Microsoft Might Have Overpaid For LinkedIn

Yesterday the news splashed across the media: Microsoft agreed to acquire LinkedIn for $26.2 billion. I was surprised first by the fact that this was so neatly and quietly executed (hats off the now legendary Frank Quattrone of Qatalyst and the good folks at Allen & Company), and then by the price. In my opinion, a 50% premium on their closing stock price on Friday is just too damn high. 

First off, that’s almost 8 times revenue. I know LinkedIn’s a tech company and all but it’s been public for a while, and it’s metrics have never hit that high. Plus the margins are compressing and growth has tapered off. I’ve seen people justify the acquisition based on “cost savings”–of a paltry $150m a year starting in 2018–others have suggested the merging of LinkedIn’s network into Microsoft’s cloud solutions so say a salesperson who is talking to a client automatically sees their LinkedIn profile and network. I say that’s a heck of a lot of money to pay for ‘saved you a click’. The more ludicrous one I’ve heard is that the acquisition could produce some kind of collaboration thing to rival Slack. To which I say, not a bad idea but always assume your in house competition to really popular site/app whatever is probably not going to succeed. Ask Google with Google+. Or just check  Microsoft itself with its $1.3 billion purchase of chat service Yammer which Slack has buried totally.

But that I say they overpaid doesn’t mean there isn’t any value to the acquisition. There is. Microsoft gets live access to LinkedIn’s data, a vast trove of business connections and a ready platform for thought engagement. They also get Lynda.com’s offerings which they can connect to their products. There’s also the value of casting off the cloak of a ‘has been’ and feeling like a relevant player again. I just don’t know that all of that is worth $26bn.  

At the end of the day, I think the main winners right now are Reid Hoffman and co, the investment banks advising and their law firms. I might be wrong and Microsoft might turn out a winner eventually but I’m not holding my breath. Still, the company has billions of money (around $105bn) on its balance sheet and far be it from me to tell them how to spend it. 

Peace out.

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