Microsoft’s $26.2bn Acquisition of LinkedIn: On June 13th, 2016 Microsoft announced that it had reached a deal to acquire LinkedIn, the social network for professionals, for $26.2bn in cash. This translates to a bid of $196 per share, a premium of 47% over its then stock price. Under the terms of the deal, LinkedIn CEO Jeff Weiner will stay on to run LinkedIn within the Microsoft umbrella, reporting directly to Microsoft CEO Satya Nadella. LinkedIn co-founder, controlling shareholder and Chairman Reid Hoffman also gave his support to the deal, which is the 4th largest tech acquisition ever after Dell’s $67bn EMC acquisition in 2015, HP’s $33.6bn Compaq acquisition in 2001, and Softbank’s $32.3bn ARM acquisition in 2016.
Reasons Why Microsoft Bought LinkedIn: So you may be wondering why did Microsoft decide to buy LinkedIn? This is a question that many people have been asking including the tech industry, Wall Street bankers, investors and regular people. Some of the reasons why Microsoft bought LinkedIn include:
Microsoft’s relatively new CEO Satya Nadella wanted to put his rubber stamp on Microsoft with a major acquisition
Microsoft want to embed or integrate LinkedIn with its enterprise and productivity software Microsoft Office 365 and Dynamics (their cloud competitor to Salesforce.com which provides business software for sales, marketing, service, finance and HR within organisations)
Microsoft will be able to embed LinkedIn with its communications platforms Skype and its Outlook email system
LinkedIn is more than a social network but also a digital media company which publishes content which is influential, specialized, widely read and constantly updated
Social networks are a data mine. LinkedIn has massive data sets on where people work, their skills, their ambitions, where they went to school, their connections, their interest groups and their behaviour. LinkedIn has more information on its users than Microsoft does, and Microsoft can use this information to cross sell their other products to users.
LinkedIn’s share price fell 44% in February 2016 after it announced weak quarterly results so on a relative basis, Microsoft is buying LinkedIn when its stock price is relatively depressed
Salesforce Also Tried To Buy LinkedIn: Salesforce, the enterprise cloud software company, also confirmed that they made a competing bid for LinkedIn. However, at that time negotiations with Microsoft were already well advanced and Microsoft was willing to pay all cash (financed by bond issues), while Salesforce would need to use both equity (its own shares) and cash (financed by bond issues) to bid for LinkedIn. According to Salesforce CEO Marc Benioff, their primary interest in LinkedIn was its recruiting business, which makes most of its revenues, where corporate recruiters pay a steady stream of monthly subscription revenues to be able to look through LinkedIn’s database for prospective employees. Salesforce has since asked the EU to block Microsoft’s acquisition as it would be uncompetitive. However, the deal has already been approved in the USA, Canada and Brasil.
Above: Salesforce CEO Marc Benioff At Recode’s Code Conference Source: recode.net
What Is The Story Behind LinkedIn? LinkedIn is the social network for professionals that was founded in 2003 by Reid Hoffman and founding team members from PayPal and Socialnet.com. The company filed for its IPO to list on the New York Stock Exchange in 2011. It is now ranked as the 14th most popular website in the world according to Alexa Internet rankings in October 2016. It currently has 433 million users, revenues of $2.9bn in 2015 (a year on year increase of 35%), 106 million monthly unique visitors and had 45 billion page views in Q1 2016. LinkedIn is based in Silicon Valley, California.
Above: LinkedIn profit warning in February followed by Microsoft bid in June Source: google.co.uk/finance
Personal Opinion: Many tech companies are regularly surrounded by acquisition rumours. Either someone wants to buy them or they are planning to buy a competitor or a new company with innovative technology. At first, I struggled to rationalise why Microsoft was willing to pay so much for LinkedIn but after discussing the deal with a few people, I started to see the rationale. The best explanation for the deal was given to me by someone in my Monday night running club who worked as a consultant implementing Salesforce into organisations. According to her, the value in LinkedIn to both Microsoft and Salesforce, was being able to keep users in their systems for longer and reducing the need to go to a competitor’s platform such as LinkedIn to find a person. In my opinion, if you are able to achieve this and users become more dependent on your particular software, then your product becomes stickier and it becomes easier to cross sell other products / features, or to raise subscription fees. In the end, you make more money and you create higher barriers to entry for your competitors.
Feedback From The giffgaff Community: Did you know that Microsoft has made a deal to acquire LinkedIn pending regulatory approval? Do you think LinkedIn’s social network for professionals is worth $26bn to Microsoft or any tech company for that matter? What do you think Microsoft’s motives are to pay so much for LinkedIn?
Thanks for reading!
Jeff loves tech, wine, exercise and travel. He posts every Friday morning.