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June 14, 2016
martinwolf Transaction Analysis
Microsoft Acquires LinkedIn
 
Financial Information
  • Enterprise Value                              $24.4 billion
  • EV/LTM Revenue                            7.6x
  • EV/LTM EBITDA                              91.7x
Transaction Facts
  • Microsoft (Nasdaq: MSFT) announced yesterday that it was buying professional networking site LinkedIn (NYSE: LNKD) in its largest ever acquisition.
  • Microsoft is offering $196 per LinkedIn share, a 50% premium to Friday's close. LinkedIn's share price immediately jumped 47% to hover around the offer price, while Microsoft fell 2.6%.
  • Microsoft will be adding LinkedIn to its productivity and business processes segment, and expects the company to have a negative impact of approximately 1% on adjusted earnings for fiscal 2017 and 2018 years. The acquisition is expected to add to Microsoft's per-share earnings in 2019.
  • The deal ranks among the largest tech deals in history, behind Dell's acquisition of EMC for $67 billion and Avago's acquisition of Broadcom for $37 billion but ahead of Facebook's acquisition of WhatsApp for $21.8 billion.
A Big Bet on Increased Connectivity and Successful Integration
  • The Largest 'Big Deal' Yet: Microsoft has made major acquisitions before (though none on this scale), and has had trouble successfully integrating and monetizing them. Previous large deals have ended up either negative or of questionable value. Its acquisition of Nokia's handset business for $7.2 billion was almost completely written down, as was its $6 billion purchase of aQuantive in 2007. Its $8.5 billion acquisition of Skype has not been negative, though there is little indication that it has created significant value. 
  • Backing Words with Action: Connectivity and integration have long been priorities for Microsoft under CEO Satya Nadella, and much of the justification behind this acquisition centers on its potential to add data and other enhancements to Microsoft's existing software suite including Office, Cortana and Dynamics. Microsoft is also interested in Lynda.com, a training video platform acquired by LinkedIn for $1.5 billion last year.
  • Large Size Invites Scrutiny: Investors and observers are naturally cautious of the size of the deal and the debt load the company is taking on to fund it. The deal's total value is approximately 37% of Microsoft's last reported cash balance net of debt, and the company has announced that it will fund the deal primarily with new debt. Following these announcements, Moody's said it is reviewing the company to determine whether to cut the company's Aaa rating to Aa1 (which would leave only Johnson & Johnson with the coveted top rating).
  • What About the Partners?: Microsoft's vision of an increasingly connected software suite has the potential to pay dividends for its partners, compounding the value of their existing offerings. At the same time, the deal further emphasizes Microsoft's priority shift toward higher value software and services, particularly in the cloud space. 
For more information about this transaction,  click here to read the press release.

martinwolf was not the advisor in this transaction.

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About martinwolf    


With offices in the San Francisco Bay Area, martinwolf is a leading M&A Advisory focused on middle market companies in the IT Services, IT Supply Chain, IT-Enabled Business Process Outsourcing and Software as a Service (SaaS) space. Since 1997, our team has completed more than 140 transactions in nineteen countries and sold seven divisions of Fortune 500 companies. 

 

martinwolf is a member of FINRA and SIPC. For more information, visit www.martinwolf.com.  

 

To learn more about martinwolf, contact Matthew Putzulu at mputzulu@martinwolf.com.

 

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