Alphabet, Oracle, IBM and Salesforce also tried to acquire LinkedIn but finally Microsoft grabbed the deal at $26.2 Bn. It is absolutely essential to have alignment on two things in any M&A: Purpose and structure. On the former, virtually Microsoft and LinkedIn had identical mission statements. For LinkedIn, it was to connect the world’s professionals to make them more productive and successful, and for Microsoft it was to empower every individual and organization in the world to achieve more. Both are trying to do the same thing but coming at it from two different places: For LinkedIn, it’s the professional network, and for Microsoft, the professional cloud.
Reasons- Technological & Strategic Advantage
The data Microsoft is going to get from LinkedIn can be used for interviews, reference, etc. Integration of services like HRMS, Skype, MS office will enable Microsoft to give unparalleled offerings. In words of Satya Nadella,“This combination will make it possible for new experiences such as a LinkedIn newsfeed that serves up articles based on the project you are working on and Office suggesting an expert to connect with via LinkedIn to help with a task you’re trying to complete”. Microsoft could also enter into bridging gap between job requirements and job seekers by using Lynda.com, recent acquisition of LinkedIn. Talent acquisition business of LinkedIn is strong and it is penetrated only 20% into large organizations. This human capital area is a massive business opportunity and an entirely new one for Microsoft. Marketing and Premium solutions have strong growth opportunities. This gives Microsoft a big technological and strategic advantage. At the same time it is boon for investors of LinkedIn because of company’s growth was slow in last year.
Competition with Facebook and Salesforce.com
Microsoft has dominated the work productivity software market for 30 years. With the acquisition of LinkedIn, the company is looking to add the missing “social angle” to its products. Currently Facebook at work or Enterprise Social Network (ESN) is in beta mode and being used by 450 companies. The social media giant plans to reach out to global working population of three billion. The combination of Microsoft’s work productivity tools with LinkedIn’s professional network could prove to be a tough competitor for Facebook@Work.
LinkedIn gathers detailed information about its users, including their employment history, education and whom they know. These data could prove valuable to Microsoft as it attempts to build offerings for managing relationships with customers and to compete with Salesforce, a firm it tried to buy last year. This deal enhances Microsoft’s transition from a desktop software firm to a cloud computing services provider.
Concerns of Financial Analysts
Though Satya Nadella has been more aggressive about acquisitions than Steve Balmer, industry experts have expressed some concerns about this deal. In February LinkedIn’s share price sank by more than 40% in a day, shedding $11 billion from its market value, after the firm reported that forecasts of revenues for 2016 were lower than expected. LinkedIn had also revealed that it made a net loss of around $165m in 2015, despite revenues of $3 billion, in large part because of excessive stock-based compensation.
History and Operational Challenges
In most of the M&A it is more important to see what company does with M&A rather than which company is being bought. Records of Microsoft with such big deals are poor. Buying aQuantive ($ 6.3 Bn, 2007), Skype ($ 8.5 Bn, 2011) and Nokia’s handset business ($ 7.6 Bn, 2014) didn’t go well. Satya Nadella wants to keep LinkedIn as a separate company might be because he has seen negative side of integrating big companies.
Post Merger Integration and Culture
As per Peter Cohan integration is one of the important tests for successful acquisition. After this deal Jeff Weiner will remain LinkedIn’s CEO and report to Microsoft CEO, Satya Nadella, and join the Senior Leadership Team but there could be a culture clash between the younger LinkedIn thinking and the mature Microsoft way of doing things. In near term there will be no changes in who reports to whom so no reporting relationships at Microsoft will change in that regard. LinkedIn team is expected to focus on driving results while simultaneously partnering on product integration plans with the Office 365 and Dynamics teams. Jeff Weiner in his article ‘changing way world works’ writes, “employees will have the same title, the same manager, and the same role they currently have, the company will have the same mission and vision; same culture and values”. A lot of academic research shows that the odds of making an acquisition work are not high; it will be interesting to see what happens in this deal.
(Sources- article of Jeff Weiner, people matters, Economist, Business Insider, Forbes & ET)