✒ Being the largest acquisition by a technology company in history, this deal size is more than twice the size of Microsoft’s previous biggest deal, the acquisition of LinkedIn in 2016 for $26 billion. According to Dealogic, it is also the biggest deal since 2019 and the largest cash acquisition of a U.S. company ever.
The “toxic workplace” allegations has sent the shares of Activision Blizzard down by 37% from its peak last February. This provided the catalyst for Microsoft to negotiate for a takeover. Even with a premium of 45%, the implied purchase P/E multiple Microsoft paying is just 26 times, close to Activision’s historical ratio.
This deal is expected to strengthen Microsoft’s Game Pass Strategy (the Netflix for games), leapfrogging itself ahead in gaming. It can also possibly give the company a boost in terms of the recent metaverse land grab, as gaming is seen as the ideal entry point and a big part in the virtual environment for young users.
However, Microsoft will have to fix Activision’s culture enough to retain the necessary talent to keep producing blockbuster games, not to mention that the regulators will be the biggest potential deal-breakers as they are increasing hostile to vertical deals.