Most acquisitions don’t work out.
“M&A is a mug’s game,” Roger Martin writes in the June issue of HBR, “in which typically 70%–90% of acquisitions are abysmal failures.”
Is there any reason to think Microsoft’s $26 billion acquisition of LinkedIn, announced this morning, will beat the odds?
It’s hard to know, but Martin’s article offers a simple rule of thumb: “Companies that focus on what they are going to get from an acquisition are less likely to succeed than those that focus on what they have to give it.”
The question, then, is whether Microsoft bought LinkedIn because it had a plausible theory about why it could make the latter more valuable.
Martin suggests four ways acquirers typically do this:
Being a smarter provider of growth capital
Providing better managerial oversight
Transferring valuable skills
Sharing valuable capabilities
Do any of these apply?
LinkedIn already had access to capital as a public U.S. company, but perhaps Microsoft thinks it can provide more patient capital, shielding LinkedIn from the short-termism of the market.
In its announcement, Microsoft said that “LinkedIn will retain its distinct brand, culture, and independence” — in other words, it’ll remain separate — so better management probably isn’t the strategy.
Transferring or sharing skills and capabilities remains a possibility, but then the question becomes: which skills and capabilities? What does only Microsoft know how to do that LinkedIn badly needs?
As Microsoft executives defend the deal, keep an eye on how much they say about why they can improve LinkedIn’s position, relative to how much they talk about what LinkedIn does to improve Microsoft’s.
Absent a theory about why LinkedIn will thrive under Microsoft, the odds favor failure.
Source: HBR
