Apple's confidence, acquisitions strategy stand in the way of large takeovers
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.
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.
Comments
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).
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.
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".
The Beats deal has likely nearly paid for itself merely on Beats hardware sales. That's a high margin product line that Apple was acting as a distributor for, with Beats having been sold in Apple stores. Owning Beats gets Apple those margins on every sale, including the sales through Apple stores (bricks and online) and also through every other outlet where Beats are sold, which likely include a good number of Apple reseller partners. It's not so much a matter of Apple bringing Beats global distribution, as Beats already had that, but rather Apple profiting off every Beats hardware sale where they hadn't previously.
Plus the music industry talent and connections, and that talent's experience in the streaming segment.
Plus the value of having bought those products and talent off the market, so that they can no longer be scooped up by one of Apple's adversaries.
Not difficult at all to have justified the Beats acquisition.
Imagine if Apple bought a large company and tried to do something with it and failed, even if it had plans. Apple would never hear the end of it. I think maybe they're afraid of that. Too many times we see Microsoft, Google, etc buying these companies and failing to do anything with them. Microsoft's purchase of Nokia is a prime example. HP's acquisition of Palm is another example. Too many people have plans for Apple's money.
It sounds like Apple Knows how to negotiate deals, they keep all the middle men out of the conversation. The worse deals are those who are negotiated by folks who are not invested in the outcome. They always say the worse negotiated deals are real estate deals since you two disinterested parties who have far less to loose negotiating on behalf of the two interested parties.
Right....
So, Amazon, Alphabet and Microsoft will get all the praise for their acquisitions and make Apple look like a lost company. Apple with a P/E of 16 is considered a high risk based on their dependency upon the iPhone. I guess that's just how investors are. I suppose I shouldn't complain and just hope Apple knows what it is doing even if everyone else outside of Apple don't have faith in Apple's abilities.
Sorry to all of the haters, but Apple is one of the best run large companies in the world. And they make great products too. If Apple really bothers you, perhaps you should look in the mirror to see the problem...
Other than the fact lots of people lost their jobs and the companies no longer exist nor does their products. You are just looking at one side of the equation. Most companies loose money these deal and take years to recover. You are just focusing on MS with Nokia, MS bought lots of companies and never return customers any value on those acquisition. MS was stagnate for years and had lots of acquisition which went no where.
The prevailing winds on why to acquire another company is to buy market share if remove a competitor from the market place. In a couple instance it to grow the business in another direction. If a company is buying to grow market share or take out a competitor yeah most time this does not hurt the acquiring company, but they do not grow their stock price equal to the two. The sum of the two is always less then the two standing alone. Most all companies fail to grow their company by making big buys.
I'd bet it's a bunch of investment bankers.
I think that is what the article misses. Apple have lots of capital in lots of places they can move around to get the investments they want without paying the premium of having their brand on the deal.
The only reason for Apple to ink the deal themselves is to bring the team in house. Why use a middle man for what is effectively a job interview?