Big news currently in the world of M&A in enterprise and social networking services: Microsoft has reported that it is purchasing LinkedIn, the social network for professionals with some 433 million users, for $26.2 billion, or $196 per share, in cash. The transaction has actually been authorized by both boards, but it must still get regulatory and other verifications.
If for some cause the deal doesn’t go through, LinkedIn will have to pay Microsoft a $725 million termination fee, reported by Microsoft’s SEC filing detailing the merger.
The $196 per share offer is a huge hike on its closing price from Friday, $131.08. (And in pre-market trading, not surprisingly, LinkedIn’s stock has nearly crept up 64 % to achieve the share value Microsoft is paying. Microsoft’s value is down 4 % to $49.66 in pre-market trading.)
LinkedIn is maintaining its branding and product, and it will become a component of Microsoft’s productivity and business processes segment. LinkedIn’s CEO Jeff Weiner will be accountable to Satya Nadella.
The How of Microsoft’s plans to use LinkedIn
The acquisition is a huge one for both sides.
For Microsoft, it’s bringing a key, missing piece into the company’s approach to build out more services for enterprises, and give it a key method to contend better against the likes of Salesforce (which it also supposedly tried to purchase).
Currently, Microsoft is centered squarely on software (and some hardware by way of its very downsized phones business). But LinkedIn will give Microsoft a far greater reach in terms of social networking services and professional material – developing the early indications of enterprise social networking that it kicked off with its acquisition of Yammer for $1.2 billion in 2012.
LinkedIn’s wider social network, pegged as it is to groups of employees and employers, will give Microsoft a sales channel to market more of its products, and will serve as a match up to those that it already provides for collaboration and communication.
In a segment called “Selling to Social Selling” in the deck below, Microsoft points how it plans to utilize LinkedIn’s social graph as an integrated selling tool alongside its existing CRM products (which are second to Salesforce in the market right now). Users of Microsoft’s Dynamics CRM and other systems, it says, will want to utilize LinkedIn’s Sales Navigator “to transform the sales cycle with actionable insights” – basically lots of background information about users that can help find leads, open conversations and close deals.
There are other factors of LinkedIn’s business that are interesting to take into account in light of this acquisition. LinkedIn bought Lynda.com, as an example, to spearhead a move into offering online learning tools to users – broadening on their bigger hope of being the go-to place for overall professional development. Currently, with Microsoft, you can observe how Lynda might be employed to help sell Microsoft software products, and supply support in learning to utilize them. This is also an area that Microsoft is presently highlighting as a positive in the deal:
There are also other sections where you will observe lots of natural integrations, for instance with Cortana and providing more professional networking tools to users.
“The LinkedIn team has grown a fantastic business centered on connecting the world’s professionals,” Nadella stated in a statement. “Together we can accelerate the growth of LinkedIn, as well as Microsoft Office 365 and Dynamics as we seek to empower every person and organization on the planet.” You can read Nadella’s full memo to staff here.
(And just as a side notice, this puts some of Microsoft’s latest cost-cutting through layoffs and sales into some viewpoint, as well.)
For LinkedIn, it puts to rest concerns of how the company would ever compete with companies that are building more software on top of their social graphs that would put it into closer competition in opposition to LinkedIn. For a while, it appeared as if this was the direction that LinkedIn hoped to develop, but more current issues with user and revenue growth, and a subsequent dropping share price, has put the company on the defensive.
“Just as we have changed the way the world connects to opportunity, this relationship with Microsoft, and the combination of their cloud and LinkedIn‘s network, now gives us a chance to also change the way the world works,” Weiner incorporated in the statement. “For the last 13 years, we’ve been uniquely positioned to connect professionals to make them more productive and successful, and I’m looking forward to leading our team through the next chapter of our story.” Read Weiner’s letter on the deal to LinkedIn staff here.
But this is not at all a tale about a failing company getting scooped up on the way down for parts. LinkedIn, even with a share price that is under its 12-month high point of $258 per share, is one of the better-performing tech companies in the public markets.
Microsoft has never been a enormously successful company when it comes to social networking – although it smartly invested in Facebook before it went public, and as we have documented before it was evidently curious at one point in trying to make a bid to buy Slack for $8 billion. LinkedIn’s social network will give it a significant foothold in this section.
LinkedIn is active in over 200 countries and has 105 million monthly active users, with 433 million registered overall. The company has some 60 % of all traffic on mobile, and – thanks to some strong SEO – a ridiculous 45 billion quarterly page views. It’s also one of the biggest repositories of job listings, with some 7 million active listings at present. While some parts of LinkedIn’s business has stagnated, particularly with MAU growth (which is up only 9 % on last year) latter is a growing business – up 101 % on a year ago.
LinkedIn’s core business is centered currently around recruitment ads and, to a lesser extent, premium subscriptions for users. The recruitment business (termed “Talent Solutions”) accounted for $2 billion of the company’s $3 billion in revenues in 2015.
And as you can discover from the photo above, Reid Hoffman, one of the co-founders and current chairman, is behind the deal.
“Today is a re-founding moment for LinkedIn. I see incredible opportunity for our members and customers and look forward to supporting this new and combined business,” mentioned Hoffman in a statement. “I fully support this transaction and the Board’s decision to pursue it, and will vote my shares in accordance with their recommendation on it.”
The companies are hosting a conference call at 8.45 a.m. PT. Below is the presentation deck they will employ:
We’ll update with a great deal more as we learn about it. Right now, you can weigh in with the rest of our audience on the value of the deal.
Feel free to leave a comment. We would like to know what you think.