![]() That acquisition folded YouTube into Google but allowed the video company to e xist relatively independently of other Google businesses, with some sharing of data, logins, and other features. It is striking that in his letter to employees, LinkedIn’s CEO cites Google’s acquisition of YouTube as a model for his deal. It is a bit of an options game, but the idea is to keep the businesses relatively independent and to provide them with capital and management that may coax them to fly higher. In this strategy, the company acquires businesses or technologies that have promise but are still risky, and it nurtures them to see where they lead. It’s the Google model – or rather the Alphabet model. There is a third acquisition model that in a way is a hybrid of the strategic remix and the private equity models. The company is just not in the business of selling off businesses, even if it does still like to buy low. And, frankly, a pure PE approach would not be consistent with Satya Nadella’s efforts to forge a new strategy for Microsoft. That is not strictly the case here, but there is no doubt that LinkedIn will be somewhat insulated from the markets, being buried in Microsoft’s overall business that is almost 15 times its size in terms of market value.īut if Microsoft were following the PE model, it would not try to convince investors of the aforementioned product synergies. The last feature of PE acquisitions is that they take the target firm off the market, where it can be managed out of the public eye. Is it so hard to imagine that Microsoft is getting a deal? Since then LinkedIn suffered some difficult quarters, leading to a steep decline in its share price earlier this year. It is buying LinkedIn stock at $196, roughly what it traded for a year or so ago. With interest rates on government debt hovering near zero around the world, Microsoft can get credit cheaply.Īnd despite the hefty premium above LinkedIn’s current share price, Microsoft is buying low. In fact, Microsoft is funding its acquisition entirely with new debt, even though it has $100 billion in cash. PE firms usually do not seek to combine assets of different businesses, and usually use leverage to back up their investment. The model here is to buy low and hope to sell high after injecting the business with resources. This implies that a full and close integration of services and software is explicitly being ruled out at this point.Ī second type of acquisition thrives on such independence: private equity acquisitions. ![]() LinkedIn CEO Jeff Weiner may have had this Microsoft experience in mind when he assured his employees that their new owner would grant LinkedIn “independence.” That, he said, is what sold him on the deal. Microsoft ended up writing down the Nokia acquisition just a few years later. The company’s 2014 acquisition of Nokia’s mobile phone assets was intended to create added value by combining these hardware assets with Microsoft’s software and services. Perhaps Microsoft is not touting the value-creation potential of a strategic remix because it has just come off a big failure with that model. Investors can be excused for being puzzled at the numbers. Beyond that, there are vague tech-speak promises of how LinkedIn’s social network might help Microsoft’s enterprise businesses. The only numbers we have so far is that the companies expect $150 million in annual savings by 2018. Possibly, but the concrete synergies are hard to see, especially considering the $9 billion premium that Microsoft is paying over LinkedIn’s market value as of last week. Is this what Microsoft and LinkedIn are doing? In this model, the acquired assets and capabilities are combined with existing assets to generate new business or to save costs. One type of acquisition is the strategic remix. ![]() I see three possibilities, each with its own rationale and trajectory. One reason for the uncertainty is that we don’t know yet what kind of acquisition this is. ![]() Precisely how consequential and in what way is still a puzzle to observers. Microsoft’s acquisition of LinkedIn is big and bold - and likely to be consequential. By Ben Gomes-Casseres | Originally in HARVARD BUSINESS REVIEW | ![]()
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