the future of the deal remains uncertain. The acquisition could face antitrust pushback or may not happen at all. Nevertheless, if the deal does proceed, it could inject much-needed momentum into the startup M&A market and potentially bring about positive changes in venture fundraising and deal activity.
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