Israeli cloud security firm Wiz Inc. is reportedly in talks to acquire rival cloud security startup Lacework Inc. for about $150 million to $200 million, far lower than the valuation of $8.3 billion the company had as of its last funding round.

Who broke the story is less clear than the basic facts, with TechCrunch, The Information and Calcalist all claiming credit, but the core facts between the three is that Lacework is on the market for a lot less than it was once valued at.

Calcalist claims that a letter of intent has been signed between Lacework and Wiz and that the deal, if completed, will see Lacework’s $800 million in cash reserves distributed among the company’s investors.

Founded in 2015, Lacework offers a cloud-native application protection platform that delivers build-time-to-runtime threat detection, behavioral anomaly detection and cloud compliance across multicloud environments, workloads, containers and Kubernetes. The platform is designed to secure cloud environments, including Amazon Web Services Inc., Microsoft Corp.’s Azure and Google LLC Cloud, private data centers and hybrid environments.

Among its features, Lacework offers a breach detection and investigation tool that provides information on when and how a breach happened, including the users, machines and applications involved in the breach. It also offers a Polygraph Data Platform, a zero-touch breach detection system that automatically tags workloads and monitors application behaviors to alert if any anomaly is detected.

Coming into its potential acquisition, Lacework had raised a stunning $1.9 billion, according to Tracxn. Investors include Sutter Hill Ventures LP, Altimeter Capital Management LLC, Tiger Global Management LLC, D1 Capital Partners LP, Durable Capital Partners LP, Coatue Management LLC, Dragoneer Investment Group LLC, General Catalyst Group Management LLC, XN-Ventures LLC, Liberty Global Ventures Holding BV, Franklin Templeton Investments, Morgan Stanley and Snowflake Inc..

The obvious question of the day is: How does a company that has raised $1.9 billion end up on the market for $150 million to $200 million?

The first sign that Lacework may be having issues came in May 2022, when the company announced that it was laying off 20% of its workforce. Notably, this was before the post-COVID slowdown and subsequent job cuts across various companies. Lacework isn’t alone in cutting staff, but it started doing so before most of its peers.

But layoffs aside, there’s no clear explanation as to why Lacework is being sold for such a small amount. The company is reported to have annual recurring revenue of $100 million, making the size of the deal arguably strange.

One thing that is clear, though, is that it’s a sign of market consolidation. Calcalist notes that the two companies were in competition with each other and hence have no overlap in customers. If the deal goes through, Lacework’s 600 customers could become Wiz customers.

Wiz has been a regular acquirer of other companies. Its acquisitions include cybersecurity firms Raftt for $40 million to $50 million in December and Gem Security for a reported $350 million on April 10. The company was also reportedly looking to raise an additional $800 million in funding on a $10 billion valuation in March.

Image: Wiz