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Update (May 3, 2024): Wiz’s proposed acquisition of Lacework has been canceled. Although a letter of intent had been written, the deal fell through during the due diligence process, according to CTech.

The exact reason is not known. There are many sides to a due diligence process, including a detailed look at the finances of the company to be acquired and a consideration of how the organizations would integrate with each other. External factors can also throw a spanner in the works, such as unforeseen market developments or outside investors pulling out at the last minute.

Acquisition failure is a surprising turn of events. However, according to Forbes, about half of all intended deals break down at this due-diligence stage.

Original article (April 19, 2024): A week after it acquired Gem Security, Wiz is already aiming for its next target. Lacework, which once seemed to be worth nearly 8 billion euros, is said to cost between 140 million and 190 million euros.

A letter of intent is said to have already been written to finalize the proposed acquisition. Despite the fact that both parties are active in cloud security, Wiz and Lacework’s services overlap relatively little, according to TechCrunch sources. This is striking, given that quite a few promised services on their respective websites offer the same features at face value. Lacework’s outlined offerings are divided into cloud security on the one hand and code security on the other, while Wiz lists a larger-scale offering that covers everything from cloud workloads and infrastructure to compliance requirements and real-time threats.

Takeover drive

Wiz potentially acquiring Lacework would have appeared a rather strange proposition not that long ago. Wiz, just four years old, has become worth more than 10 billion euros in a short time. This while Lacework was valued at nearly 8 billion euros at the most recent investment round at the end of 2021, but may now change hands for only a fraction of that.

If Lacework were to be incorporated by Wiz, it would already be the third security company to be acquired by the latter since December 2023. Then it bought Israel’s Raftt for an estimated $40 million to $50 million (about €37 million to €47 million). Last week it added the acquisition of the also Israeli Gem Security for an estimated $350 million (approx. 328 million euros). Where Raftt focuses on securing the CI/CD developer pipeline, Gem specializes in cloud detection & response (CDR).

Consolidation is the future of security

Wiz CEO Assaf Rappaport was clear last week about what his company is going for. Consolidation, he said, is “the future of the security industry,” and so we can expect Wiz to continue to steadily acquire companies. Parties abound: the database for security venders IT-Harvest Dashboard counts nearly 3,600 at the time of writing. Even allowing for the fact that more and more organizations must have their security in order due to legislation and the ever-present rise of cyber threats, that number gives a rather disparate playing field to vendors.

So Rappaport’s contention that consolidation can and should be happening is certainly defensible. This is reinforced by the move toward a platform approach that many IT vendors are seeking. This is not exclusive to security parties, but it is particularly obvious these days to address multiple aspects of security together, allowing for signals to be shared and insights to be comprehensive. It reduces blind spots for security products and offers organisations a one-stop-shop solution for their cyber preparedness. This makes it an obvious move for specialists to be acquired by a party that already offers a full-fledged security platform. It’s their chance to cash in while the consolidation is still taking place.

Other factors

This development is not taking place in a vacuum. “The VC funding party is over,” Wired concluded back in January. Investment rounds are failing to materialize, so inflated market values like Lacework’s of late 2021 now show the harsh reality in a proposed acquisition. The same appears to be happening in a somewhat less drastic way at Noname Security, which may be acquired by Akamai for roughly half the $1 billion (€940 million) it appeared to be worth in December 2021.

In other words, the market values that investors assumed in 2021 turned out to be figments of the imagination. During the late 2021 funding frenzy, The Wall Street Journal already pointed out that the millions security firms received were disproportionate to financial performance. Revenue growth, not profitability, was seen as the motivation to invest additional capital.

Wiz’s end goal is still to achieve staggering revenue growth. Despite the fact that the company posted annual sales of nearly $330 million in February, that is far from the $1 billion (€940 million) CEO Rappaport envisions. If Lacework joins Wiz, that could already add another $100 million (94 million euros) in annual sales. Even then, solid growth is needed to reach the target number.

If the consolidation of the security world continues (which is very likely), Wiz may well prove to be one of the big winners. It would also mean that the remaining candidates to be acquired drop even further in value. After all, multiple specialists are competing for a limited number of customers, while the larger platform vendors are moving into their domain.

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