3 Key Factors to Consider When Securing Capital for Acquisition

In 2016, Microsoft made headlines by acquiring LinkedIn, the professional networking site. One of the largest technological acquisitions in history, the deal was valued at $26.2 billion. Obtaining the necessary capital for an acquisition of this magnitude is no easy task, and there were numerous key factors that Microsoft had to consider when securing the funding for the LinkedIn acquisition.

Financial Strength

Financial strength is one of the most important aspects to consider when obtaining funding for an acquisition. For the Microsoft-LinkedIn acquisition, Microsoft had to assure lenders and investors that it could generate strong cash flows and keep a healthy balance sheet in order to secure the necessary capital. Microsoft had a good financial track record and a history of generating strong cash flows, which contributed to boosting investor confidence in the acquisition.

Deal Structure

Additionally, the deal structure should be taken into account when securing capital for an acquisition. Microsoft had to have the necessary cash on hand to finance the deal because the LinkedIn acquisition was set up as an all-cash deal. Microsoft had a significant cash balance, which provided the business with the financial flexibility it need to structure the acquisition in this way. Furthermore, structuring the sale as an all-cash agreement also meant that Microsoft would need to incur more debt to finance the deal, which was another aspect that needed to be carefully considered.

Market Conditions

Additionally, market conditions must be taken into account while collecting funding for a purchase. Microsoft made its offer for LinkedIn at a time when interest rates were relatively low, making it easier for the company to secure the necessary funding. There were also good market conditions at the time, with investors expressing a keen interest in technological investments. These elements made it easier for Microsoft to secure the necessary capital and contributed to creating a favorable environment for the Microsoft-LinkedIn acquisition.

To recap, the Microsoft-LinkedIn acquisition was a significant endeavor that necessitated careful consideration of a number of critical factors, including financial strength, deal structure, and market conditions. Microsoft got the required funding and successfully executed the acquisition by showcasing its financial strength, structuring the deal strategically, and taking advantage of favorable market conditions. This acquisition offers invaluable insights into the factors that must be considered when starting such an endeavor and have since become a textbook example of how to secure capital for a massive acquisition.