LinkedIn deal may be the torch that ignites a tech industry M&A wildfire
While the first part of 2016 – when compared to last year's figures – has been relatively slow in terms of M&A activity, large tech companies such as IBM, Salesforce and Oracle recently launched an acquisition frenzy in the software industry, purchasing numerous cloud computing startups, according to Business Insider. Now due to the recent high-profile acquisition of LinkedIn acquisition by Microsoft, the entire industry is speculating about a takeover boom. Essentially, this merger may be a metaphorical torch that ignites a blazing M&A wildfire.
What are the terms of the LinkedIn-Microsoft deal?
Microsoft announced its intentions to purchase business-focused social network platform LinkedIn June 13 in an all-cash transaction estimated at $26.2 billion At $196 per share. LinkedIn will also retain its independent brand throughout the merger, though it will report its financials as part of Microsoft's Productivity and Business Processes segment. The deal is expected to close by the end of the calendar year.
Jeff Weiner, the CEO of LinkedIn, will remain in his position and report directly to Satya Nadella, the CEO of Microsoft. Weiner, Nadella and Reid Hoffman, the chairman of the board[whose board?], co-founder and controlling shareholder of LinkedIn, all fully support this deal. Both companies' boards of directors unanimously approved the transaction.
"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 said. "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."
What's next for tech industry M&A?
Research analysts at Goldman Sachs recently updated a running list of likely companies it believes will be acquired in the year, according to Business Insider. To put this list into perspective, LinkedIn had a number two rating on the list before the merger, indicating that it had a 15 to 30 percent chance of entering into a deal. The following companies all ranked at a one on the list, meaning that they have an even higher chance at 30 to 50 percent:
- Pandora Media: Since the internet radio streaming service went public in 2011, it has failed to make an annual profit. Facing intense competition from Spotify and Apple, among many other streaming platforms, its shares are down 25 percent this year alone. Corvex Management currently owns 9.9 percent of the company. A Business Insider article reported that Keith Meister, founder and chief investment officer, pushed for a sale this past year. Its current market capitalization is $2.8 billion.
- Acacia Communications: The initial public offering market may be quiet so far this year due to global market volatility. However, this Massachusetts supplier of high-speed optical-networking products recently went public in May, marking the second IPO of the year and a good sign for IPO investors. Its current market cap is $1.5 billion, according to Business Insider.
- Zynga: The successful mobile game developer is known for its gaming sensations "FarmVille" and "Words With Friends" that took the country by storm at the launch of the apps in 2009. Even with mounting pressures from King, the "Candy Crush Saga" developer, the company experienced a solid first quarter of the year, exceeding Wall Street expectations due to the guidance of the newly instated CEO Frank Gibeau, according to Business Insider.
With more companies on Goldman Sachs's extensive list and if these predictions prove true, as in the case of LinkedIn, there could be significant M&A activity in the tech industry in the near future. Essentially, this high-profile LinkedIn acquisition may just be the boost many of these companies need to pursue a deal.