Microsoft’s LinkedIn deal is right connection
Microsoft's $26bn bid for LinkedIn is certainly punchy. The company founded by Bill Gates will pay $196 per share, a near 50 per cent premium on Friday's closing price.
Analysts see the value in the deal. With the acquisition, Microsoft is delving deeper into the “world of work” according to Martin Garner of CCS Insight. LinkedIn has virtually 100 per cent market share in what it does, and 433m professional users.
Garner cautions that the deal needs to be executed properly. For example, Microsoft must integrate its various services fairly quickly with LinkedIn. It also needs to show that the combined suite of services will form a true platform, as Facebook has become in the consumer world.
Read more: Eight $1bn plus Microsoft megadeals, and where the companies are now
So far, so good. But as ever when a tech company attracts a sky high valuation, talk will likely turn to a tech bubble.
That is a scary prospect, especially at a time of economic uncertainty. When the dotcom bubble burst in March 2000, the fallout for equities was quick and severe. The Nasdaq Composite Index fell 37 per cent in the subsequent 10 weeks. New dotcoms were forced to work much harder to secure funding.
This time around, LinkedIn may be one of the lucky ones. It meets a business need and has a willing buyer. Other tech companies are on shakier ground, notably Twitter whose shares have been on a long downward trajectory. Google is thought to have turned its nose up at the company.
Perhaps the biggest tech elephant in the room is Uber Technologies which has an estimated value of more than $60bn. The company claims it is profitable by some measures in North America, but it is spending huge amounts of money to capture markets in China and elsewhere.
If the world’s most valuable startup is forced to curtail its ambitions, it could send shock waves through the whole system.
At that point, sentiment rather than finances take over. Investors who have been burned at one company will be more reluctant to support high valuations elsewhere.
That is when a bubble would go pop. Then start ups can but hope they attract a tech titan that is willing to act as a white knight. And not everyone will be lucky.