A Complete History Of Apple's Corporate Acquisitions
As has been extensively reported, analyzed and overanalyzed overnight, Apple finally threw in the towel on the Steve Jobs legacy (and business model), after the FT broke news that it was set to massively overspend to purchase "Dr. Dre's" Beats Electronics, in what appears to be a 3x overpriced deal since Apple is paying $3.2 billion for a company which just in September was valued at $1 billion following a $500 million Carlyle Investment (incidentally the biggest winner from the transaction is not Apple, at least not yet, not even Dre, but Carlyle whose IRR on the investment is 478%!).
Why is Apple doing this deal? It is not exactly clear. According to the FT, there are macro considerations...
A decade after Mr Jobs transformed the music industry with the iTunes download store and the iPod digital music player, the deal is likely to be seen as an admission that Apple needs to look outside its Cupertino labs to continue making an impact.
While Beats commands a leading position in the premium headphone market, its real value to Apple is in revitalising its “cool” at a time when iTunes has waned in popularity and Samsung’s marketing campaigns have savaged the iPhone’s brand.
Apple has dabbled in music streaming but never launched an unlimited subscription service to compete with fast-growing rivals to iTunes such as Spotify.
One motivation for the Beats deal may lie in shifts in music consumption. Subscription services are the biggest growth area for the music industry, with revenues increasing 50 per cent to $1.1bn in 2013, according to a recent report by the IFPI, the global music industry association.
But downloads fell 2 per cent to $3.93bn – the first annual decline since Apple launched its iTunes store in 2003. iTunes is still the world’s largest music download service.
Also, one wonders just how much of a "software" company (with software margins) Apple will be perceived after this transaction, but that will be left to the market to decide.
Curiously, even some of Apple's biggest cheerleaders across the years are skeptical about the deal, considering even Piper Jaffray's Gene "channel checks" Munster said that "we are struggling to see the rationale behind this move... Beats would of course bring a world class brand in music to Apple, but Apple already has a world class brand and has never acquired a brand for a brand's sake (i.e., there are no non-Apple sub-brands under the company umbrella)."
"Separately, we are not aware of any intellectual property within Beats that would drive the acquisition justification beyond the brand. We view a better use of capital for acquisitions to be in the internet services space given that is, in our view, Apple’s biggest weakness. This list would include Yelp, Twitter, Square and even Yahoo.
To summarize: on one hand the end of the Jobs era, on the other, the start of the M&A era, and considering Apple already succumbed to Wall Street's influence and has raised its shareholder friendly capital program most recently to $90 billion, this means that the company which was once driven by pure creative genius has been transformed into nothing more than Wall Street's puppet. This also means now Apple now has $3 billion less with which to buyback its stock, and that netting out the recent $12 billion bond deal, Apple once again has a modest $27 billion in domestic cash, meaning it will have to issue even more debt soon.
In any case, here comes the next cottage industry: predicting who Apple will buy next. With the bulk of its cash held offshore, look to mostly offshore targets.
For those who believe they can predict the Apple's acquisitive future based on the company's historical M&A pattern, here is a summary of the company's acquisition history over the last two decades.
One thing is certain: it is still not too late for Facebook to offer $19 billion for Beats.
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