Microsoft and LinkedIn: The art of the buy-out
The close of Microsoft’s purchase of LinkedIn, announced after being approved by the anti-trust authorities, despite the objections of companies like Salesforce, concerns have emerged about the most complex aspect of such operations: the post-acquisition phase.
The acquisition of LinkedIn, which I have discussed, is the largest in Microsoft’s history: $26.2 billion, or $196 per share in a cash transaction, well above the $6.3 billion paid for aQuantive in August 2007, or the $8.5 billion paid for Skype in May 2011, or the $7.2 billion paid for Nokia in September 2013.
In fact, the Redmond-based company has long experience of acquisitions: some 198. But this is not a discipline where the company has performed well: both aQuantive and Nokia were complete failures the company ended up writing off, and the latter is widely considered one of the worst in the history of the tech sector. Despite the good reputation of its corporate culture, Microsoft has largely failed as a host, unlike Facebook, whose 61 buyouts have mainly been acqui-hires whose teams are still with the company several years later. That said, it has a better reputation than Yahoo!, a zombie enterprise that infected each of the 114 companies it bought over the years, turning them into the walking dead.
So, how should the post-acquisition phase work? Obviously, the answer is different in the case of a startup or a small company compared to an established enterprise with hundreds or thousands employees. Acquisitions of small businesses are usually about buying talent, while for the managers of the acquired company the change can pose a challenge adapting to the new environment. When a bigger company offers to buy a smaller one, it typically offers very clear terms and conditions regarding the future of the incoming team, although there are plenty of cases in which that team leaves at the earliest opportunity in search of new projects. In the case of Facebook, it is not surprising that the founding teams of the acquired companies maintain their independence, seeing the project as their own despite having been bought out, and also enjoy access to a much simpler life thanks to the resources, both in money and talent, of the new parent company.
In the case of the acquisition of a large company, the approach may be significantly different. Many employees may not have shares in their company, or not enough for the buy out to make any change in their lives, meaning all they can do is negotiate an improved salary, hope to be part of an interesting project that might motivate them, or simply have something interesting to put on their CV. Obviously, the Reid Hoffmans and Jeff Weiners of this world are free to do what they want regardless of what they have signed, and motivating them to stick around if something more interesting comes up is not easy.
LinkedIn could turn out to be a disaster for Microsoft if LinkedIn’s management team decides to split. The company has around a thousand employees, and if Microsoft decides to downsize, that could send a very negative message, prompting a steady exodus. Microsoft has been particularly careful when negotiating with Jeff Weiner, CEO of the company since December 2008, to ensure that he personally oversees the transition, a responsibility usually carried out by the purchaser which tasks the operation to a senior manager who sees it as an opportunity to lead a larger project with more resources and possibilities.
Then there are the statistics: it’s estimated that between 60% and 80% of buyouts go wrong, destroying value rather than increasing it. Buyouts come down to details, mutual respect, avoiding culture clashes and everybody understanding that after the operation, things are going to be better, which is usually easier to imagine in the case of a startup with limited resources than a consolidated company. This is the biggest operation Microsoft has ever carried out, and comes at a key moment in its evolution. Whether it is a success or ends up as a revolving door of engineers, developers and managers is something that we will know very soon.
(En español, aquí)
