In June 2013, Google wrote a new chapter in Israeli economic history when it acquired Waze for $1.1 billion, creating Israel’s first unicorn company. In retrospect, this acquisition was also one of the factors that drove the massive tech boom that has driven Israel’s tech industry and the entire economy over the past decade. Now, if Google’s acquisition of Wiz goes through for a staggering $23 billion, it will write a new chapter in Israeli tech history – at the lowest point of time.
Not only is this Google’s largest acquisition ever, but it is also the largest acquisition by an Israeli company, surpassing the current record held by Mobileye, which was sold to Intel in 2017 for $15 billion. Since its inception, Wizz has broken almost every record imaginable: it became the fastest growing company in terms of value, the fastest to reach $100 million in sales, and the highest valued private cyber company, and of course the highest valued Israeli company. In its latest funding round, which closed just a few months ago, the cyber giant was valued at $12 billion.
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Assaf Rapaport and his dog.
(Credit: Nathaniel Tobias)
Google’s interest in Wizz is clear given the cyber fever that has been going on for the past year. Palo Alto Networks, which announced it was going “platform,” is already a $100 billion-plus company in market capitalization. Microsoft acquired Adalom, a startup launched by Assaf Rapaport and partners, for $320 million to create a cyber division that is already a $1 billion-plus business. Meanwhile, CrowdStrike and its competitors are starting to swallow other companies, leaving Google behind. In this context, Wizz’s nearly double its previous market capitalization, $23 billion after Google’s stock price rose 60% in the past year to $2.3 trillion, is not a big deal.
But what is a small step for Google is a big step for Wiz, and especially for the Israeli tech industry, which has been through its most challenging year and a half ever, struggling to protect its name and reputation. The turmoil began with political turmoil and continued with one of the most difficult wars Israel has ever faced. Wiz is not fully connected to the Israeli ecosystem outside of the tech hub of Tel Aviv, and CEO Assaf Rapaport has been associated with the tech protest movement against the political turmoil, but this is a dramatic event for the Israeli economy. Wiz is indeed registered as a US company, but it also has a significant number of Israeli shareholders and employs 950 employees, most of whom are US residents. Rapaport is known as a CEO who invests in his employees, and Wiz is known as a company that is very generous in terms of terms. A sale of this magnitude is expected to create a new wave of innovation. Ironically, Rapaport, an openly gay man who has made no secret of his sexual orientation or his principled opposition to the current administration, is expected to help reduce the deficit caused by the irresponsible actions of the current administration and Prime Minister Benjamin Netanyahu. A deal of this magnitude will have a longer-term impact.
Beyond their employees, the four founders still have relatively large stakes in the company because, despite its size, Wiz is still a young company at just four years old: Rapaport, CTO Ami Luttwak, VP of Product Inon Kostika and VP of R&D Roy Resnick are all Israeli and are expected to receive billions of dollars worth of stock before taxes.
Israel’s cyber industry is already world-renowned, making it the second largest hub after the United States in terms of concentration of companies and talent. But there is always room for further growth. If we recall important deals of the past, such as Waze and Mobileye, they were the driving force behind a new wave of innovation. Former employees of companies sold for such amounts tend to leave and start independent ventures when they are no longer too worried about their financial future. This kind of exit tends to lead to a significant jump, not a slight increase, with immediate and long-lasting impacts on the related industry. Google’s trust in an Israeli company at a time like this could turn the tide and bring back investors who have been hesitant for the past year. It’s no surprise.
Google has been working on strengthening its cyber solutions and cloud protection for some time. As part of this plan, the company acquired the US-based Mandiant (formerly known as FireEye), which also had operations in Israel, in a $5.4 billion cash deal two years ago. However, this was not as dramatic and reality-changing a move as the Wiz acquisition, as the Israeli company boasts a strong brand when it comes to cyber defense in the cloud. It was one of the first companies in the world to be called cloud-native (i.e. products pre-designed for the cloud environment, rather than products adapted for the cloud era).
Google’s statement of confidence also means, of course, the expansion of its development center in Israel, after considerable doubts had arisen since the war about the continuation of large international companies’ expansion plans in Israel and about the fact that many Israeli workers have been called up into the reserves, reducing their numbers and efficiency.
Of course, the ultimate dream for both Wiz and Israel is an IPO on Wall Street. This is what the company has talked about and aspired to: to remain an independent company and become another Israeli giant. But history shows that even when the IPO dream comes true, it doesn’t always lead to the desired outcome for the company and its founders. For example, this deal would value Wiz higher than Check Point, a company that is synonymous with Israeli success and that arguably built the cyber world. Moreover, when you look at companies like Nice, Wix, and SolarEdge, which were once Israel’s biggest stars and were aiming for the valuation that Wiz is expected to receive in the Google deal, it’s clear that they are far from achieving that status, and it’s unclear whether and how they will return to that status. Needless to say, all of these companies are much more famous today than Wiz.
If the reality in Israel and the world had been different and geopolitical and economic uncertainties were not so high, Wizz shareholders might have waited for an IPO opportunity on Wall Street to open up. But even if that had been the case, it is doubtful that the company could have achieved a valuation beyond $15-18 billion. There is also the perspective of Wizz’s entrepreneurs and managers. They are a young and cohesive group, and while Wizz is not their first venture, it may not be their last. Very few talented entrepreneurs make good managers of public companies. For many, the Sisyphean grind of hitting quarterly targets is simply too boring. In Wizz’s case, a sale to Google for $23 billion does not seem to be the end of the story, but merely a stepping stone to the next groundbreaking startup.
