Deutsche Bank Calls $26 Billion Price Tag For LinkedIn 'Reasonable'

Microsoft Corporation MSFT dished out $26.2 billion to acquire LinkedIn Corp LNKD — a figure that may seem high to some, but is a "reasonable" amount according to Deutsche Bank's Karl Keirstead.

In a report dated Tuesday, Keirstead argued that Microsoft's $196 per share offer represents a 21x EBITDA multiple and 36x FCF multiple on 2017 estimates. He added that this is "reasonable" for a company growing at 20 percent to 25 percent even though it does come with risks such as LinkedIn's growth deceleration.

Related Link: Microsoft-LinkedIn Acquisition: Is This Another Nokia Or Is There Real Value Here?"

4 Reasons To Be Positive On The Deal

Keirstead offered four reasons to be positive on Microsoft's acquisition:

• 1. The deal adds a $4 billion-plus growth engine that Microsoft is in a better position to scale given its superior enterprise structure.
• 2. LinkedIn is a "better" and "cleaner" option for Microsoft to use to grow its enterprise SaaS mix.
• 3. Microsoft's guidance for a "modest" earnings per share dilution in fiscal 2018 and then $150 million a year in cost savings appears to be conservative given its Cloud data centers.
• 4. Once completed, the deal is likely to be immediately accretive to Microsoft's non-GAAP earnings per share excluding stock-based compensation.

4 Key Risks To Consider

The analyst also offered four risks for investors to consider:

• 1. LinkedIn began showing a deceleration in its core Talent/Recruiter products, which represent 65 percent of its revenue mix.
• 2. Since Microsoft will finance the acquisition through debt, the incremental burden could slow down its pace of share buybacks.
• 3. Synergies don't appear to be material outside of LinkedIn's Sales Nav and Microsoft's Dynamics CRM.
• 4. The acquisition could serve as a sign that Microsoft is projecting a slower revenue growth profile in its own enterprise/Server business.

Bottom Line

Bottom line, the analyst concluded that he is "modestly positive" on Microsoft's latest acquisition, and the company's overall cloud story remains "convincing."

Shares of Microsoft were maintained with a Buy rating and unchanged $65 price target.