Any Way You Slice It, Microsoft's LinkedIn Deal Is Rich

No matter how you slice it, Microsoft's $26.2 billion purchase of LinkedIn is expensive. That sets a pretty high bar for the tech giant to prove it's worth it.

Microsoft is paying about 91 times LinkedIn's Ebitda in the past year, making it the priciest major deal of 2016 on that basis.   Compared with the M&A bonanza of 2015, only two takeovers rated as more expensive and those involved makers of cancer drugs and rare-disease medicines. Prior to this week, Microsoft had paid a median of 34 times Ebitda for its biggest deals -- many of which had questionable logic.

Analysts are projecting LinkedIn's Ebitda will grow to about $1 billion in 2016 -- almost four times what it earned in 2015. Based on that number, Microsoft is paying a multiple closer to 26 times for the networking site. That's still higher than what's typical for $5 billion-plus software and internet deals announced over the last decade.

Things don't look much better when you compare the price to LinkedIn's 105.5 million unique monthly visitors as of the latest quarter. Microsoft is paying almost $250 a pop for each of those subscribers, or about $60 per LinkedIn's 433 million registered members, versus the $42 that Facebook paid per WhatsApp user. Oh, and by the way, revenue at LinkedIn this year is set to grow at the slowest rate in the company's public history.

Good luck selling this one to investors, Microsoft.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.