Method in the madness
Why the world’s biggest software firm looks increasingly acquisitive
Take our cash, or at least our shares. That appears to be Microsoft’s mantra these days. After failing to acquire the American operations of TikTok, a short-video app, last year, the software giant was recently rumoured to be in takeover talks with Pinterest, a virtual pin-board, and Discord, an online-chat service. And on April 12th the firm announced that it would acquire Nuance, a speech-recognition specialist, for nearly $20bn in cash—its second-biggest acquisition ever.
Even before this latest flurry Microsoft had acquired a reputation for coveting tech firms that looked as alien to its core business of selling office software as TikTok’s dance videos are to Word and Excel. Five years ago, in its biggest purchase, it paid $26bn for LinkedIn, a business-oriented social network. In 2018 it picked up GitHub, a development platform for open-source programs, for $7.5bn.“Is Satya Nadella getting bored?” wondered the Information, a website covering the tech industry. Having successfully turned Microsoft around, observers murmured, its boss might be in the grip of merger madness. In fact, there might be a method to it.
For starters, Microsoft’s merger activities are unexceptional by big-tech standards, says Mark Moerdler of Bernstein, a broker. The industry is rife with takeover rumours; most are probably true. Large firms talk regularly to each other about potential deals. It is safe to say that Microsoft has term sheets for many potential targets on file. It still invests far more in expanding its existing businesses than on buying new ones. Excluding the Nuance deal, the company has spent only $33bn on big acquisitions in the past four years, compared with $64bn on research and development. It has oodles of cash in the bank ($132bn at the end of last year) and a valuable currency (its share price is up by more than 600% since Mr Nadella took over in 2014). Unlike rivals such as Alphabet and Facebook, both of which face antitrust cases and have steered clear of big deals lately, Microsoft is no longer on trustbusters’ radar.