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
48 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
48 months ago
This report brought to you by investment bankers who feel left out.
Score: 16 Votes (Like | Disagree)
Avatar
48 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
48 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
48 months ago
Questioning the way that the richest company in world does business. Good work.
Score: 9 Votes (Like | Disagree)
Avatar
48 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 References Unreleased 2020 16-Inch MacBook Pro in Boot Camp Update

Monday October 26, 2020 8:42 am PDT by
Last week, Apple released an update for Boot Camp, its utility for running Windows on a Mac. While this update would typically be unremarkable, several of our readers noticed that the release notes reference an unreleased 2020 model of the 16-inch MacBook Pro. While this could easily be a mistake, the 16-inch MacBook Pro is nearly a year old, so it is certainly a worthy candidate for a...

MagSafe Charger Only Charges at Full 15W Speeds With Apple's 20W Power Adapter [Updated]

Monday October 26, 2020 3:38 pm PDT by
Alongside the iPhone 12 and 12 Pro models, Apple introduced a new MagSafe charger that attaches to the magnetic ring in the back of the devices, providing up to 15W of charging power, which is double the speed of the 7.5W Qi-based wireless charging maximum. Apple does not provide a power adapter with the $39 MagSafe charger, requiring users to supply their own USB-C compatible option. Apple...

Google Reportedly Pays Apple $8-12 Billion Per Year to be Default iOS Search Engine

Sunday October 25, 2020 2:59 pm PDT by
The United States Justice Department is targeting a lucrative deal between Apple and Google as part of one of the U.S. government's largest antitrust cases, reports The New York Times. On Tuesday, the Justice Department filed an antitrust lawsuit against Google, claiming the Mountain View-based company used anticompetitive and exclusionary practices in the search and advertising markets to ...

After Mocking Apple, Samsung May Remove Power Adapter From Galaxy S21 Box

Tuesday October 27, 2020 4:29 pm PDT by
Samsung's Galaxy S21, coming in 2021, may not include a power adapter or headphones in the box, according to reports from Korean media sites highlighted by SamMobile. Rumors earlier this year also said that Samsung was considering removing these accessories from future smartphone models, but that didn't stop Samsung from mocking Apple for selling the iPhone 12 models without a power adapter...

Report: Apple Silicon iMac Featuring Desktop Class 'A14T' Chip Coming First Half of 2021

Tuesday October 27, 2020 4:14 am PDT by
The first iMac powered by Apple Silicon is set to arrive in the first half of next year and will feature a desktop class "A14T" chip, according to Chinese-language newspaper The China Times. Codenamed "Mt. Jade," Apple's first custom-made desktop processor will be twinned with its first self-developed GPU, codenamed "Lifuka," both of which are being produced using TSMC's 5-nanometer process, ...

iPhone 12 Six-Foot Drop Test Results: Ceramic Shield More Durable But Not Damage Proof

Monday October 26, 2020 5:00 am PDT by
Apple's new iPhone 12 and iPhone 12 Pro feature a new Ceramic Shield screen that Apple says offers 4x better drop performance. To test that claim, Allstate Protection Plans put the two models through a range of breakability tests and recorded the results. In a face down sidewalk drop test at six feet, the iPhone 12 suffered small cracks and scuffed corners and edges, leaving sharp grooves in ...

Bloomberg: New AirPods and AirPods Pro Coming in 2021, AirPods Studio Delayed, Third HomePod Model Also Possible

Monday October 26, 2020 3:34 am PDT by
Apple plans to update its AirPods line next year with two new models including third-generation AirPods and second-generation AirPods Pro, according to a new report from Bloomberg. The Cupertino, California-based technology giant is working on two new models: third-generation entry-level AirPods and the second version of the AirPods Pro earbuds, according to people familiar with the plans. ...

2020 iPad Air vs. iPad Pro: Hands-On Comparison

Tuesday October 27, 2020 3:03 pm PDT by
Apple announced the new 2020 fourth-generation iPad Air in September, but the new tablets just started shipping out to customers last Friday. We picked one up and thought we'd do a hands-on comparison with the iPad Pro, which was last updated in March, because both tablets are about as powerful and share many similarities. Subscribe to the MacRumors YouTube channel for more videos. Design and ...

iPhone 12 Ceramic Shield Still 'Scratches at Level 6 With Deeper Grooves at Level 7' in Mohs Hardness Test

Wednesday October 28, 2020 7:10 am PDT by
iPhone 12 and iPhone 12 Pro models feature a new Ceramic Shield front cover that is "tougher than any smartphone glass," according to Apple, but the displays on the devices still have similar scratch resistance as previous iPhones based on a new test. Zack Nelson today shared his much-anticipated iPhone 12 Pro durability test on his YouTube channel JerryRigEverything, and based on the Mohs...

Apple Files Mystery 'Personal Computer' With Placeholder 'B2002' Name in Bluetooth Product Database

Tuesday October 27, 2020 12:36 pm PDT by
Last week, a listing appeared in the Bluetooth product database for an Apple product with a placeholder name "B2002" and a model number of "TBD." MacRumors was alerted to the listing by health and fitness tech website MyHealthyApple. The product is filed under the "personal computer" category, which Apple has used for previous Mac and iPad listings in the database, so it is hard to pinpoint...