M&A

Microsoft & LinkedIn

2016.07

M&A deal: LinkedIn & Microsoft
M&A
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Microsoft, one of America’s leading IT corporations (share price $400), recently announced its purchase of LinkedIn.

  • Time: June 13, 2016, Microsoft announced that it had purchased Linkedin, the world’s premier business-oriented social networking service.
  • Terms & deal structure: the total value of the takeover was $26.2B, making this the biggest M&A deal in Microsoft’s history
    • Stock price: Microsoft paid a 49.6% premium over LinkedIn’s share price (paying $196/share). However, these figures pale in comparison to LinkedIn’s Nov ‘15 share price of $240 and are comparable to the $192 that LinkedIn was worth just before their stocks got brutally halved in Feb ‘16.
    • EBITDA Multiple: this price equates to 84 times the company’s EBITDA and is the highest valued among 2016 deals worth greater than $5B.
    • Payment: Microsoft plans to pay 100% in cash through debt-financing
    • Deal closing: the deal is scheduled to close at the end of 2016
  • Management structure: even though Microsoft now owns 100% of LinkedIn, akin to Facebook’s management of WhatsApp, Microsoft plans to respect the independence of the company by keeping LinkedIn’s current CEO Jeff Weiner and structuring the company so that LinkedIn employees will report directly to Microsoft’s CEO.

Both companies have expressed their desires to use this M&A as an opportunity to take the lead in the business to business (B2B) solution market.

  • Vision: By uniting B2B SW, solution, and storage powerhouse Microsoft and B2B SNS/professional database powerhouse LinkedIn, the companies aim to dominate the B2B market.
  • Method: Combine and enhance the existing services provided by Microsoft and LinkedIn.
    • Sending an email through Microsoft Access will bring up the LinkedIn profile of the recipient. (e.g., When someone sends an email to a client through Access, Access will notify the sender that the client is approaching his or her 10th anniversary at his or her company.)
    • Enjoy having a virtual secretary by providing one’s LinkedIn information to Microsoft’s voice recognition/AI personal assistant Cortana (e.g., Stating, “Cortana, tell me more about this Neal I’m scheduled to meet today,” will cause Cortana to search and provide information about Neal.)
    • Microsoft Office 365 and LinkedIn will collaborate to provide Big Data that may be useful when creating documents and powerpoints (e.g., While writing a report about a company’s expansion into the United States, Word will find and recommend to the writer an expert on the topic via LinkedIn.)
    • Microsoft CRM system and LinkedIn will work jointly with Sales Navigator in order to help companies recruit potential customers.

However, it is no secret that both companies were being cornered by competitors prior to the acquisition. Doubts have been raised whether this M&A will be enough to help Microsoft and LinkedIn defeat such other B&B giants as Google, Amazon, and Apple.

  • Microsoft: Microsoft has been viewed as a company that served as a mere stepping stone for Google, Apple, Amazon, and Facebook, and is sometimes referred to as the “IT giant of the 20th century.”
    • Windows: As more Americans switched to the Mac PC, Windows’s position in the tech market began to falter (most university students now use Apple computers).
    • Internet Explorer: Most Americans have foregone Explorer for Google Chrome and Apple Safari (some in-house exams carried out in Stanford are supported only by Chrome and Firefox).
    • Office: Many Americans have moved on to Google Docs, which allows multiple users to work on the same document simultaneously (most students at Stanford and Harvard submit assignments via Google Docs).
    • Cloud/Data Storage: Amazon reigns the Cloud market through AWS, and the original bigwigs, Oracle, IBM, etc. are investing heavily in order to compete with Amazon.
    • Search: Microsoft’s Bing was an utter failure compared to Google.
    • Messenger: Microsoft could not compete in the messaging market with competitors like Facebook Messenger, Snapchat, and WhatsApp.
    • E-mail (Access) / Calendar: By lending support to company-wide email accounts, Google’s Gmail dominates not only the B2C but also the B2B email market (Stanford and Harvard emails are linked to Gmail, and students make use of Google Calendar).
    • Voice recognition/AI based personal support services: Amazon’s Amazon Echo is leading this market, and Microsoft’s Cortana, Google Home, and Apple Siri are preparing to fight Amazon for the throne.
    • Smartphone (Nokia acquisition): the launch of Window Phone following the purchase of Nokia turned out to be an utter failure (the handheld device market is divided between iOS and Android).
    • Video call (Skype acquisition): ever since Google started offering free video chats via Hangout, Skype’s market value has been on the decline.
  • LinkedIn: Up until the end of 2015, LinkedIn had dominated its market and the company value had grown to approximately $25B. On Feb ‘16, the company value plummeted by 50%, and since then, LinkedIn has not been able to shed the shameful title of being a “unicorn of the previous generation.”
    • At the end of the 00’s, Reid Hoffman, one of the infamous Paypal Mafia, founded a service that allowed working men and women to upload their resumes.
    • User numbers: 2006, 20M; 2011, 145M; 2014, 350M; 2016, 433M. LinkedIn saw massive growth by acquiring millions of users (March, 2016, 106M users).
    • After 2010, LinkedIn strove to be more than just an SNS platform for employees and employers all around the world. The company aspired to be the world’s best B2B Solution provider and proceeded to M&A with 16 companies (e.g., In 2015, LinkedIn purchased the B2B eLearning service, Lynda.com for $1.5B).
    • Despite its high user number, LinkedIn had a concerningly low level of user activity. The company’s limited revenue/profit output and rising doubts about investing into the company’s future caused the company value to plummet by 50% at the end of 2015.
    • LinkedIn’s company value is about 10% of that of Facebook (1,500M users; company value $300B; MAU 1,200M).
  • The question posed by market experts about the M&A of Microsoft and LinkedIn:
    • Will this purchase give Microsoft the power and influence it needs to stop Google, Amazon, Facebook, and Apple?

There is much speculation regarding LinkedIn’s uncanny decision to merge with Microsoft. This is especially pertinent because just last year, LinkedIn had expressed its desire to expand its services and increase the company value.

  • During a guest lecture in Stanford on Sep, 2015, Jeff Weiner had expressed with certainty that LinkedIn was bound to become a platform that best connects working men and women throughout the world and solves problems dynamically and efficiently.
  • In addition, Weiner had stated his vision for LinkedIn to become an empire - a Facebook - of B2B companies by developing unique technologies.
  • Thus, when regarding LinkedIn’s decision to merge with Microsoft, some assert that this move speaks of the company’s deteriorating ability to compete as a stand-alone, while others claim that this move shows that LinkedIn will do anything to fulfill its vision quickly.

What is your opinion? Why do you think that the two companies chose to M&A? What are the reasons that may have propelled LinkedIn to come to the conclusion that it could not succeed as a stand-alone company? What are the reasons LinkedIn may have thought that a collaboration with Microsoft would be synergetic?

Why do you think Microsoft was willing to pay a whopping $25B to acquire LinkedIn? Do you believe that Microsoft will be able to use this merger to fight off Google, Apple, and Amazon? Do you think that perhaps Microsoft’s move was a preventative one so that Google, Salesforce, and/or Facebook would not be able to get to LinkedIn first?

Please discuss this topic with your Ringle Tutor. Talk about the extent to which Microsoft has shrunk in the eyes of American college students, and what their thoughts are of LinkedIn.

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