Microsoft (NASDAQ:MSFT) is not a company known for its success with acquisitions.
In this clip from the Industry Focus: Tech podcast, Dylan Lewis and Daniel Sparks take a look at two of the most disastrous purchases the company has made in recent years -- Nokia's (NYSE: NOK) devices and services business and aQuantive -- and then go over why the LinkedIn (NYSE:LNKD.DL) deal looks more promising.
A transcript follows the video.
This podcast was recorded on June 17, 2016.
Dylan Lewis: Looking back, Microsoft is not a company that is known for very great choices with their acquisitions. I think their track record highlights some of the issues with making big acquisitions. Do you want to run through a couple and show some of the risks here?
Daniel Sparks: Yeah, so big acquisitions. That is the highlight here. If you were to look at all of Microsoft's acquisitions, it could have panned out fairly well. But when you look at the big ones ... and, obviously, those are the ones that have the most material impact on investors, the ones that matter. Recently, there was a 2014 acquisition of Nokia, which was around $8 billion. Virtually all of this value was almost erased in a matter of a few years. That was just mind-boggling. When it comes to the restructuring charges, and the writedown on the balance sheet ... when you add up all this, basically Microsoft just spent a lot of time firing people, getting rid of people, reorganizing stuff, and basically getting rid of the business. It was a complete failure. The total charges were probably somewhere around $10 billion that was wasted on this deal.
Lewis: What about the aQuantive deal? That was a little further back, but the story is kind of similar there.
Sparks: Yeah, aQuantive was an acquisition made to keep up with Google (NASDAQ: GOOG) (NASDAQ: GOOGL). Google was hot stuff, and Microsoft wanted to up their game there, so they wanted a piece of -- aQuantive was specialized in digital advertising products. Same thing, virtually almost all of the value was completely erased. This acquisition was around $6.2 billion, and the writedown was also pretty much the entire value of this business. And like we mentioned earlier, these are different types of acquisitions, too, which came before Microsoft's new CEO, which were more focused on integrating these into the business. While LinkedIn, they're really trying to emphasize that LinkedIn is valuable in and of itself. So maybe that'll help avoid some of the downfalls that could come from integrating such a different business.
Lewis: Yeah, I think if you want a metaphor for how to think about these acquisitions in Microsoft's history, the Nokia and aQuantive acquisitions were kind of like buying a car that has working parts but you need to fix it up a little bit. Buying something like LinkedIn is like buying a car that runs. It works on its own. You don't need to put in work to get a lot of the value out of it that you see. Granted, there's a premium there, but in and of itself, it's a pretty strong business.