Three Things (7/15)

Google to acquire Wiz

Alphabet is in talks to buy cybersecurity startup, Wiz, for $23 billion as a way to strengthen its cloud computing capabilities. Lately Google has been making fewer acquisitions than its mega tech peers, but Wiz would become its largest deal to date. After experiencing 4x growth on operating income in its cloud computing division during the first-quarter, Google is prioritizing cybersecurity as a key strategic investment for its cloud business.

Following the reset in valuations and subsequent dry spell for venture capital investing, the asset class has moderately recovered despite antitrust concerns that have created apprehension around M&A activity. The value Google associates with Wiz must outweigh both the costs of the deal itself and pressures of the regulatory scrutiny it could receive. On the flip side, we think the acquisition of Wiz could protect Google from other types of legal scrutiny given the massive data ecosystems it will eventually oversee as AI takes center stage within its cloud business.

Walmart automates distribution

Walmart is opening five automated distribution centers for fresh food in the U.S. as it aims to grow its grocery business. As the biggest grocery chain in the country, it’s employing automation to increase efficiency and support customers’ changing shopping patterns. The new distribution centers will also give Walmart a more perfect picture of inventory in real time and allow for increased production density inside centers.

It’s clear Walmart is investing in automation to better compete with tech-focused grocery delivery companies like Amazon or Instacart. The elimination of unnecessary steps in the supply chain is a move towards increased operational effectiveness, as Walmart forecasts unit cost averages could improve by 20% by 2026. We expect shareholders will favor this type of capex spending as long as the return on investment drives the decreased costs and increased net new customers that the company anticipates.

NFL and private equity

The National Football League is considering allowing private equity team ownership of up to 10%. As it stands today private equity firms cannot take any ownership stakes in NFL teams, but they can invest in teams across the NBA, MLB, and NHL. Traditionally, private equity firms target businesses with high cash flows and strong growth potential where they can take majority stakes to restructure and sell at higher multiples. However, PE firms would be limited to minority ownership in NFL teams.

While PE firms wouldn’t have the power to make executive decisions, a minority stake could earn them a portion of a team’s various revenue streams: tickets, sponsorships, merchandise, advertisements, licensing, etc. What could be a high cash flow investment for PE firms could also help NFL teams widen the market of potential buyers, access flexible capital agreements, and ease the selling process for minority owners.

Disclosures:

As of writing, GOOGL, AMZN are holdings in Titan's Flagship strategy.

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