Google-Wiz Deal: A ‘Litmus Test’ for Trump’s Administration in Managing Big Tech

Seven months prior, Alphabet suffered a significant defeat against the Biden administration’s Justice Department, which claimed that the company was operating an unlawful monopoly in search. Shortly before, Google’s endeavor to acquire cybersecurity vendor Wiz—potentially its largest deal to date—collapsed partially due to antitrust apprehensions.

With Donald Trump’s anticipated return to the White House, Alphabet is re-engaging in aggressive strategies.

On Tuesday, Alphabet announced it would acquire Wiz for $32 billion in cash—approximately $10 billion above the previously proposed amount in mid-2024—and expressed confidence that the agreement will finalize next year, pending regulatory approvals.

Wiz will be integrated into Google’s cloud division, which diverges significantly from the company’s primary search business. Presently, Google trails Amazon and Microsoft in the domain of cloud infrastructure, a position that could complicate any regulatory case against a merger under any administration.

During Lina Khan’s tenure, the Federal Trade Commission has been notably cautious regarding tech mergers, often obstructing transactions that frustrated even mainstream Democratic allies like Reid Hoffman and Mark Cuban. Google’s acquisition of Wiz could serve as a significant test for new FTC Chair Andrew Ferguson as the tech sector assesses how Trump 2.0 will engage with the industry housing the six most valuable U.S. companies by market capitalization.

“It will serve as an important litmus test and a gauge for M&A in 2025,” remarked Brad Haller, a senior partner for mergers and acquisitions at consulting firm West Monroe. “Its occurrence early this year allows it to act as a benchmark.”

As a venture-backed firm, this acquisition represents a substantial boon for Silicon Valley venture capitalists, who have faced difficulties in generating returns since the IPO market largely stalled in early 2022, leading to a downturn in large M&A activity. From a peak of $780 billion in 2021, VC exit values dropped to $89.2 billion the subsequent year and further declined to $71.6 billion in 2023, according to an October report from PitchBook and the National Venture Capital Association. The third quarter of 2024 saw a five-quarter low in these figures.

“The strategy of large acquisitions is re-emerging for VC-backed firms,” Haller stated.

Index Ventures leads as the largest external investor in Wiz, joined by other firms such as Sequoia Capital, Insight Partners, and Cyberstarts.

When Wiz declined an arrangement with Google in July, co-founder Assaf Rappaport informed employees via a memo that the company would instead target an IPO. Recent developments indicate a resurgence in the IPO market, as AI infrastructure company CoreWeave, digital health startup Hinge Health, and buy now, pay later lender Klarna have all recently submitted prospectuses to the SEC.

Economic instability poses significant challenges, exacerbated by President Trump’s tariff policies towards key trading partners like China, Mexico, and Canada, along with substantial cuts in government spending, which have resulted in heightened market volatility and concerns regarding business and consumer confidence. The Nasdaq is currently experiencing its fifth consecutive weekly decline and its worst quarterly results since 2022.

For Google, the potential benefits of acquiring Wiz seem to outweigh the prospective regulatory dangers. According to Reuters, citing an insider, Wiz accepted a termination fee exceeding $3.2 billion, labeled as “one of the highest fees in M&A history.”

Google opted not to comment.

Established in 2020, Wiz achieved $100 million in annual recurring revenue within just 18 months. The company’s cloud security offerings, including prevention, active detection, and response, have become increasingly vital as rapid AI advancements have made cyber attacks more sophisticated and potentially more damaging.

“That price tag implies that Google was keen to enhance its security credentials ahead of escalating AI adoption,” analysts at Gordon Haskett remarked in a document released Tuesday.

In a statement released on Tuesday concerning the deal, Google noted, “The growing significance of AI and cloud service adoption has dramatically altered the security landscape for customers, necessitating robust cybersecurity defenses against emerging risks and for national security protection.”

In a blog post by Wiz, Rappaport mentioned that becoming a part of Google Cloud is like “strapping a rocket to our backs.”

The acquisition will likely undergo regulatory examination, but analysts at Bank of America indicated that “Google, in our perspective, would have a more robust case compared to consumer-centric acquisitions,” following the announcement. They noted that Google commands less than 15% of the cloud services market.

During the Biden presidency, Google’s most notable acquisition was its $5.4 billion acquisition of cybersecurity firm Mandiant. However, Google wasn’t alone among Big Tech firms facing regulatory pressures.

For Microsoft to successfully complete its $69 billion acquisition of video game publisher Activision Blizzard in late 2023, the company endured a 21-month struggle with regulators, which included an injunction attempt by the FTC. Additionally, the agency initiated legal action to block Meta’s acquisition of virtual reality company Within, which was ultimately nullified by a California district court.

Apart from the challenges of dealmaking, companies such as Meta, Apple, Amazon, and Microsoft have faced accusations of monopolistic actions from either the Justice Department or the FTC. Both agencies have pursued actions against Google as well.

Khan expressed to CNBC’s “Squawk Box” in January her hope that the forthcoming Trump administration would not allow Amazon and Meta to evade accountability regarding pending antitrust actions with a “sweetheart deal.” This statement followed a series of commitments made by several tech executives and companies, including Google, to contribute funds to Trump’s inauguration.

Ferguson has indicated that his FTC will maintain a vigilant focus on technology matters, although he hasn’t provided extensive specifics. Throughout Trump’s initial term, the president held a notably antagonistic stance towards the tech sector, frequently criticizing Amazon’s Jeff Bezos, particularly for his ownership of The Washington Post, in addition to targeting Meta and Google for their presumed biases against his administration.

With the desire to improve relations, these former adversaries are making considerable efforts to shift the narrative this time, which may involve the cessation of diversity, equity, and inclusion initiatives or engaging with Washington for Trump’s inauguration after having visited his Mar-a-Lago estate in Florida in the past.

In a recent segment on “Squawk Box,” Ferguson stated, “Big Tech is one of our main priorities” under the administration.

“President Trump appointed me to safeguard Americans in the marketplace,” Ferguson stated. “I’ve maintained from day one that Big Tech is a focal point, and that remains unchanged.”

Jonathan Kanter, former assistant attorney general for the Justice Department’s antitrust division under Biden, indicated during CNBC’s “Power Lunch” on Tuesday that a thorough regulatory examination is likely for the Google-Wiz agreement. He emphasized that it’s not solely about Google’s standing in cloud services but also the extensive data the company possesses.

“I do not anticipate a swift approval for the Wiz deal,” Kanter commented, now a CNBC contributor. “It will likely be a protracted process involving extensive reviews of numerous documents and data to assess whether it will ultimately consolidate Google’s market power across various sectors.”

— CNBC’s Jordan Novet and Samantha Subin contributed to this report.

WATCH: CNBC’s full interview with FTC Chair Andrew Ferguson