Yesterday, when Microsoft Corporation MSFT announced a deal to acquire LinkedIn Corporation LNKD for $26.2 billion in cash, it was a win-win for LinkedIn shareholders. The company's shares soared nearly 46% following the announcement.
Notably, there was another big winner from the deal. The sole financial advisor to Microsoft, Morgan StanleyMS jumped to the top position in technology, media and telecommunications ('TMT') deal making in 2016, per the data compiled by Bloomberg. This pushed The Goldman Sachs Group, Inc. GS to the second spot in TMT M&As.
So far this year, Morgan Stanley has advised on more than $60 billion of TMT transactions, while the figure is around $57 billion for Goldman Sachs.
Potential Fees from the Deal
Being the sole deal advisor to Microsoft, Morgan Stanley is likely to earn $10-$20 million as fees from the transaction, according to Jeff Nassof (a vice president at advisory firm Freeman & Co.). This will be approximately 30% of the total fees the deal is expected to generate. LinkedIn was advised by Qatalyst Partners and Allen & Company.
Further, Microsoft will fund the transaction mainly through deal issuance. Hence, if the company raises $15 billion debt, then underwriters are anticipated to earn another $40-$60 million as debt underwriting fees.
Why Morgan Stanley is a Winner
For Morgan Stanley, the current deal has come as a boon. Over the last several quarters, the company has been struggling to grow revenues owing to a challenging macroeconomic backdrop.
Further, the company has been witnessing bearish investors' sentiments as a result of pressure on its top line. The company's shares have fallen nearly 21% over the last six months, as against a rise of over 3% in S&P 500.
While Morgan Stanley is moving away from its fixed income, currencies and commodities trading operations, its bond trading business is witnessing marginal growth. Nonetheless, the company has been looking forward to M&As for improved profitability.
During the first quarter 2016 earnings conference call in April, Morgan Stanley's Chief Financial Officer & Executive Vice President, Jonathan Pruzan said, "…M&A pipelines are healthy and client dialogs remain strong, but we would expect a slowdown from last year's elevated pace."
Hence, Morgan Stanley is not only at the top of league table for TMT deals, it is also expected to reap benefits from bond underwritings. All these factors are likely to help the company in improving its top line.
Currently, Morgan Stanley carries a Zacks Rank #3 (Hold).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.