In an in-depth new look at Apple's merger and acquisitions tactics published today by Bloomberg, Apple's "arrogant" culture of deal negotiations is put on display. According to sources who have worked with Apple in M&A, the company struggles repeatedly to pull off big deals "because of a series of quirks," including a refusal to work with investment bankers, inexperience with large takeovers, and an "aversion to risk."
Apple is more interested, and more confident, in building its own services rather than outright purchasing them from a competitor, with occasional exceptions like the 2014 acquisition of Beats and later launch of Apple Music.
According to analysts and investors, Apple's next big move should be the acquisition of an online video streaming service. The company has began making strides towards beefing up Apple Music's original video content division, with Carpool Karaoke: The Series and Planet of the Apps coming this spring, but analysts believe it needs something "akin to Netflix or Amazon.com Inc.'s Prime Video."
In order to reach a forecast of $50 billion revenue in its services business by 2021, Erick Maronak, chief investment officer at Victory Capital Management, said that the company is "going to have to pursue something bigger than a Beats-like acquisition." This might include other possible "blockbuster" acquisitions like Walt Disney Co. or Tesla Inc, according to Baird analyst William Power.
Netflix is also mentioned multiple times as a logical acquisition target for Apple, with multiple investors and analysts saying the company "needs at least one big acquisition in online video."
Looking behind the scenes at the process Apple goes through to acquire a company, the Apple deals team is said to be made up of around a dozen people and led by Apple's head of M&A Adrian Perica. Most deals "take place at the behest of the company's engineers," so the team meets with Apple engineers who advise them on which potential acquisition targets are attractive and include talented engineers that would add value to Apple.
Its acquisition strategy works well for smaller startups, which it acquires frequently, but the company faces a challenge for bigger deals. Apple refuses to work with investment bankers in an attempt to work directly with the other company's management teams. This results in an air of arrogance, according to Eric Risley, who has negotiated deals with Apple, further stating that "they're used to being able to muscle their way in and get attractive economics."
The company's overall attitude "puts off sellers," as well as its inexperience with integrating larger companies. Some analysts point towards the "lukewarm" launch of Apple Music after the Beats acquisition as proof of this struggle. Still, some investors remain adamant that for Apple to succeed, particularly in its attempts at creating and producing original TV, a big acquisition has to happen soon. Many of those have been pushing Netflix as an attractive target, despite Netflix saying it's not for sale.
Read the rest of Bloomberg's report right here.
Article Link: Apple's 'Arrogance' Impedes Major Acquisitions as Analysts Look to Potential Targets in Online Video
