A different M&A strategy of Apple

Choosing a small, secretive and non-banking strategy has helped Apple successfully conduct a series of M&A deals that are different from their competitors.

Apple often focuses on acquiring small-scale innovation companies that have technologies that complement their products.

Buy back to complement

Apple CEO Tim Cook told shareholders in February 2021 that the US technology company has acquired about 100 companies in the past six years. So, on average every 3 to 4 weeks, Apple conducts an acquisition of a company.

Statistics show that Apple’s M&A machine works impressively smooth. Only a handful of large-scale M&A deals, such as the $ 3 billion deal with headset maker Beats Music in 2014, the rest of which are acquisitions of relatively small companies in the form of Information security agreement (NDA).

While major rivals of Apple regularly conduct multi-billion-dollar M&A deals, Apple follows a distinct strategy. The “apple house” adjusts its “buyback” strategy and targets small companies, making them separate companies for their employees.

Some people who joined Apple through the M&A deal revealed to CNBC that Apple’s strategy focuses on attracting talented engineers from small companies and the “Apple House” usually values ​​those companies according to the number of engineers and quickly merged them into their own team.

M&A has become a powerful tool to help Apple expand operations in areas where it needs talented engineers or technology areas that can set Apple apart from its competitors. Although acquisitions are a common form of investment by major tech companies, Apple’s near-total focus on acquiring small companies differentiates the “House of the Apple”.

“We have observed that big companies like Google, Facebook, Intel, and Amazon have made billions of dollars in deals,” said Nicklas Nilsson, an analyst at M&A consulting firm GlobalData. Meanwhile, “Apple collects small startups, others spend heavily to buy established companies,” added Nicklas Nilsson.

In an interview with CNBC in 2019, CEO Tim Cook said Apple’s approach is to identify areas where the company is facing technical challenges and then go back and buy companies to address those challenges. wake up that. For example, the acquisition of AuthenTec in 2012, helped Apple develop fingerprint scanning technology on the iPhone. “We also acquired a company that developed the Touch ID fingerprint sensor app,” said Tim Cook.

Apple’s acquisitions have helped the US tech firm develop unique features across its product lines. In 2017, Apple acquired Workflow – the application that automates the things users frequently do on their iPhone / iPad, turning them into a simple button. In 2018, Apple bought Texture to develop its Apple News + news service. Even the smart virtual assistant Siri was the result of an acquisition in 2010.

Apple is also continually acquiring companies in augmented reality, artificial intelligence, mapping, healthcare, and semiconductors, in order to make products or features on them pioneering. .

Pricing is based on engineers

Many deals have been Apple put into sight. According to CNBC analysis based on published information, Apple has acquired 55 companies since January 2015. This figure matches the report released by the US Congress last year, but much lower than the number of 100 companies that CEO Tim Cook made.

Those involved in the Apple acquisition process said the US tech firm had good judgment in its deals, not surprisingly, as the company kept its deals secret.

Apple often does not publish small-scale M&A deals and recommends that employees of acquired companies not update their LinkedIn job profiles because this can signal that they have been Apple. repurchase. If questioned by the media about the deal, Apple typically confirms with a general response that it “usually doesn’t discuss” its purpose or plans for the companies to be acquired.

A boss who once sold the company to Apple said that after news of his deal leaked, he was unable to respond to congratulations from friends and family members. “The owner” of this anonymous company said that all information related to the deal was not disclosed under the information confidentiality agreement with Apple.

While the acquisitions agreements between Apple and the parties differ on specifics, there are some common points in Apple’s approach. Apple is generally not interested in continuing the business of the acquired company and forcing acquired units to stop making products or abandon customers. The revenue that the companies are acquiring are often “non-quantitative” and not as important to Apple. In fiscal year 2020 alone, “The Apple House” recorded $ 274.52 billion in revenue.

But Apple is especially concerned with engineers and sees these as “the” personal has a “contribution” to the Silicon Valley tech firm. According to those who were involved in the Apple acquisition process, the tech firm has little interest in hiring support staff in the M&A process. transaction terms that require an engineer of the acquired company to join Apple if the deal is approved.

In essence, these engineers receive so-called “golden handcuffs” or large packages of stocks and are paid dividends. Some people familiar with Apple’s M&A process say that the “Apple House” values ​​acquisitions based on the number of engineers, at around $ 3 million per engineer, rather than based on business records or capital mobilization.

Bank absence

Usually, the Apple acquisition process begins after technology companies come to offer them to Apple’s engineering team. Apple often invites companies to showcase the technology it wants to collaborate with or license, and sometimes these meetings kick off the Apple House acquisition process.

A person familiar with the M&A process said that when the head of the technical team of Apple decides to own a certain technology or talented engineer, they will propose to the M&A team. This unit is responsible for assisting Apple’s technical teams in smooth transaction.

Once the transaction is complete, Apple has a team dedicated to merging new employees into each of its specific engineering groups. The sign of success of the acquisition is that the “contributors” join Apple through the deal, overcoming the first competitive cliff with owning large amounts of Apple stock and being able to stay with the company. old for several years.

For smaller deals, Apple usually doesn’t require the involvement of the bank. Apple’s M&A team directly evaluates, collects the team members and conducts the transaction until completion. An anonymous person under the deal’s confidentiality regulations told CNBC that Apple’s M&A team was unusually reliable and professional compared to the other companies he had negotiated with.

Continued acquisition of companies to promote technology and product development has helped Apple expand operations rapidly. For example, in the field of augmented reality technology, Apple has acquired 12 companies since 2013 when they first established a technology development unit (TDG). According to reports, Apple is working on a high-end virtual reality (VR) headset that is expected to be released in 2022, and lighter and more advanced glasses by 2023 or later.

To prepare for these super products, Apple previously acquired smart glasses developer Akonia Holographics in 2018. By 2020, Apple acquired NextVR, a company specializing in providing content for virtual reality headsets. , and virtual reality startup Spaces of American animation studio DreamWorks Animation, which aims to create virtual reality experiences based on location.

Recently, Apple implemented many acquisitions of companies in the field of artificial intelligence. Specifically, 25 companies operating in this sector have been acquired by Apple since 2016, according to data from GlobalData.

Currently, talented engineers in the field of artificial intelligence become expensive because many companies are sought after. Recruiting these engineers is also what Apple focuses on in the context of “The Apple House” is working to improve the virtual assistant Siri to compete with virtual assistant Alexa of Amazon and Google.

In 2020, Apple acquired a Seattle-based company called Xnor.ai for $ 200 million. Following that, Apple acquired Irish voice assistant platform development company Voysis. In 2019, Apple acquired Pullstring – a company that specializes in making tools to make talking toys.

Apple can absolutely conduct larger M&A games with the potential of more than $ 200 billion in cash value and easy liquidity investments, and more than $ 80 billion in free cash flow annually. However, Apple is very cautious, leading many financial companies and banks to believe that the big M&A deal is not part of the information security (DNA) agreements between Apple and its partners.

Wall Street banks have encouraged Apple to make a big deal in the past, and Apple spent $ 1 billion buying Intel’s wireless modem manufacturing business with 2,200 employees in 2019.

“We don’t hesitate to review acquisitions of any size. But our priority is pricing and strategic fit, and we often focus on companies. innovation scale Small companies are developing technologies that complement our products and help drive product development, “Tim Cook said at the recent shareholder meeting.