Why Bloomberg would be stupid to buy LinkedIn
The media corporation and the social-networking site for professionals don't belong together. It doesn't make financial sense.
Some people are suggesting that Bloomberg and LinkedIn would be a good business combination. I think it would be a complete financial disaster.
In an interesting but flawed piece, Reuters reporter Felix Salmon ponders the merits of Bloomberg acquiring the world's largest business social network.
From his post:
The acquisition of LinkedIn would be a clear declaration that Bloomberg had its eye on more than just the people with $20,000/year terminal budgets, and was interested in reaching the professional world more broadly. LinkedIn has not taken off as a messaging medium in the way that Bloomberg did, but in many ways it's the closest thing there is to Bloomberg Messenger for the rest of us. Bloomberg knows, on a deep institutional level, how professionals network and message each other; LinkedIn has a network which dwarfs Bloomberg's. The two together could be a formidable combination.
On the surface, his points make sense. Bloomberg Terminals rule the financial world, but there isn't a lot of expansion left for that business. LinkedIn, on the other hand, still has huge growth potential for professionals outside of finance, an area where Bloomberg's reach is limited.
This combination would be a disaster, though. While it's fun to ponder what would happen if two of the biggest names in business teamed up, it makes absolutely no business sense for either party.
The numbers don't add up
Let's first talk about the price of such an acquisition. LinkedIn's current market cap is just north of $12 billion. Bloomberg L.P., a private company, made $7.6 billion in 2011. That's enough to buy The Financial Times, but nowhere near enough to acquire a company the size of LinkedIn. The social network's investors would demand a premium for the acquisition, so add another few billion to the acquisition price.
In 2008, Merrill Lynch acquired 20 percent of Bloomberg in a deal that valued the company at $22.5 billion. Even if Bloomberg's valuation has doubled since 2008 (it hasn't), LinkedIn would still be worth more than a quarter of the company. To make an acquisition work, it'd have to get outside partners to help finance the deal or give up significant control in a merger.
The numbers just don't add up. Even Reuters' Salmon comes to this conclusion, instead suggesting that Bloomberg should build its own social network to compete with LinkedIn. I think this is an even worse idea than Bloomberg acquiring LinkedIn -- building a social network from scratch when there's a heavily established competitor diverts resources, drains cash, and almost always ends up in failure.
Lack of synergies
When a company makes an acquisition, it's often about the synergies between the acquisition and the parent company. Facebook acquiring Instagram made a lot of sense: Facebook needs to push deeper into mobile, and photos are the social network's top source of engagement.
But how on Earth would LinkedIn help Bloomberg with either its media or its financial data businesses? Hardcore traders and finance types don't need information on who they're connected to -- they need the most up-to-date financial news and stock information possible to make smarter trading decisions. LinkedIn doesn't help them make smarter trading decisions.
LinkedIn also doesn't help Bloomberg's media businesses in a way that would justify the multibillion-dollar acquisition. Any integration of LinkedIn into Bloomberg's media companies can be accomplished via partnerships, which are far less expensive and easier to manage.
As for LinkedIn, its reach is already larger than Bloomberg, and it's about the everyday professional, not the day traders who are Bloomberg's core customer base. I don't see how Bloomberg helps LinkedIn, and thus I don't see LinkedIn being eager to accept an acquisition offer from the media and finance giant.
Bloomberg would be stupid to buy LinkedIn. The synergies aren't there, and it would simply cost too much. So can we please stop speculating? It's not going to happen, and it shouldn't.