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Microsoft's Massive LinkedIn Corp Acquisition in 6 Metrics

By Daniel Sparks - Jun 15, 2016 at 8:07AM

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Here's everything you need to know about Microsoft's biggest acquisition ever.

Microsoft (MSFT -0.31%) and LinkedIn (LNKD.DL) both surprised investors Monday when they announced the software giant had agreed to purchase the social network for professionals in what is Microsoft's largest acquisition in history. Nearly tripling its next largest acquisition, the acquisition of LinkedIn represents Microsoft's 2014-elected CEO Satya Nadella's boldest move yet.

As investors attempt to digest the implications of such a costly acquisition, here are 10 metrics to provide some context.

Image source: Microsoft.

$26.2 billion: Microsoft is paying $26.2 billion to purchase LinkedIn. This is equal to 6.6% of Microsoft's $394 billion market capitalization.

$196: The acquisition comes out to $196 per share, which is a 50% increase from where LinkedIn stock closed on Friday. Shares jumped nearly 47% after the deal was announced.

$3.2 billion: LinkedIn's trailing-12-month revenue was about $3.2 billion, or about 3.6% of Microsoft's $87 billion in revenue during the same period.

35%: Both Microsoft and LinkedIn cited LinkedIn's recent growth as a reason for the deal. LinkedIn's 35% year-over-year revenue growth in the trailing 12 months could help mitigate Microsoft's recent growth challenges; Microsoft's revenue during the same period is down about 8%.

105 million: LinkedIn boasts more than 105 million monthly active users, making it the world's largest social network for professionals. Up 9% year over year, LinkedIn's active base of users is still growing at a meaningful rate.

58%: The two companies believe LinkedIn's total addressable market, or TAM, opportunity is huge, pegging it at $115 billion -- a level that would increase Microsoft's estimated TAM by a whopping 58%.

"[Total addressable market, or TAM,] data reflects an internal analysis by Microsoft and LinkedIn from third-party sources including IDC, Gartner, Dell'Oro and ITU," reads a caption for this chart in Microsoft's presentation slides. Chart source: Microsoft.

"While LinkedIn and Microsoft are highly complementary, they participate in unique total addressable markets (TAM)," Microsoft said in a presentation about the acquisition. "In addition to TAM growth, the likelihood of seizing more of the TAM will increase through differentiated experiences."

Beyond metrics

However, numbers don't fully capture the scope of Microsoft's acquisition of LinkedIn. Other tidbits worth understanding include:

  • Microsoft plans to take advantage of the acquisition by integrating a professional's profile across its products. "In the future, a professional's profile will be unified and the right data at the right time will surface in an app, whether Outlook, Skype, Office, or elsewhere," Microsoft said.
  • Microsoft's virtual voice assistant, Cortana, will utilize information from LinkedIn profiles in the future.
  • Microsoft anticipates the acquisition will enable salespeople with better tools. Specifically, Microsoft and LinkedIn are planning for LinkedIn's Sales Navigator to help users of Microsoft's customer relationship management, or CRM, system, Dynamics, and other CRM systems to "transform the sales cycle with actionable insights and the ability for each seller to build deeper relationships with prospects and customers -- all to accelerate results."

In a Monday interview with The Wall Street Journal, Microsoft's Nadella summed up the acquisition from a 10,000-foot level: "It's really the coming together of the professional cloud and the professional network."

Looking ahead, challenges remain. First, though the deal is expected to close by the end of this year, problems could still arise since the deal is still subject to shareholder approval and must satisfy all regulatory approvals and other customary closing conditions. Second, while the two companies' ambitions for the acquisition sound great in theory, these things are often much more difficult in practice. While unanimous approval from the two companies' boards is a start, investors should keep an eye out for potential problems.

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