|Scooped by Philippe J DEWOST|
announced a deal to pay $26.2 billion to acquire business social network, LinkedIn. It fails the four tests of a successful acquisition.While the deal certainly rescues LinkedIn from a huge growth problem that slashed the value of its shares in February, it is unclear how Microsoft will generate a return on that $26 billion investment.Microsoft will pay “$196 per share in an all-cash transaction, including LinkedIn’s net cash, a 49.5% premium to LinkedIn’s closing price on June 10. The offer values LinkedIn about 91 times earnings before interest, taxes, depreciation and amortization (EBITDA),” according to Bloomberg.Why would Microsoft do that? CEO Satya Nadella said “the acquisition could drive growth for LinkedIn as well as Microsoft’s Office 365 and Dynamics services,” according to Bloomberg.LinkedIn CEO Jeffrey Weiner — who will stay on as CEO after Microsoft completes the deal — said in a statement, “Just as we have changed the way the world connects to opportunity, this relationship with Microsoft, and the combination of their cloud and LinkedIn’s network, now gives us a chance to also change the way the world works.”I believe this is a flimsy justification for spending $26.2 billion.But to understand why it happened, a good place to start is to look what happened to LinkedIn’s shares after the stock market opened on February 6, 2016.That was the day investors hacked 44% from LinkedIn’s market capitalization.The reason was easy to understand, yet difficult to remedy. LinkedIn lowered its expectations for the year’s growth in revenue (from 35% to 20%) and adjusted earnings (from 41% to 7%) — well below what analysts expected.This slashed a cool $1 billion from the net worth of LinkedIn’s founder, Reid Hoffman, and forced Weiner to ponder important questions that needed to be answered before investors could hope to recoup what they lost.The questions were:Where would faster growth come from?Could it be spurred by improving LinkedIn’s offerings?By selling its current products to new customers, or in new geographies? By inventing new products for its existing customers?By adding entirely new classes of products, or creating a new growth culture?Now that Microsoft is buying LinkedIn, whether or not Weiner can answer these questions will not matter as much as it once did.But the deal still begs the question — Does the Microsoft/LinkedIn deal pass the four tests of a successful acquisition?
Philippe J DEWOST's insight:
Interesting contrarian analysis requiring a full read on what remains the boldest move of this month if not this semester.While it values my LinkedIn profile at approx $60, it still does not trigger any need to upgrade to Premium...What I can expect from M$FT however is a better LinkedIn mobile app experience as Redmond had really been impressive on the mobile UX front especially on iOS.Any comments / reactions ?