Google’s Broken Deals Show Antitrust’s Long Shadow Over Tech

(Bloomberg) — In recent months, Google has shown interest in two companies that would each be the biggest acquisition in the internet giant’s history. And both deals have fallen apart.

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Wiz Inc.’s CEO told employees on Monday that the cybersecurity startup would reject Alphabet Inc.’s $23 billion offer from Google and instead pursue an initial public offering. It comes just weeks after Google shelved plans to buy HubSpot Inc., a software company valued at $25 billion.

The primary reason advanced talks between Google and Wiz failed was a flawed software update from CrowdStrike Holdings Inc. that crashed Microsoft Windows on millions of devices worldwide, according to people familiar with the situation. The episode has heightened interest in — and potential value from — companies offering cloud security features like Wiz, the people said, asking not to be identified discussing private matters.

But both failed Google deals were fraught with the specter of antitrust law. Google has faced a litany of monopoly cases around the world over the past decade, with scrutiny growing even after the company stopped making so many deals. Now that Google is back in business, it’s once again facing the kind of regulatory pressure that has scuttled a string of high-profile tech acquisitions over the past year.

In the U.S. and Europe, antitrust regulators are increasingly targeting the tech sector because of its economic clout and market power. European regulators have forced potential deals to undergo months of review, and Lina Khan, the chairwoman of the U.S. Federal Trade Commission, is aggressively targeting Silicon Valley in a way her agency has never done before.

Wiz rejected the deal in part because of concerns it would lead to a drawn-out approval process, Bloomberg News previously reported. One of the last major proposed tech acquisitions — Adobe Inc.’s $20 billion bid for web design startup Figma — fell apart in late 2023 after run-ins with regulators in the U.K. and Europe. A month later, Amazon.com Inc. withdrew its bid for Roomba maker iRobot for similar reasons.

Amazon’s abandoned bid “scared a lot of people,” said Stefan Slowinski, global head of software research at BNP Paribas Exane. “Lina Khan had the influence to prevent some big mergers and acquisitions just by being there.”

The cancellation of the deal comes after an intense FTC investigation into Big Tech’s investments in artificial intelligence and Microsoft Corp.’s long, though successful, fight to win U.K. regulators’ approval to buy Activision Blizzard.

“The first thing that went through my mind when I saw the news about CrowdStrike was, ‘Wow, Wiz’s $23 billion valuation just went up a little bit,’” Slowinski said.

Still, if the Wiz deal were to go through, analysts say it would likely face extended antitrust scrutiny, like most of Google’s recent big deals. Spokespeople for Google and Wiz declined to comment.

Over the course of its first two decades, Google built many of its core properties, like YouTube and Android, through acquisitions, boldly betting on unproven technologies that eventually gave the company footholds in mobile computing, video and artificial intelligence. After spending $3.2 billion on connected-device maker Nest in 2014, Google effectively stopped writing big checks to consumer companies. Its last big move in the category—the $2.1 billion proposed acquisition of Fitbit Inc. in 2019—took more than a year to clear regulatory hurdles.

Google has recently focused its corporate growth strategy on its cloud business. Under the leadership of Thomas Kurian, Google’s cloud chief, the unit has aggressively expanded its sales force and product lines to compete with Amazon Web Services and Microsoft. In 2019, a year after Kurian joined Google, the company agreed to spend $2.6 billion on cloud software company Looker, and three years later, Google spent $5.4 billion on cloud security provider Mandiant. Still, Google remains a distant third in the cloud market—a fact the company likes to point to when dismissing claims that it poses a monopolistic threat in the sector.

Google has never held detailed due diligence talks with HubSpot, which provides customer management software, according to people familiar with the matter. But if a deal were to go through, it would immediately threaten HubSpot’s leading competitor, Salesforce Inc., given Google’s “financial muscle and expertise in artificial intelligence,” according to a Bloomberg Intelligence report.

The Wiz acquisition, meanwhile, would dwarf Google’s previous deals. Wiz sells technology that scans data stored in public clouds for potential security threats. The company would be a natural fit for Kurian’s cloud division and would help Google’s cloud unit in an area where it has lagged behind competitors, people familiar with Google’s strategy said.

But that possibility evaporated when Wiz CEO Assaf Rappaport told employees the startup would focus on hitting $1 billion in annual recurring revenue and pursue an IPO, according to a memo seen by Bloomberg News. The company declined to comment further. Figma, a design startup, also said it would pursue an IPO after its deal with Adobe fell through. Such announcements have reassured startup investors who have seen few lucrative exits of late and have been shocked to see regulators scupper promising deals.

“With an IPO, you are the master of your own destiny,” said Haakon Overli, a partner at Dawn Capital, an enterprise software investment firm.

At the same time, many venture capitalists have come to accept that selling the company to a major technology company will inevitably attract the scrutiny of antitrust violators, Overli added. “That’s a known unknown.”

–With assistance from Michael Hennessey.