Steve Ballmer was confirmed as the new owner of the NBA’s Los Angeles Clippers basketball team today. The news marks an end – at least in part – to a tumultuous three month ordeal in which former owner Donald Sterling sued his wife Shelly Sterling and the NBA to block the sale and in the pursuit of damages.
While several of those suits continue, the drama over who will own the Clippers going forward has been settled, leaving us to contemplate the merits of the deal. As I wrote in the past, Ballmer like many other Silicon Valley execs, is no stranger to crazy M&A math.
But don’t take my word for it. Ballmer described the deal in an interview with ESPN today, saying:
Lots of people run lots of numbers. I feel like I paid a price I’m excited about. It obviously was a price that was negotiated, and I feel very good about it. It’s not a cheap price, but when you’re used to looking at tech companies with huge risk, no earnings and huge multiples, this doesn’t look like the craziest thing I’ve ever acquired. It’s my own personal money, and you’re just as careful with your own money as you are with your shareholders’ money.
There’s real earnings in this business. There’s real upside opportunity. So compared to the things I looked at in tech, this was a reasonable purchase and it’s one I’m really excited about. Plus, I’m really excited about the product. I love it. I’ve been to over a hundred basketball games in the last year, and that’s just high school games.
So there you have it. In a world where multi-billion dollar acquisitions frequently have no revenue, high burn rates, and the uncertainty of fleeting consumer sentiment, a $2 billion NBA franchise looks like a conservative deal.
In the 14 years that Ballmer was CEO of Microsoft (January 2000 to February 2014), the company completed 115 acquisitions. Only three deals clocked in at more than the price of the Clippers: Skype, for which Microsoft paid $8.5 billion in 2011;Nokia which carried a $7.2 billion price tag in 2013; and aQuantive which cost the company $6.33 billion. Three remaining deals clocked in north of $1 billion: Navision ($1.33B, 2002), Yammer ($1.2B, 2012), and Fast Search & Transfer ($1.1B, 2008).
Given the underwhelming reaction of Wall Street to each of the above deals and the negative impact each had on not only the company’s balance sheet but also its income statement, it’s no stretch to call the Clippers Ballmer’s most popular deal yet. Just don’t expect to understand the valuation. Ballmer may not be shopping in technology aisle anymore, but he’s still using the same optimistic math to justify his deals.