Google's Canceled Deals Highlight Antitrust's Influence on Tech

In recent times, Google displayed interest in acquiring two companies that could have marked its largest acquisitions. Nonetheless, both deals fell apart. Recently, the CEO of Wiz Inc. informed staff their cybersecurity startup would reject a $23 billion offer from Google and opt for an initial public offering instead. This occurred shortly after Google abandoned plans to purchase HubSpot Inc., a $25 billion software firm.

A key reason for the collapse of talks between Google and Wiz was a problematic software update from CrowdStrike Holdings Inc. that led to Microsoft Windows crashing on millions of devices globally. This event heightened the value of companies offering cloud security features, such as Wiz. However, antitrust concerns loomed over these failed deals. Over the past decade, Google has faced several monopoly cases globally, and regulatory scrutiny has intensified even as it reduced its acquisition activities.

Now that Google is active in the market again, it encounters regulatory pressures that have derailed numerous high-profile tech acquisitions recently. Competition authorities in the US and Europe have intensified their focus on the tech sector, scrutinizing its economic influence and market power. European regulators have extended the review periods for potential deals, and US Federal Trade Commission Chair Lina Khan has aggressively targeted Silicon Valley like never before. Wiz declined the deal partly due to concerns about a prolonged approval process.

Several notable tech takeovers, such as Adobe Inc.’s $20 billion offer to Figma and Amazon.com Inc.’s bid to acquire iRobot, have fallen through due to regulatory clashes. Amazon’s abandoned bid particularly unsettled many, indicating Khan’s effectiveness in preventing large mergers and acquisitions. These aborted deals followed a rigorous FTC investigation into Big Tech’s AI investments, and Microsoft Corp.’s protracted battle to gain UK regulatory approval for its Activision Blizzard purchase.

Despite increased valuations for cloud security firms following the CrowdStrike incident, analysts predict that a Wiz acquisition would have faced extended antitrust scrutiny, similar to Google’s other recent large deals. Google and Wiz representatives declined to comment.

Historically, Google expanded its core properties like YouTube and Android through acquisitions, making significant but risky investments in unproven technologies that ultimately established its dominance in mobile computing, video, and artificial intelligence sectors. However, following its $3.2 billion acquisition of Nest in 2014, Google reduced its consumer company purchases. Its last major consumer acquisition — the proposed $2.1 billion takeover of Fitbit Inc. in 2019 — faced over a year of regulatory hurdles.

More recently, Google’s corporate development strategy has concentrated on its cloud business under Thomas Kurian, aggressively expanding sales and product lines to rival Amazon Web Services and Microsoft. Google’s significant cloud-related acquisitions include the $2.6 billion purchase of Looker in 2019 and the $5.4 billion acquisition of Mandiant three years later. Despite these efforts, Google remains third in the cloud market, which it cites to downplay monopoly accusations.

Google never initiated detailed due diligence with HubSpot, which provides customer management software. If successful, the acquisition would have posed a formidable challenge to Salesforce Inc., considering Google’s financial strength and AI expertise. On the other hand, the potential acquisition of Wiz would have surpassed Google’s previous deals. Wiz's technology, which scans public cloud data for security risks, would have been a valuable addition to Google’s cloud division.

The possibility of acquiring Wiz dissipated when its CEO announced the company would focus on achieving $1 billion in annual recurring revenue and prepare for an IPO. This move mirrors Figma’s strategy post its failed deal with Adobe, reassuring startup investors amidst a challenging environment for lucrative exits due to regulatory obstacles. IPOs provide more control, argued Haakon Overli, a partner at Dawn Capital, while also acknowledging that selling to large tech firms invariably attracts antitrust scrutiny.