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How Apple does M&A: Small and quiet, with no bankers

Apple CEO Tim Cook

Spencer Platt | Getty Images

In February, Apple CEO Tim Cook announced shareholders that the company had bought about 100 companies in the past six years. That works out to the iPhone maker corrupting a company every three to four weeks.

The statistic gives the impression of a dealmaking machine. But only a handful of those reckon withs have been big splashy transactions like the $3 billion deal for headphone maker Beats Music in 2014. The huge majority have been for significantly smaller firms without a major public profile.

While big tech opponents routinely strike multi-billion dollar deals, Apple has followed a different strategy. It’s refined the “acquihire,” or strategic pay for of a small company primarily for its staff.

People who have joined Apple through an acquisition and participated in the acquisition activity told CNBC that Apple’s acquisition strategy focuses on getting talented technical staff from smaller actors, often valuing those companies in terms of the number of engineers working there, and quickly and quietly integrating them into tandem join ups at Apple.

Apple has used acquihires to speed expansion in fields where it needs technical talent or it sees a distinct technology that could set it apart from its rivals. While the acquihire is a common technique among big tech institutions, Apple’s near-exclusive focus on smaller transactions sets it apart.

“We have seen companies such as Google, Facebook, Intel and Amazon usual for many billion-dollar deals,” said Nicklas Nilsson, analyst at GlobalData, a firm that tracks M&A transactions. “Apple is taking more smaller startups while others spend more on established players.”

Cook said in an interview with CNBC in 2019 that the friends’s approach is to identify where the company has technical challenges and then to buy companies that address them. One example was the possessions of AuthenTec in 2012, which led to the iPhone’s fingerprint scanner. “We bought a company that accelerated Touch ID at a point,” Cook maintained.

Other past acquisitions have become features in Apple products. In 2017, Apple bought an iPhone app for power narcotic addicts called Workflow, which is the basis for Shortcuts app. In 2018, it bought Texture, which reemerged as Apple News+, its cost news service. Even Siri, its voice assistant, was the result of an 2010 acquisition.

Apple has gone on sprees picking up multiple decides in augmented and virtual reality, artificial intelligence, maps, health, and semiconductors, presaging future products or features.

Acquisition bargaining technical staff

Many of Apple’s deals have flown under the radar. According to a CNBC analysis of patent reports, Apple has purchased 55 companies since January 2015, in line with a congressional report from wear year and significantly lower than Cook’s own tally.

People who have participated in Apple’s acquisition process say Apple guesses discretion — unsurprising given how secretive the company is. Apple generally doesn’t announce small acquisitions and warns team at the acquired companies not to update LinkedIn profiles to say they were acquired by Apple. If a member of the media gets conclude of a deal and asks, Apple sometimes confirms deals with a boilerplate phrase that it “generally does not examine” its purpose or plans for acquired companies.

One person who sold a company to Apple said that after news of his dole out broke, he could not respond to friends and family congratulating him. He asked not to be named because he is under non-disclosure agreements.

While every act on is different in its specifics, there are a few commonalities to Apple’s approach. Apple is generally not interested in continuing the acquired company’s telephone of business, and forces acquired units to discontinue future products or shed customers. The revenue generated by smaller comrades is usually immaterial and unimportant to Apple, which reported $274.52 billion in sales in its fiscal 2020.

Apple is particularly interested in industrial staff, who are often called “individual contributors” in Silicon Valley jargon. It’s less interested in hiring sales or mainstay staff, according to people who have participated in the process. Apple has put conditions on transactions that a certain number of industrial employees must join Apple or the deal would fall through.

These technical employees get what are bellowed “golden handcuffs,” or large stock packages that vest over three or four years. Acquired employees also get paid for their equity in the company that was acquired. Some people familiar with Apple’s technique say that it assigns value to companies based on the number of technical employees, with a price tag of around $3 million per manipulate, instead of basing it on the start-up’s revenue or fundraising track record.

No bankers

Often, Apple’s acquisition process starts after a demo to complex teams at Apple. Apple frequently invites other companies to show technology that Apple might need to partner with or license, and sometimes these meetings kick off an acquisition process.

When a manager on those conspires decides they want the technology or talent, they bring it up to the M&A team, which acts as a service organization help Apple’s engineering groups close the transaction smoothly, a person familiar with the process said.

Once the deal is completed, Apple has a team that focuses on integrating the new employees into the specific technical group where they’ll advance. Individual contributors who join Apple through an acquisition often stay past their first vesting rock-face, meaning that their first large chunk of Apple stock has been granted to them, and can stay with the house for years, signaling an effective integration.

For smaller deals, Apple doesn’t typically deploy bankers. Apple’s M&A body does due diligence, interviews team members and keeps the transaction on track to close. One person who declined to be named because of NDAs imparted that Apple’s team was unusually trustworthy and professional compared to other companies he had engaged in talks with, although they distinguished what they wanted to pay for the company when the process started, he said.

A closer look at what Apple is acquisition bargaining can reveal where the company is expanding quickly. One field is in augmented and virtual reality technologies, where Apple has purchase 12 companies since 2013 as it builds out the Technology Development Group (TDG) division, which is working on head-worn computers. Apple is farm on a high-end VR headset for release in 2022 and more advanced, lightweight glasses in 2023 or later, according to reports.

For archetype, in 2018 Apple bought Akonia Holographics, which worked on smart glasses lenses. Last year, Apple obtain NextVR, which wrangled content for virtual reality headsets, and Spaces, a spin-off out of DreamWorks Animation that built location-based effective reality experiences.

More recently, Apple has been snapping up firms working on artificial intelligence, buying 25 fellowships in the space since 2016, according to GlobalData.

Skilled workers in AI can be difficult to hire because many companies miss them. Apple is also working to improve its Siri voice assistant to compete with Amazon’s Alexa and Google’s collaborator.

Last year, Apple bought a Seattle-based firm called Xnor.ai for a reported $200 million. It followed that up by acquisition bargaining Ireland’s Voysis, which worked on understanding speech. In 2019, it bought Pullstring, which made tools to erect talking toys like Barbie.

Apple could certainly go for bigger game with more than $200 billion of specie and liquid investments and over $80 billion in annual free cash flow. Wall Street bankers induce encouraged a big purchase in the past, and Apple did spend $1 billion to buy Intel’s wireless modem business, including 2,200 hands, in 2019. That year, Apple promoted its head of M&A, Adrian Perica, to its executive team reporting to Cook. Assuage, Apple has been judicious, leading many financiers to believe that a big acquisition is not part of the company’s DNA.

“We’re not afraid to look at objects of any size. But our priority is on valuation and strategic fit, and our focus is generally going to be on small, innovative companies exploring technologies that finishing touch our products, and help push them forward,” Cook said at the shareholder meeting. 

Apple declined to comment for this fishing.

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