9
On Company Acquisition
9.1. The chasm
We have seen how important acquiring external assets for large companies which are technology thirsty is. The motivation looks simple when catching up with competition or erecting entry barriers for dangerous competitors. After all, acquiring is controlling, at least on paper. But, does an acquisition strategy amounting to quick gains or long losses?
9.1.1. Business school
The CEO must seize any opportunity to buy competitors, to increase the market share. The necessary effort to reach product line convergence is estimated and engaged after the acquisition. In some cases, it may compromise the financial interest of the operation. Coming across the situation by then is too late....
9.1.2. Apple
Market share is not the fundamental objective. When buying a company which, as a start-up, frequently has no market share at all, the only thing that matters is the potential of its technology for the product lines of the company, and the time to market gained by acquiring it. The offering of the acquired company, if any, is immediately withdrawn from the market, to become an Apple exclusive differentiating factor.
Apple never buys a company based on its established market share.
9.2. Amplifying the gap
Table 9.1 is borrowed from Wikipedia and shows the list of companies acquired by Apple since 1988. It traces the historical acquisitions made by Apple over most of its history. What is striking is to see they most often hit the bull’s eye in terms of long-term strategy, respective to the company’s ecosystem of products. Always accruing value to the whole, while bringing a distinctive merit. Which merit was transformed into worth?
Table 9.1. Apple’s acquisitions through history: a cornucopia of long-term value, most of the time brought in right on target and soon transformed into worthwhile internal assets
(source: https://en.wikipedia.org/wiki/List_of_mergers_and_acquisitions_by_Apple)
In most cases, a company acquisition remains unknown to the public, and surfaces only in the financial reporting associated with quarterly result presentation meetings.
In those rare cases where the acquisition gets known to the public, Apple either denies or confirms, in the latter case with the ritual pithy statement:
“Apple buys smaller technology companies from time to time and we generally do not discuss our purpose or plans.”
9.3. Progressing the gap
Upon reading Table 9.1, the following general comments can be made:
– Acquisition rate.
The first observation is that Apple’s company acquisition rate has significantly increased over the last years, up to about one company every two months, according to a 2013 statement by Tim Cook.
This may well be due to the ever-more complex nature of each single product, thus requiring an increased ability to spot sophisticated components, which may focus ever-more on tinier ever domains of R&D. Company buyers see their role evolve: they find themselves at the heart of ecosystems of becoming, anticipating trends, facilitating innovation processes, and promoting markets. Far beyond adjusting an existing offer and demand, they open up new avenues for offer and demand to operate in.
In the case of Maps, a clear sourcing effort was performed to get a proper solution to the customer discontent that was initially voiced.
– Price paid.
It can be seen that by Californian high-tech industry standards, acquisition prices remain modest. NeXT acquisition, which resulted in Steve Jobs coming back, was negotiated by Apple for $400M, an almost ridiculous amount compared with the $3.2B paid by Google for the Nest acquisition. The only acquisition above 1 B$ is the one of Beats.
This shows that Apple manages to acquire companies by the time their technology just gets promising: when it is clearly proven, feasibility being out of question, and at the same time when it has not entered market. A scrupulous sense of timing that translates into a magic wand.
– Success.
There is arguably no operation in this list which has been reported as a total failure. And, given the appetite of the press for Apple failures, this can be considered as a good criterion for rating success pending acquisition.
It may also happen that Apple disengages from some companies it has invested in, but this case is very unusual. There are only two occurrences for the totality of the period. One was Misys Plc’s MCM (Misys Computer Maintenance division), which acquired the maintenance activities of Basingstoke-based Apple Computer Inc systems specialist Sign Express Group Ltd in 1992. The other is SCI Systems, which purchased Apple’s manufacturing facility located at 702 Bandley Drive, Fountain, Colorado ("Fountain”) in 1996, with certain related assets.
There was also a partial divestiture through which Apple shares in ARM – a company formerly known as Advanced RISC Machines – fell to 14.8% in 1999.
In summary, technologies acquired rapidly find their way into Apple products.
Such a rate of success is remarkable, and we would say, stunning.