The Big Winners From Microsoft's $7.5 Billion GitHub Acquisition

Who came out ahead in the mega-deal?
 
 

This article originally ran on PitchBook.

In one of the biggest acquisitions of a US venture-backed company in the last decade, Microsoft has agreed to pick up GitHub for $7.5 billion in stock. The deal, which had been floating around the rumor mill for weeks before Microsoft confirmed it on Monday, will add GitHub's open-source software development platform to the computing giant's bag of tricks. It will also make GitHub's biggest shareholders quite wealthy. 

Founded in San Francisco in 2008, GitHub has grown to become the home of more than 28 million developers who collaborate on the platform. The company has more than 85 million code repositories used by people around the world, and Microsoft, with more than 2 million updates made to projects, is already GitHub’s most active organization. GitHub will continue to operate independently, but with the acquisition, Microsoft says it's "all-in on open source," a stance that makes sense given the deal's massive price tag.

GitHub's financing history

The $7.5 billion deal is one of the biggest US VC-backed acquisitions of the last 10 years, according to PitchBook data. It's also among the largest venture-backed exits in the country so far in 2018, behind Spotify's direct listing and Dropbox's IPO.   

Since it was founded, GitHub had raised just two venture capital rounds for a total of $350 million in funding. In 2012, Andreessen Horowitz poured $100 million into the company at a valuation of $750 million. At that time, it was the biggest check the investor had ever written. Three years later, GitHub secured a $250 million financing round at a valuation of more than $2 billion. Sequoia led the second round, and Andreessen Horowitz also participated.

The biggest stakeholders

The $7.5 billion deal is nearly four times bigger than GitHub's most recent private valuation—representing an excellent outcome for the company and its investors. Andreessen Horowitz is said to be the biggest venture capital winner from the deal, with a 13% stake worth more than $1 billion. Sequoia reportedly holds the second-biggest stake. Thrive Capital and IVP are the third and fourth largest VC investors, per reports. 

GitHub is far from the first success for Andreessen Horowitz and Sequoia: The two Silicon Valley powerhouses top our recent list of the most active investors in the most valuable startups in the world.  

As for non-VC shareholders, co-founder and CEO Chris Wanstrath is the single biggest owner and will receive up to $1.5 billion in Microsoft stock, per Forbes. Wanswrath had said he was planning to step down as CEO; after the acquisition is complete, he will be replaced by Microsoft executive Nat Friedman. Co-founders Tom Preston-Werner and PJ Hyett will also reportedly pull in more than $1 billion apiece. 

The acquisition is massive from Microsoft’s perspective, too. It's the Seattle-area software company's fourth biggest acquisition since at least the beginning of 2007, per the PitchBook Platform. The company's largest M&A transaction over that period remains its pickup of LinkedIn for more than $26 billion in 2016. That's followed by the purchase of Skype for $9 billion in 2011. Coming in third is its 2013 acquisition of Nokia's mobile phone unit for $7.6 billion, a transaction that didn't work out so well for Microsoft—it wrote off nearly the entire sum a few years later.  

Here's hoping the GitHub acquisition works out better. Commentators say it could help Microsoft convince developers to create applications for Azure, its cloud-computing business, as GitHub has been popular with open-source software writers. 

Check out all of Microsoft's acquisitions right here (PitchBook account required to view information).