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Alphabet has agreed to pay a 10 per cent break fee if its planned $32bn acquisition of cyber security start-up Wiz collapses, said people familiar with the matter, a signal the deal is likely to face significant antitrust challenges even under Donald Trump’s administration.
Alphabet, Google’s parent company, on Tuesday announced it had sealed its largest acquisition, after a previous attempt to buy Wiz fell apart last summer in part because the cyber security company’s investors worried regulators would block the deal.
The large break fee shows how technology companies continue to brace themselves for pushback from watchdogs even under new leadership of the Federal Trade Commission.
Lina Khan, the previous FTC chair, had taken an aggressive stance on Big Tech mergers and acquisitions, slowing the pace of dealmaking. Trump has replaced her with Andrew Ferguson.
A reverse termination fee of more than $3.2bn — about 10 per cent of the total deal value — is among the largest of all time. Typically, break fees are about 2 per cent or 3 per cent, while slightly more contentious deals can go up to 7 per cent, but rarely as high as 10 per cent.
A person directly involved in the negotiation of the break fee said the deal would not have gone ahead unless Alphabet agreed to such a high termination fee.
After Alphabet’s deal talks to acquire Wiz for about $23bn collapsed last year, the fast-growing start-up tapped new advisers to help it push for a sweetened valuation and better regulatory terms to the deal.
Under the deal terms, Wiz also has the freedom to function in effect as an independent company, allowing it to complete acquisitions and hire and fire employees even if it gets ensnared in a lengthy antitrust case, the people said.
Wiz was advised by Goldman Sachs, while Bank of America advised Alphabet.
Wiz shares many investors with product design software company Figma — including Silicon Valley venture capital funds Index Ventures, Greenoaks, Andreessen Horowitz and Sequoia Capital — which Adobe tried to buy in 2022.
When that $20bn acquisition was abandoned after 15 months because of antitrust difficulties, Adobe paid a break fee of $1bn, about 5 per cent of the deal value.
Wiz declined to comment. Google did not immediately respond to a request for comment.
