Apple CEO Tim Cook
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In February, Apple CEO Tim Cook announced to shareholders that the company had bought around 100 companies in the past six years. That works for the iPhone manufacturer, who buys a company every three to four weeks.
The statistics give the impression of a dealmaking machine. But only a handful of those deals were big, bubbly deals like the $ 3 billion deal for headphone maker Beats Music in 2014. The vast majority were for much smaller companies with no big public profile.
While major tech competitors routinely close billions of dollars in deals, Apple is pursuing a different strategy. The “acquisition” or strategic purchase of a small business has been refined primarily for its employees.
People who joined Apple through an acquisition and participated in the acquisition process told CNBC that Apple’s acquisition strategy is focused on attracting talented technical staff from smaller companies. These companies are often rated based on the number of engineers working there and quickly and quietly integrated into teams at Apple.
Apple has used Acquihires to accelerate expansion in areas where it needs technical talent or it sees certain technology that could set it apart from its competitors. While acquisition is a common technique at large technology companies, Apple is characterized by its almost exclusive focus on smaller transactions.
“We saw companies like Google, Facebook, Intel and Amazon doing many billion dollar deals,” said Nicklas Nilsson, an analyst at GlobalData, a company that tracks M&A transactions. “Apple is buying more smaller startups while others are spending more on established players.”
Cook said in a 2019 interview with CNBC that the company’s approach is to identify where the company has technical challenges and then buy companies that address them. One example was the acquisition of AuthenTec in 2012, which led to the fingerprint scanner on the iPhone. “We bought a company that was speeding up Touch ID at one point,” said Cook.
Other previous acquisitions have become features in Apple products. In 2017, Apple bought an iPhone app for power users called Workflow, which forms the basis for the Shortcuts app. In 2018, the company bought Texture, which re-emerged as Apple News +, its subscription news service. Even Siri, his voice assistant, was the result of a 2010 acquisition.
Apple has selected several companies in the fields of augmented and virtual reality, artificial intelligence, cards, health and semiconductors and announced future products or features.
Buy technical staff
Many of Apple’s deals have flown under the radar. According to a CNBC analysis of public reports, Apple has bought 55 companies since January 2015, which corresponds to a congressional report from last year and is well below Cook’s own record.
People who participated in the Apple acquisition process say Apple expects confidentiality – not surprising given the company’s secrecy. Apple generally does not announce small acquisitions and cautions employees of acquired companies not to update LinkedIn profiles to confirm that they have been acquired by Apple. Sometimes, when a member of the media gets wind of a deal and asks, Apple acknowledges dealings with a boilerplate set that it “generally does not discuss” its purpose or plans for acquired businesses.
A person who sold a company to Apple said that after his business became known, he was unable to respond to friends and family who congratulated him. He asked not to be named because he has nondisclosure agreements.
While every business is different in its specifics, there are some similarities in Apple’s approach. Apple is generally not interested in continuing the business of the acquired company and is forcing acquired units to discontinue future products or throw off customers. Smaller business revenues are typically negligible and negligible to Apple, which had fiscal 2020 revenue of $ 274.52 billion.
Apple is particularly interested in technical employees, often referred to as “individual employees” in Silicon Valley jargon. According to those who participated in the process, there is less interest in hiring sales or support staff. Apple has set terms on transactions that require a certain number of technical staff to join Apple, otherwise the deal would fail.
These technical employees are given so-called “golden handcuffs” or large blocks of shares that are valid for three or four years. Acquired employees are also paid for their equity in the acquired company. Some people familiar with Apple’s process state that companies are getting around $ 3 million per engineer based on the number of technical staff, rather than relying on the startup’s earnings or track record .
The Apple acquisition process often begins after a demo for technical teams at Apple. Apple often invites other companies to showcase technologies that Apple may be working with or about to license, and sometimes these meetings trigger an acquisition process.
When a manager on these teams decides they want the technology or talent, they bring it to the M&A team, which acts as the service organization and helps Apple’s engineering groups to get the deal closed smoothly, one said person familiar with the process.
Upon completion of the transaction, Apple will have a team focused on integrating the new employees into the specific technical group in which they are contributing. Individual employees who join Apple through an acquisition often lag behind their first vesting cliff, which means they have been granted their first large chunk of Apple stock and can stay with the company for years, which signals an effective integration.
Apple doesn’t typically use bankers for smaller businesses. Apple’s M&A team conducts due diligence, interviews team members, and keeps the deal on track until close. One person who refused to be named because of NDAs said Apple’s team was unusually trustworthy and professional compared to other companies it had conversations with, even though they knew what they were up for at the beginning of the process Companies wanted to pay.
A closer look at the products Apple has bought shows where the company is expanding rapidly. One area is augmented and virtual reality technologies, where Apple has bought 12 companies since 2013 to build the Technology Development Group (TDG) that works on head-worn computers. Apple is reportedly working on a high-end VR headset for release in 2022 and more advanced, lighter glasses starting in 2023 or later.
For example, in 2018 Apple bought Akonia Holographics, which was working on smart eyeglass lenses. Last year, Apple bought NextVR, which disputed content for virtual reality headsets, and Spaces, a spin-off from DreamWorks Animation, which developed location-based virtual reality experiences.
More recently, according to GlobalData, Apple has bought out companies working on artificial intelligence and has bought 25 companies in the field since 2016.
AI professionals can be difficult to hire because many companies want them. Apple is also working on improving its Siri voice assistant to compete with Amazon’s Alexa and Google’s assistant.
Last year, Apple bought a Seattle-based company called Xnor.ai for $ 200 million. This was followed by the purchase of Ireland’s Voysis, which worked to understand the language. In 2019, it bought Pullstring, which made tools for building talking toys like Barbie.
Apple could certainly be aiming for a bigger game with more than $ 200 billion in cash and over $ 80 billion in annual free cash flow. Wall Street bankers have encouraged a big buy in the past, and Apple spent $ 1 billion in 2019 buying Intel’s wireless modems business, including 2,200 employees. That year, Apple promoted its head of M&A, Adrian Perica, to cooking coverage for its executive team. Even so, Apple was reasonable and led many financiers to believe that a large acquisition is not part of the company’s DNA.
“We’re not afraid to consider acquisitions of any size. However, our priority is valuation and strategic direction. Our focus will generally be on small, innovative companies that are researching technologies that complement and drive our products . ” “Cook said at the general meeting.
Apple declined to comment on this story.