As you have probably heard by now, Microsoft is buying the professional networking website LinkedIn for just over $26 billion, in cash. The takeover came as unprecedented and sent shares in LinkedIn rocketing upwards by 47% – this translates to a jump of $61.50 to $192.50. This is particularly astounding if you consider that only in February the company had fallen to a low of around $100 per share.
This is the biggest acquisition that Microsoft has ever made. They purchased Skype in 2011 for $8.5 billion, and more recently bought Nokia’s mobile phone business for $7.2 billion in 2013, but this deal is far more. Many observers of this latest deal are lauding LinkedIn’s negotiation skills for securing a deal nearly quadruple their last major purchase.
Despite the initial surprise, it is clear to see the advantages of this takeover for Microsoft. Ben Wood, head of research at CCS Insight, said that the deal would give Microsoft access to the world’s biggest professional social network. The LinkedIn brand and culture will remain the same, it has been confirmed – which seems to suggest that Microsoft are not looking to implement huge change, but are merely aiming to boost sales of its own business and email software.
LinkedIn has been suffering as of late: and so it can be said that this takeover deal has definitely come at a good time. In February their stock plunged by a quarter, they reported growth issues, and they delivered a profit warning for the first quarter as well as an annual loss of around $166 billion.
This takeover deal isn’t merely a happy coincidence though. There has been a great burst of M&A activity in the tech sector recently. Prominent venture capitalist Marc Andreessen said on Tuesday that the Microsoft takeover was “indicative of an impending increase in mergers and acquisitions across the tech sector”, according to MarketWatch. Recent deals have included the $4.95 billion sale of security company Blue Coat to Symantec, and the $13 billion merger of financial data providers HIS and Markit.
Many larger companies, like Google, Apple and indeed, Microsoft, have sensed this might be the right time to buy, especially as there is a slump in the share prices of some tech companies which had previously been high valued on growth expectations. LinkedIn definitely fits into this category. This could, therefore, be the right time to buy.
LinkedIn must have been particularly attractive to Microsoft because of its large, global membership. Another social network which has a huge online audience and has been hit by difficult times as of late is Twitter. They have 310 million active users and like LinkedIn, their share price has dropped dramatically recently, with it down almost 60% since last July. Consequently, when Microsoft announced the LinkedIn merger, Twitter’s share price soared.
Will Twitter be next? Are there any other tech companies out there who also look particularly vulnerable to a takeover? Many analysts think that the tech M&A boom has only just begun. As Andreessen remarked, “Most of the big tech companies have done very well over the past five years, they’ve piled up lots of cash, and they have to go shopping.”
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