Was Salesforce Eyeing LinkedIn Before Microsoft Scooped It?

It is now becoming clear why Microsoft Corporation (NASDAQ:MSFT) paid such a hefty price to acquire LinkedIn Corporation (NYSE:LNKD) . According to a report published by Bloomberg yesterday, salesforce.com Inc. (NYSE:CRM) was also interested in buying LinkedIn Corporation (LNKD), which led to Microsoft making one of its costliest acquisitions so far.

Later in an interview with technology publication Recode, the Chief Executive Officer of Salesforce, Marc Benioff, confirmed that it was in talks with LinkedIn for a potential takeover.

Citing people familiar with the matter, Bloomberg revealed that The Goldman Sachs Group Inc. (NYSE:GS) was advising Salesforce during the negotiations. The transaction, if it had materialized, would possibly have involved stock and debt financing. However, Microsoft stepped in with a lucrative all-cash offer of $26.2 billion, which was too good for LinkedIn to turn down.

Most importantly, however, citing people familiar with the matter,Bloomberg reported that Microsoft was not the one to contact LinkedIn’s management for the buyout. Instead, it was the professional networking behemoth’s Chairman Reid Hoffman and CEO Jeff Weiner who directly informed Microsoft's CEO Satya Nadella “that they were proceeding with a sale process that had led them to hire bankers and contact other potential buyers”.

Challenges Ahead for Salesforce

The lost acquisition opportunity may have a negative impact on Salesforce over the long run. As per Bloomberg, Salesforce, which is currently the market leading customer relationship management (CRM) platform provider, had expected the LinkedIn acquisition to provide it access to “vast trove of data on workers around the world to bolster tools that help customers close sales deals”.

Meanwhile, we believe that the acquisition of LinkedIn by Microsoft will change the dynamics of the enterprise market. Microsoft also has Dynamics CRM taking care of the marketing aspect. With LinkedIn bringing in human resource (HR) solutions as well as its network of around 433 million users, the acquisition will provide ample support to Microsoft in terms of CRM functions (background checks on people you’re doing business with, for instance).

Moreover, Microsoft will be able to integrate LinkedIn services with its Office 365, which will bolster its enterprise business.

Furthermore, Microsoft has been focused on ramping up its enterprise business and the acquisition of LinkedIn is in sync with this strategy. It allows Microsoft to create a significant presence in the social media market, which should be supported by Microsoft’s app building efforts.

Conclusion

Initially, it appeared as if Salesforce had lost the battle to Microsoft. However, on closer inspection, we note that many of the acquisitions made by Microsoft have failed to deliver, such as those of Nokia (HE:NOKIA), Danger, aQuantive, Tellme Networks and Navision, with the company having to write down billions of dollars related to these transactions.

This may have happened due to Microsoft’s failure in integrating the acquired assets. So, it all depends on how well Microsoft will integrate LinkedIn’s services and capabilities.

On the other hand, Salesforce has a strong history of growth through innovations and strategic acquisitions. Most recently, it entered into a definitive agreement to acquire the provider of software-as-a-service e-commerce solutions, Demandware, Inc. (DWRE), for approximately $2.8 billion.

Moreover, investments in start-ups have been one of Salesforce’s key growth strategies. Over the past few years, the company has acquired or partnered with numerous start-ups. According to a report by TechCrunch, since 2009, Salesforce Ventures, the company’s investment arm, has invested about $500 million in over 150 enterprise start-ups.

Further, last October, Salesforce Ventures announced its plan to invest $100 million specifically in European start-ups to drive cloud innovation and gain customers in the region.

We expect Salesforce’s sustained focus on expanding its business through strategic acquisitions and investments to drive growth in the long run.

For now, it is better to wait and watch Salesforce’s counter-strategies to retain its leading position.

Currently, Salesforce carries a Zacks Rank #3 (Hold).