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Alphabet (GOOG, GOOGL) shares are under pressure after announcing an agreement to acquire Wiz in a $32 billion deal, with the cloud security platform set to join Google Cloud after the deal closes.
Catalysts host Madison Mills and ProShares global investment strategist Simeon Hyman take a closer look at the deal.
To watch more expert insights and analysis on the latest market action, check out more Catalysts here.
And next up, Google parent Alphabet announcing a $32 billion all cash deal to acquire cybersecurity startup Wiz. The deal will be Google's largest ever acquisition. It's part of the company's efforts to boost cloud security. Once the deal closes, Wiz will join Google's Cloud unit, while its products will continue to be available across all other major cloud services. Still with me, Simeon Hyman of ProShares. I was just reading the Wiz blog here. They say the partnership is like attaching a rocket to their backs when it comes to cloud security. Obviously, the biggest deal ever for Google, the biggest M&A deal that we've reported year to date. What does this tell you about the path forward for M&A? Do you anticipate more deal making this year?
People always say, well, if there's a little bit of a downturn in the equity markets, then M&A is going to pick up because folks are waiting on the sidelines. The acquirers are a little cheaper. Sometimes it works, sometimes it doesn't work. I'll put myself in the camp of seeing some upside to M&A activity, but for a different reason. Corporate balance sheets are incredibly strong. This is an all cash deal.
Mm-hmm.
If you look at the S&P 500, leverage is at near all-time lows. Net debt to EBITDA is the classic measure. It's one and a half times. That's down from about five times. So companies have lots of room to spend money. And if they don't have all cash, you got tight spreads in the bond market. So spreads are are attractive for folks who want to borrow money. So I think the the um the horsepower is there, the ammunition is there for M&A activity.
And to your point earlier on valuations, Alphabet actually the cheapest of the MAG 7 at 17 times earnings when it comes to their forward 12-month PE ratio, which I think is interesting context here. But David Costin this morning over at JPM, lowering his target for at Goldman, sorry, lowering his target for M&A this year from 25% down to 7% in terms of growth. What do you think is driving that pessimism about deal making? Given there was so much optimism right after the election and now there's a little bit of a downturn in that growth expectation.
Yeah, I'm not sitting with Costin, but I I would imagine that that decline is due to the regulatory and tariffs and all of the all of the uncertainty in Washington. So I think if any of that calms down, and it doesn't have to calm down entirely, that would certainly remove some of the barriers towards M&A activity. And that that to me is the real only wild card right now, because the economy is still in okay shape and companies have these great balance sheets.
Right. All right, Simeon. Thank you so much. We appreciate it.