Why Microsoft’s purchasing spree and lack of regulatory consideration isn’t completely a coincidence

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Four of Microsoft’s five largest acquisitions to date — including the pending $19.7 billion Nuance deal — happened in the past four years.

Microsoft’s pending $19.7 billion deal to buy Nuance Communications is the latest in what’s become a shopping spree for the Redmond, Wash. company.

The strategy seems to have gained the attention of the entire tech universe with one notable exception: federal regulators.

This can’t be said at Amazon, Google, Facebook, and Apple as the remaining four of the big five tech giants now face varying levels of antitrust and anti-competitive scrutiny while Microsoft scoops up companies at a record rate.

If the Nuance deal is approved by June 30, this fiscal year will likely be Microsoft’s biggest for acquisition spending, topping the $26.9 billion spent in 2017 when it bought LinkedIn. Microsoft completed its $7.5 billion deal to buy ZeniMax Media last month; is reportedly in discussions to buy Discord; has shown interest in Pinterest; and made a bid for TikTok last fall.

And more deals could be on the way.

“In our opinion, Microsoft is on the M&A warpath over the next 12 to 18 months and Nuance could be the first step in an increased appetite for deals in 2021,” Dan Ives, an analyst with Wedbush Securities, wrote in a report Monday.

Microsoft had $132 billion in cash and short-term investments as of December. In its own report, Moody’s said the Nuance acquisition “will have minimal effect on Microsoft’s liquidity and credit metrics.”

Four of Microsoft’s five largest acquisitions to date — LinkedIn ($26.2 billion); GitHub ($7.5 billion); ZeniMax ($7.5 billion); and Nuance — occurred in the past four years. CNBC noted that of the five giants, only Amazon has spent more than $5 billion on an acquisition over the past five years (Whole Foods).

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The lack of federal attention isn’t entirely a coincidence, experts said. Microsoft, of course, has been there before. And maybe it’s learned a thing or two, offered professor Margaret O’Mara, a University of Washington historian and expert of the rise of big tech in the U.S.

One difference is that since 2000, Microsoft has carefully built alliances in Washington D.C., she said. And it has a far deeper history with regulators (than the other four) as a result. “Microsoft knows what it is doing and (CEO) Satya Nadella’s message on not selling data should definitely resonate with lawmakers,” O’Mara said.

Microsoft President Brad Smith reportedly advised lawmakers on the antitrust subcommittee ahead of a Congressional antitrust hearing last year where Amazon CEO Jeff Bezos, Apple CEO Tim Cook, Facebook CEO Mark Zuckerberg, and Google CEO Sundar Pichai testified — but not Nadella.

But, O’Mara noted, the lack of public knowledge of scrutiny doesn’t mean there is none. And also, it’s possible the company is targeting purchases that don’t lead to market dominance and subsequent antitrust investigations. “(The Nuance deal) isn’t a clear monopoly play,” she said.

Microsoft plans to use Nuance’s speech recognition and artificial intelligence tech to bolster its healthcare initiatives. Other giants such as Amazon and Google have dabbled on the edges of healthcare but haven’t yet earned meaningful revenue.

Microsoft has paid $7.5 billion or more on three acquisitions — Nuance would be the fourth — with Satya Nadella as its CEO. (GeekWire Photo / Kevin Lisota)

Nadella said the Nuance deal will increase the company’s total addressable market in healthcare to nearly $500 billion. He also noted applications for Nuance’s tech beyond healthcare such as enterprise AI and biometric security.

Ives called the Nuance deal a “strategic no-brainer” and said he expects no major regulatory hurdles for Microsoft.

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“In an environment in which its FAANG brethren are up to their eyeballs in antitrust regulatory scrutiny both in the Beltway and Brussels, Microsoft (which has already lived through its regulatory trauma in the 1990’s/early 2000’s) now finds itself in an enviable position to be in ‘offensive mode’ when its comes to expanding its cloud M&A footprint,” Ives wrote. “We believe MSFT will be looking at both vertical specific as well as potential CRM related deals to bulk up its cloud platform looking ahead.”

Microsoft has had a checkered history with major acquisitions. In 2012, the company took a $6.2 billion writedown, largely tied to aQuantive, which it admitted at the time wasn’t working out as planned. In 2015, Microsoft cut 7,800 jobs and took a $7.6 billion charge related to its acquisition of Nokia’s smartphone business.

LinkedIn and GitHub appear more promising, with Microsoft applying a different strategy: use its vast resources to supercharge the companies it acquires, and then get out of the way.

Speaking on CNBC, Linkedin co-founder and Microsoft board member Reid Hoffman noted “how good Satya and his team are at integrating companies, both operationally and culturally.”

“They’ve done a great job with LinkedIn and GitHub,” he said. “One can be very positive about what that integration will look like with Nuance.”

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