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.

tim cook hands raised

“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

Cineplex Avatar
80 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)
JustinKent Avatar
80 months ago
This report brought to you by investment bankers who feel left out.
Score: 16 Votes (Like | Disagree)
mdelvecchio Avatar
80 months ago
Summary: sour grapes from big companies and investment bankers who don't like not calling the shots.
Score: 14 Votes (Like | Disagree)
LukasValine Avatar
80 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)
selfsilent Avatar
80 months ago
Questioning the way that the richest company in world does business. Good work.
Score: 9 Votes (Like | Disagree)
nwcs Avatar
80 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)

Popular Stories

iOS 16

iOS 16.4 for iPhone Nearing Launch With These 5 New Features

Monday March 20, 2023 11:50 am PDT by
Apple says iOS 16.4 is coming in the spring, which began this week. In his Sunday newsletter, Bloomberg's Mark Gurman said the update should be released "in the next three weeks or so," meaning a public release is likely in late March or early April. iOS 16.4 remains in beta testing and introduces a handful of new features and changes for the iPhone. Below, we have recapped five new features ...
apple park at night 1

Apple 'Tracking Employee Attendance' in Crackdown on Remote Working

Thursday March 23, 2023 3:41 am PDT by
Apple is tracking the attendance of its employees at offices using badge records in order to ensure they are coming in at least three times a week, according to Platformer's Zoë Schiffer. Since April 2022, Apple employees have been operating on a hybrid home/office work policy as part of a gradual return strategy following the pandemic, with staff required to work from the office at least...
iphone 14 pro max deep purple feature purple

iPhone 15 Pro Rumor Recap: 10 New Features and Changes to Expect

Thursday March 23, 2023 6:42 am PDT by
While the iPhone 15 series is still around six months away from launching, there have already been plenty of rumors about the devices. Many new features and changes have been rumored for the iPhone 15 Pro and iPhone 15 Pro Max in particular. Below, we have recapped 10 changes rumored for iPhone 15 Pro models that are not expected to be available on the standard iPhone 15 and iPhone 15 Plus:A1...
dynamic island

iPhone 15 Dynamic Island to Include New Integrated Proximity Sensor

Friday March 24, 2023 12:27 am PDT by
This year, all iPhone 15 models will include Apple's Dynamic Island that unifies the pill and hole cutouts at the top of the display, but there will also be a material change to the feature that wasn't included in the iPhone 14 Pro models. According to a new tweet by Apple industry analyst Ming-Chi Kuo, the proximity sensor on the iPhone 15 series will be integrated inside the Dynamic Island ...
maxresdefault

Nothing Launches $149 Ear (2) Wireless Earbuds to Compete With AirPods Pro 2

Wednesday March 22, 2023 9:48 am PDT by
Nothing today announced the launch of its second-generation wireless earbuds, the Nothing Ear (2), which offer many of the same features as Apple's AirPods Pro 2 at a lower price point. We went hands-on with the Ear (2) earbuds to see whether they're a viable alternative to the AirPods Pro 2 for those who want to save some cash. The Ear (2) earbuds are the successor to the Nothing Ear (1),...
voice isolation

iOS 16.4 Adds Voice Isolation for Cellular Phone Calls

Tuesday March 21, 2023 11:01 am PDT by
The iOS 16.4 update that is set to be released to the public in the near future includes voice isolation for cellular calls, according to notes that Apple shared today. Apple says that Voice Isolation will prioritize your voice and block out the ambient noise around you, making for clearer phone calls where you can better hear the person you're chatting with and vice versa. Voice...
TMobile Sprint

Apple Stops Allowing Sprint iPhone Activations, Removes Sprint References From Online Store

Thursday March 23, 2023 12:06 pm PDT by
Apple is no longer allowing customers who purchase an iPhone, cellular iPad, or Apple Watch to activate a device with now-defunct mobile carrier Sprint. Apple has also removed remaining references to Sprint from its online store. When checking out with a new purchase, Sprint is no longer an option for connectivity, a change that Apple appears to have implemented today. Prior to now, Sprint...
airpodsd 3 purple 4

iOS 16.4 Seemingly References New AirPods and AirPods Case

Tuesday March 21, 2023 11:43 am PDT by
The iOS 16.4 release candidate version that was provided to developers today appears to hint at a new set of AirPods that could be coming in the near future. According to @aaronp613, the beta features references to AirPods that have a model number of A3048 and an AirPods case with a model number of A2968. There have been no rumors that new AirPods are on the horizon, and it is early for...