Wiz, SentinelOne merger makes sense with private equity help

Bloomberg’s report on Friday that Israeli cybersecurity company Wiz is considering submitting an offer to buy Israeli cybersecurity company SentinelOne (NYSE: S), was quickly confirmed by the company. A Wiz spokesperson was proud to admit that Wiz had been tracking SentinelOne’s “growth journal for the past several years” and noted that there are a few companies that would complement Wiz’s offering and help expand its platform. Nor did Wiz deny that it had not yet hired an investment bank to conduct such negotiations, which indicates it is not yet serious in its acquisition plans. At the beginning of 2023 Wiz had a company valuation of $10 billion, just over double SentinelOne’s current market cap.

The acquisition of a large listed company or a merger between equals can be complex and requires an investment bank with a deep understanding about large transactions on the public market.

While SentinelOne has over $700 million cash in its coffers, Wiz has so far raised $900 million, and to that must be added the current cash that the company brings in from its sales. It is not certain to what extent Wiz will be able to delist a company valued at nearly $5 billion, but a merger that would include a certain equal distribution between the companies could allow Wiz to enter the New York Stock Exchange (NYSE) through the back door.

When rumors initially spread last week about SentinelOne’s intention to be acquired, the stock jumped over 16%. This was when “Reuters” reported that SentinelOne had hired the investment house Qatalyst for the purpose. This is a move that makes sense: SentinelOne is a leading brand in the cybersecurity endpoint protection industry, competing against the soft underbelly of giants like Microsoft, Palo Alto Networks and CrowdStrike. However, it remains a heavy loss-making company with slowing growth, which in the number of customers from quarter to quarter whose annual revenue is over $100,000 dropped from 113% last year to 61% this year. SentinelOne’s quarterly gross loss remains constant in the region of 60%, an operating loss that is expected to reach 29% on an annual basis, and a net loss that is accumulating. It is quite clear that SentinelOne suffers from tough competition and is required to pay a price for its growth.

Acquisition by a private equity fund is a more reasonable scenario

Equity researcher Needham & Co. analysts think that the chances that the likelihood of SentinelOne being acquired by a tech giant like Google, Microsoft, or Palo Alto Networks is slim because these companies possess rival solutions for endpoint security.

Needham’s analysts believe that an exit from the stock market and an acquisition by a private equity fund or remaining on the stock market is a more likely scenario, and in this case the analysts predict that the immediate beneficiary will be CrowdStrike, the US cybersecurity company that is considered SentinelOne’s most significant direct competitor.

In that case, an investment by a private equity fund in the merger of SentinelOne with another cybersecurity company such as Wiz, for example, which provides a data security layer for cloud applications might make sense, although it is not led by it. The two have already proven that they know how to cooperate and lead sales transactions together through a joint announcement they released last March in which Wiz CEO and cofounder Assaf Rappaport said, “By combining the two leading security platforms, customers gain visibility and actionable context to solve their most complex security challenges from prevention to response with unprecedented simplicity, speed and accuracy.”

Published by Globes, Israel business news – en.globes.co.il – on August 27, 2023.

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