Apple's 'Arrogance' Impedes Major Acquisitions as Analysts Look to Potential Targets in Online Video

by

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.

“The first step in M&A is having some conviction about what it is you want to do,” said Eric Risley, managing partner at Architect Partners LLC who has negotiated deals with Apple. “Apple probably more than most feels that they’re very capable of building things" rather than buying them, he added. An Apple spokesman declined to comment.

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."

But even here, some analysts and investors argue for a big acquisition, especially in online video streaming. Apple has started distributing videos through the Music service, and pooling other providers’ video in its mobile TV app, but it has no service akin to Netflix or Amazon.com Inc.’s Prime Video.

On Friday, Sanford C. Bernstein analyst Toni Sacconaghi said Apple needs at least one big acquisition in online video. To reach its $50 billion target, the company must find an extra $13 billion in services revenue over the next four years -- beyond what it can generate itself. Netflix Inc. ended 2016 with sales of less than $9 billion, so even buying that business may not be enough, the analyst said.

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.

Top Rated Comments

(View all)
Avatar
46 months ago
Hopefully Apple goes nowhere near Netflix. All we will get is a "Netflix will be discontinued in 30 days" and then "exciting products in the pipeline".
Score: 20 Votes (Like | Disagree)
Avatar
46 months ago
This report brought to you by investment bankers who feel left out.
Score: 16 Votes (Like | Disagree)
Avatar
46 months ago
Summary: sour grapes from big companies and investment bankers who don't like not calling the shots.
Score: 14 Votes (Like | Disagree)
Avatar
46 months ago
I think it's a good thing when companies build things themselves. It helps them maintain the purity of their codebases, and it's more fun for the engineers.
Score: 9 Votes (Like | Disagree)
Avatar
46 months ago
Questioning the way that the richest company in world does business. Good work.
Score: 9 Votes (Like | Disagree)
Avatar
46 months ago
I guess if Apple buys Netflix we can expect a thinner catalog of things to watch on netflix...

(had to say it)
Score: 9 Votes (Like | Disagree)

Top Stories

Apple Takes Legal Action Against Small Company With Pear Logo

Saturday August 8, 2020 11:09 am PDT by
Apple is taking legal action against the developers of the app "Prepear" due to its logo, according to iPhone in Canada. Prepear is an app that helps users discover recipes, plan meals, make lists, and arrange grocery deliveries. The app is a spinoff of "Super Healthy Kids," and the founders claim that they are facing litigation from Apple. Apple reportedly takes issue with Prepear's logo, ...

Kuo: Global iPhone Shipments Could Decline Up to 30% If Apple Forced to Remove WeChat From App Store [Updated x2]

Sunday August 9, 2020 10:17 pm PDT by
In a worst-case scenario, Apple's annual global iPhone shipments could decline by 25–30% if it is forced to remove WeChat from its App Stores around the world, according to a new research note from analyst Ming-Chi Kuo viewed by MacRumors. The removal could occur due to a recent executive order aiming to ban U.S. transactions with WeChat and its parent company Tencent. Kuo lays out...

Google Maps Debuts New Apple Watch App and CarPlay Features

Monday August 10, 2020 9:16 am PDT by
Google today announced the launch of several features for Google Maps on Apple products, including new CarPlay functionality and a new Google Maps app that works on Apple Watch. The new Google Maps app for Apple Watch works similarly to the iOS app, allowing Apple Watch owners to get directions for a car, bike, public transit, or on foot. The app supports estimated arrival times and...

Foxconn Reportedly Begins Seasonal Hiring Spree for iPhone 12 Production

Monday August 10, 2020 7:03 am PDT by
Apple's largest manufacturing partner Foxconn has begun its seasonal hiring spree to assist with iPhone 12 production, offering employees who recruit qualified applicants up to a 9,000 yuan bonus, according to Chinese media reports. As usual, Foxconn needs as many hands on deck as possible at its factory in Zhengzhou, China to assist with mass production of the upcoming iPhones. Apple is...

Apple May Release 4G-Only iPhone 12 in Early 2021

Tuesday August 11, 2020 5:28 am PDT by
In a research note shared by Business Insider, Wedbush Securities analysts said that Apple may release a cheaper iPhone 12 in early 2021 with no 5G connectivity. Wedbush initially believed Apple would launch a mix of 4G and 5G iPhone 12 models this fall. Following re-examination of Asian supply chains, analysts Daniel Ives, Strecker Backe, and Ahmad Khalil revised the predictions,...

2020 iMac Teardown Reveals Internal Changes and Similarities

Saturday August 8, 2020 12:44 pm PDT by
A teardown video, shared by OWC, reveals the internal changes in the new 2020 27-inch iMac. The 2020 27-inch iMac was announced earlier this week with 10th-generation Intel Core processors, AMD Radeon Pro 5000 series graphics, up to 128GB of RAM, up to 8TB of storage, a 1080p front-facing FaceTime camera, a True Tone display with a nano-texture glass option, higher fidelity speakers, and...

Apple Believes This German Cycling Path Logo Infringes on Its Own Logo

Wednesday May 1, 2019 9:51 am PDT by
Apple recently objected to the logo of a new German cycling path in an appeal filed with the German Patent and Trademark Office, according to German outlets General-Anzeiger Bonn and Westdeutscher Rundfunk. Apple reportedly takes issue with the logo's green leaf and supposed "bitten" right side, attributes the company believes are too similar to its own logo. The logo, registered with the ...

Apple Seeds First Public Beta of watchOS 7 to Public Beta Testers

Monday August 10, 2020 10:33 am PDT by
Apple today seeded the first public beta of an upcoming watchOS 7 update to public beta testers, one week after seeding the fourth beta to developers and a month and a half after the Worldwide Developers Conference. The update can be downloaded after installing the proper profile from Apple's Public Beta website. watchOS 7 should not be installed on a primary device as it is still an early...

Apple Watch Likely to Adopt MicroLED Display Technology in 3-4 Years

Monday August 10, 2020 2:55 am PDT by
This year's Apple Watch Series 6 is expected to feature an OLED screen like previous models, but a future model is likely to be the first Apple product to adopt MicroLED display technology, albeit not for another three to four years. That's the main takeaway reading between the lines of comments made by the chairman of Epistar, Taiwan's top LED producer, which is reportedly working on a...

Apple Seeds iOS 14 and iPadOS 14 Public Beta 4 to Testers

Thursday August 6, 2020 10:05 am PDT by
Apple today seeded new public betas of upcoming iOS 14 and iPadOS 14 updates to its public beta testing group. Today's software releases, which Apple labels as fourth betas to keep them in line with developer betas, are actually the third betas that Apple has provided and they come two weeks after the prior beta releases. Public beta testers who have signed up for Apple's beta testing...