Microsoft’s Appetite for Acquisitions: Insights from Leaked Documents

Last week was not an easy one for someone at Microsoft. In a public court filing from the FTC v. Microsoft case, a trove of unredacted senior leadership emails, strategy presentations, and future product roadmaps were “unintentionally disclosed.” Upon reviewing these documents, I made some significant observations.

First, it appears that Microsoft’s appetite for acquisitions may be larger than previously thought. Second, the Xbox gaming business is facing an expiration date unless it achieves a key strategic milestone within a few years.

Certainly, Microsoft is no stranger to aggressive M&A activity, evident in its $7.5 billion buyout of ZeniMax and the pending $69 billion purchase of Activision Blizzard (ATVI). After these two major deals, many assumed that Microsoft would take a breather from making megadeals in the near future.

However, after pouring over the leaked documents, doubts emerged. In an email from August 2020, Phil Spencer, Microsoft’s top gaming executive, revealed that the company was actively engaged in M&A negotiations with Warner Bros. gaming division and ZeniMax (which was later completed).

Spencer also expressed his concerns to Microsoft CEO Satya Nadella and CFO Amy Hood, asking whether he should scale back acquisition discussions due to the company’s simultaneous interest in purchasing TikTok.

Their response, according to Spencer’s email, was a resounding “no.” They were fully onboard with pursuing all three deals if they made sense. Additionally, Microsoft’s Board of Directors wholeheartedly supported the idea of acquiring Nintendo and Valve if the opportunity arose. Spencer even mentioned that buying Nintendo would be a monumental career moment for him. Valve, a software platform estimated to generate $6.5 billion in revenue in 2021, is one of the world’s top 10 largest gaming companies.

Following the leaks on Tuesday, Spencer expressed his disappointment on social media. He emphasized that the leaked conversations were outdated and that much has evolved since then.

Microsoft’s Mergers and Ambitions

Microsoft’s interest in mergers and acquisitions in the gaming industry has been a hot topic of discussion. While the company declined to comment on specific discussions with Nintendo, Valve, or Warner Bros. Games, it is evident that Microsoft is open to exploring various possibilities, including TikTok, as part of its grand ambition.

Considering Microsoft’s strong financial position and determination, their pending merger with Activision Blizzard (ATVI) may be just the beginning. With regulators failing to halt the Activision deal, Microsoft may embark on another acquisition spree.

Potential targets in the gaming industry include Electronic Arts (EA), Take-Two Interactive (TTWO), Epic Games, and Warner Bros. Games. Microsoft’s appetite for growth seems insatiable, making it hard to predict what their next move will be.

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