Apple's secretive acquisition past

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Last week’s unoffical report that Apple is looking to buy Beats Music for $3.2 billion was significant far beyond its industry-shaking business ramifications—it also offered a rare peek into Cupertino’s usually secretive acquisitions process.

While critics have long charged that Apple is too slow to acquire outside companies and new technologies, there has been recent evidence that is changing. CEO Tim Cook, for example, said during an October earnings call that the company made 15 “strategic acquisitions” in 2013—thought to be a busy year for the company. Last month, Cook updated the number to 24 in the past 18 months and said that the company would not be shy about making worthwhile acquisitions, even if they involved spending a lot of money. 

Whether or not such acquisitions are actually increasing of late is hard to pin down: As in all of its processes, acquisition strategy included, Apple puts a premium on secrecy. The company itself rarely offers more than a boilerplate statement—"Apple buys smaller technology companies from time to time, and we generally do not discuss our purpose or plans"—when it does buy other firms. Unsurprisingly, it also declined to comment for this story. Several industry analysts said that tracking Apple’s movements is particularly difficult.

“We don’t get any information from them,” said J. Gerry Purdy, chief mobile analyst for Compass Intelligence.

“They’re not very visible about those things,” added Charles Golvin, an independent analyst, “so it’s difficult to ascertain whether they’ve picked up the pace or if it’s become more visible.”

One of the best sources of information about Apple’s movements is, perhaps unsurprisingly, Wikipedia, which has a documented list of mergers and acquisitions by Apple throughout the company’s history. Each item names the acquired company, its specialty, how much Apple paid, and how that company’s work came to fruition in Apple projects, starting with the purchase of a software company Network Innovations, in 1988. The list contains 57 entries—including 13 in 2013 and not including the yet-to-be-finalized Beats deal—which would prove to be a relatively busy year for the company.

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Apple's largest aquistion to date was the Next deal for approximately $400 million, which was finalized in 1997.

In pure dollar terms, though, the purchase of Beats would likely on its own surpass all the acquisitions in any single year of the company's history.

Contributing factors

According to analysts, Apple looks for three things when making a deal to buy a company.

Synergy of brand and culture. “[Apple’s] very good at music,” said Wedbush Securities analyst Michael Pachter, pointing to the company’s history with the iPod and iTunes Music Store. “Beats is a similar brand—a perception of quality, marketed well.”

“There has to be a cultural fit as well,” said analyst Ben Bajarin. “So Apple is not just looking at the tech but also if the culture of the company will fit with Apple. It is all interrelated.”

Innovation. “I do believe [Apple has] picked up the pace (of acquisitions) but that is due to the nature of how fast innovation is happening around the industry,” Bajarin said. “Many companies are getting funded, creating unique innovations, and more, so Apple is looking stay ahead of the market and competition.”

Bajarin offered several examples: The 2008 purchase of P.A. Semi, a semiconductor design group, lead to the creation of Apple’s A5 processor, which Bajarin described as “one of the most innovative SoC designs in the market today.” Similarly, the 2012 purchase of AuthenTec led to the iPhone 5s’s Touch ID. “Both those underlying companies are critical to the company's long term strategy,” Bajarin said.

Shore up weaknesses. A number of Apple’s 2013 purchases were of digital mapping companies—an attempt to shore up a clear weakness after the company ditched Google in favor of its own, much-unloved maps app for iOS. 

Similarly, the acquisition of Beats is seen as a way to make progress in the streaming music area: The relatively young and comparatively underdeveloped iTunes Radio isn’t seen as having made enough headway against services like Pandora and Spotify; Beats Music offers both ready-made technology, an enthusiastic audience, credibility to Apple in an area where it’s still seeking a foothold.

“You don’t know anybody who actually uses it,” Pachter said of iTunes Radio. “You don’t know anybody who says it’s great.”

One final element enabling the speeded-up pace/size of acquisitions: A gigantic hoard of cash—around $150 billion as of the most recent quarter—that Apple’s investors expect to be put to good use.

“I think one contributor is their gigantic cash hoard and the judgement by the financial community that it ought to do something more productive than sit in an offshore account,” Purdy said. “I think they’ve got an attitude under Tim Cook that they’re going to be more productive with it, instead of saving it for a rainy day.”

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