(Reuters) - Alphabet will buy fast-growing startup Wiz for about $32 billion in its biggest deal ever, the Google parent said Tuesday, as it doubles down on cybersecurity to sharpen its edge in the cloud-computing race against Amazon.com and Microsoft.

The blockbuster deal will make Wiz part of Google's cloud unit and strengthen the company's efforts in cybersecurity solutions that companies use to remove critical risks.

Its high price and unusually big breakup fee suggest Alphabet is comfortable that the buy will pass muster with the White House, even as the Trump administration has inserted itself into major deals and promised heavy scrutiny of Big Tech.

Shares of Alphabet dipped nearly 3%. The stock was down 13% this year before Tuesday on worries over its hefty AI spending against the rise of China's lower-cost DeepSeek and a pullback in tech giants that led the market for the past two years. 

To nail down the acquisition, Alphabet had to agree to a heavier price than last year's $23 billion bid for Wiz, which the Israeli startup had rejected.

It was valued at $12 billion in a private funding round last May, with more than $500 million in annual recurring revenue as of mid-2024. 

Sources said the two parties have kept in contact even after Wiz's rejection last year, as Google Cloud CEO Thomas Kurian remained consistent in his pursuit.

The talks picked pace in the past two months after Donald Trump returned to the White House, sources said, requesting anonymity to discuss private matters.

Trump has said he would continue heavy scrutiny on Big Tech, which began during his first term, though Wall Street expects a shift in antitrust policies under the president, whose pick to lead the Federal Trade Commission, Andrew Ferguson, may dial back on big M&A regulation.

Wiz works with cloud providers such as Amazon Web Services, Microsoft's Azure as well as Google Cloud and counts Morgan Stanley, BMW and LVMH among its customers.

Wiz's products will continue to be available across other major cloud services. Alphabet expects the deal to close in 2026, subject to regulatory approvals.  

"There will likely be a microscope on the deal by investors, given Google's lackluster historical track record with its capital allocation plan, specifically around M&A," said Dave Wagner, portfolio manager at Aptus Capital Advisors.

Google's cloud unit generated more than $40 billion in revenue in 2024 and has outpaced growth in the company's search business in recent years. 

D.A. Davidson analyst Gil Luria said the higher price is based on another year of exponential growth for Wiz. 

"For Google to be able to compete with Microsoft Azure for enterprise customers, it needs to be able to offer a deeper suite of services, including security software," he said. 

Wiz has agreed to a termination fee of more than $3.2 billion, a source told Reuters, one of the highest fees in M&A history. 

Interest in the cybersecurity industry has risen since last year's global CrowdStrike outage roiled operations across industries, prompting companies to spend more on safeguarding their online domains.

The latest deal is another sign that Israel's cybersecurity industry punches well above its weight.

Several security companies based in Israel or founded by Israelis have been acquired by Silicon Valley giants, including Siemplify, which was bought by Alphabet in 2022, and Own, which Salesforce acquired in 2024.

Back in 2015, Wiz's founders sold cloud security firm Adallom to Microsoft.

REGULATORY CONCERNS

Google has emphasized that Wiz would continue working with competing cloud platforms - potentially in a bid to head off regulatory concerns. 

Interoperability has been a major theme in recent antitrust cases, including the U.S. Department of Justice's existing case over Google's ad tech. The FTC is pursuing an antitrust investigation into Microsoft's cloud computing business.

"Generally speaking, Google is not a leader in the cloud business, and Wiz will still be available on all other cloud services," said Elise Phillips, policy counsel at Public Knowledge, a public interest advocacy group. 

"Any type of exclusivity agreement between the two of them down the line would give me cause for concern."

The DOJ is pushing for measures, including a sale of its Chrome browser, to address what a judge said was an illegal search monopoly.

"This (deal) will be a big test for pro-business advocates," said Aptus Capital's Wagner. 

Google had $23.47 billion in cash and cash equivalents as of Dec. 31, implying it might have to seek financing for the deal. 

(Reporting by Deborah Sophia and Zaheer Kachwala in Bengaluru; Additional reporting by Krystal Hu in San Francisco, Raphael Satter in Washington and Jody Godoy in New York; Editing by Anil D'Silva and Arun Koyyur)