‍👉 Background: Wiz an Israeli company that’s New York based that was founded in 2020. It sells security tools that protect information stored in data centres. And it works with all the big dogs in tech like Google, Microsoft and Amazon.

‍👉 What happened: Now, Google has announced its acquisition of Wiz for $32 billion USD — it's largest acquisition ever. The next biggest is Motorola Mobility, which Google acquired in 2011 for $12.5 billion. While Wiz currently worked with others in the cloud market too, Google hasn't ruled out making the tech exclusive for Google customers in the future.

‍👉 What else: Interestingly, this isn’t Google’s first interaction with Wiz. In fact, it first tried to acquire Wiz for $23 billion USD last year, but they rejected the offer. So now, Google’s having a second bite of the cherry (successfully) but paying 40% more than its original offer — that's 30x Wiz’s future revenue.

‍

‍What's the key learning?

‍

‍💡When big companies buy smaller ones, they often assess value using a multiple of revenue or earnings.

💡Sometimes, buyers will pay a premium when they see strategic value. For example:

• Microsoft acquired LinkedIn for an 8.7x revenue
• Intuit acquired Mailchimp for a 15x multiple on their revenue
• In this case, Alphabet is paying about 30x Wiz’s future $1 billion revenue… or roughly 60x times their existing revenue
  

💡While this seems like a lot, strategic acquisitions can have huge upsides. Remember when Meta acquired WhatsApp for $19 billion USD in 2014? At the time, Whatsapp was believed to be earning about $30 million in annual revenue. It was a huge risk, but eventually, became a huge payoff because Whatsapp generated $1.3 billion in revenue in 2023.