Will Microsofts acquisition of Skype mark the high-water mark for tech M&A in the current cycle? After staying out of the M&A game during the downturn, Microsoft has reportedly outbid Google by nearly 100% in Redmonds biggest acquisition ever, while delivering a 4x return to Silverlake, the PE firm that acquired control of Skype from eBay two years ago at the very bottom of the market. To quote Steve Martin, Its like dj vu all over again. Microsoft avoided acquisitions during the last downturn as well. Then, when the markets came racing back, they paid over $6 billion for Aquantive.
I had a very frank discussion with a MSFT Corp Dev professional on this topic in 2009, and the markets are still reeling. His take was that M&A is driven by product groups. When they are profitable and beating their targets, they have the political power and the optimism to drive deals. When they are missing their targets and struggling, they focus instead on divesting non-performing assets. For the Corp Dev team this can be highly frustrating. Imagine, for example, if MSFT rather than Silverlake picked up Skype for $2 billion back in 2009. . . and saved their company $6 billion dollars?