Roger Fingas
Apple has been unable to pull off large acquisitions because it often feels it doesn't need to, but also because of its hesitant approach to the process, a report suggested on Wednesday.
The company tries to avoid risk, and is reluctant to cooperate with third-party advisers like investment banks, according to Bloomberg sources said to have worked on past Apple deals. The company is also noted to have little experience in buying and merging large businesses. Its biggest takeover was the 2014 Beats deal, costing $3 billion — even then, a small fraction of its global cash reserves.
Instead of investment bankers appointed by a seller, Apple often prefers to talk directly to a target company's management, the sources said. It's also claimed to dictate terms in a take-it-or-leave-it manner, working on the assumption that the promise of later development support and appearing in Apple products will be attractive enough to overcome concerns.
An example of this is said to be Apple's Metaio takeover in 2015, in which the latter's bankers — appointed to negotiate — weren't actually allowed to get involved. Metaio also accepted what its executives considered a lowball offer because of Apple's vision for its augmented reality technology.
The difficulty with direct talks is that third parties can potentially smooth over conflicts, something that may be especially important when trying to buy a company that doesn't need Apple's money.
Apple is, "probably more than most," confident in the idea that it can build things itself rather than buy them, according to Eric Risley, a managing partner at Architect Partners who has previously negotiated deals with the iPhone maker. He added that Apple is used to being able to "muscle" its way into favorable deals.
The company's acquisitions team is said to include roughly a dozen people, led by former Goldman Sachs banker Adrian Perica. Notably acquisitions are often instigated by Apple engineers, and every month product managers meet with Perica's team to point out targets with useful technology or staff.
Analysts have sometimes suggested that Apple could go after many large companies, like Tesla, Netflix, or even Disney, which currently has a $175.5 billion market cap. At one point Apple was rumored to be interested in Time Warner prior to AT&T's $85 billion deal, but talks are thought to have stopped at the preliminary level.
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24 Comments
Good. I think this is exactly the right approach
3 billion for Beats I thought was way to much money!!! Maybe that'll pay off, but in general why pay a bunch of money for a company if you can do it on your own and build it up on your own? Some many big company's have Google or Microsoft acquired for a lot of money where they ended up losing a bunch of money on in the end. Why should Apple fork out a bunch of money to get Netflix? Apple already gets a cut from them and others every month when people sign up to the service though Apple. How many times now have Analysts been wrong? I've lost track. Sometimes you'll be right just because the odds are in your favor more then anything. Been wrong so many times, something at some time will be right. Why wold Apple want to buy Tesla? I don't thing and never have though Apple would ever want to get into making CARS. They want to be in the center of the car, and we have CarPlay for that. Maybe they want to get into some type of system for Self Driving Cars where they sell that tech to other company's to use in their own cars. Who knows! Just because Apple has money doesn't mean they need to buy over priced company's that may or may not at some point pay off.
So I guess these people are trying to be critical, but I see it as a compliment.
Let's look at a sample from the long list of disastrous big takeovers:
Compaq buys Digital
HP buys Compaq
Microsoft buys Nokia
Google buys Motorola
AOL buys Time Warner
I would not want Apple to join that list.
I would much rather have Apple spend $10 billion funding the construction of a 7nm fab than $10 billion buying Twitter (or whatever).
Given the history of large acquisitions it is probably more useful to show how and when they make sense. The evidence at Google, Microsoft, et al point to most acquisitions being fantasy guesses at the future (almost universally wrong), efforts to get into new markets and business (rarely work and pretty much result in expensive write-offs), vanity projects that bigger is better, or other again almost uniformly bad examples based on arguments of synergy and complementarity.
Most (really almost universally) of the acquisitions and mergers would have better benefited stockholders with buy backs and dividends.
There is a constant drum beat that Apple is not doing enough big acquisitions shows more of a paucity of imagination by analysts to merger buyout reality and utter disregard for history and experience. Those who fail to learn from history are doomed to repeat it and analysts seem most doomed.
Apple and a few other companies unprecedented cash reserves reflect more on business and tax law as well as inrernational environment constraints and uncertainties. Looking at the foundations of why large cash reserves are so valuable (recall pay very low earnings) and what constrains their application to economic and business development would be a lot more useful and meaningful.
This is just a a gripe piece expressing investment bankers' disappointment that Apple doesn't do much business with them on the M&A front.
Investment bankers with their outsized opinions of themselves think that they are major contributors to the economy. No they are not. If the tech industry were a professional sports league, then Apple, Google, Tesla etc. are the teams, the CEOs are the coaches and investment bankers are the water boys. They provide a service that helps the teams play better but they know nothing about the game --can't play it, can't coach it, should be easily replaced. They are not as important or critical as they think they are and good for Apple that they know this and are treating investment banks the way they should be treated. Like water boys not players or coaches, not even as benchwarmers.
In fact the headline should be amended to "Apple's common sense stand in the way of large takeovers".