Microsoft CEO Satya Nadella has explained why he thinks the decision to acquire LinkedIn for $26.2 billion is the right one for the tech giant. Given this is the biggest acquisition for Microsoft since I became CEO, I wanted to share with you how I think about acquisitions overall, Nadella said, going on to describe the questions he asks himself before taking a call.
To start, I consider if an asset will expand our opportunity — specifically, does it expand our total addressable market?, he wrote in the e-mail to employees.
Is this asset riding secular usage and technology trends? And does this asset align with our core business and overall sense of purpose?
The answer to all of those questions with LinkedIn is squarely yes, he wrote.
“LinkedIn and Microsoft really share a mission” of helping people work more efficiently, said Microsoft CEO Nadella in a conference call with analysts. “There is no better way to realize that mission than to connect the world’s professionals.”
Nadella believes that new opportunities for monetisation will be created once integration with LinkedIn, its largest acquisition till date, is completed.
The LinkedIn acquisition could help Microsoft play to its strengths in analytics, machine learning and artificial intelligence, Nadella said on the investor call.
Microsoft noted that the deal brings in a big new customer base: after adding in LinkedIn, the total potential market size of Microsoft’s productivity and business-process segment sits at $315 billion, up from $200 billion without LinkedIn.
Nadella explained that as experiences on LinkedIn and Office 365 get “more intelligent and delightful, engagement will grow”.
“And in turn, new opportunities will be created for monetisation through individual and organization subscriptions and targeted advertising,” Nadella added.
The $196-per-share price tag represented a premium of almost 50 percent over LinkedIn’s stock market value as of Friday, but was still well below the social media company’s all-time high of $270. Analysts said the price was rich, and Microsoft’s stock closed down 2.7 percent at $50.14.
Still, there was cautious optimism that this could be one of the relatively few tech mega-mergers that works out well. “It’s a massive growth play for Microsoft,” said Forrester analyst Ted Schadler.
The deal may also help spur further mergers and acquisitions in the tech sector, where a broad correction is bringing down the prices of public and private companies even as a handful of major players sit on large cash piles.