Small and calm, without bankers

Small and calm, without bankers


Tim Cook, Apple CEO

Spencer Platt | Getty Images

In February, Apple CEO Tim Cook told shareholders that the company had bought around 100 companies in the past six years. It comes down to the iPhone maker buying a business every three to four weeks.

Statistics give the impression of a deal-making machine. But only a handful of those deals have been big deals, like the $ 3 billion deal for headphone maker Beats Music in 2014. The vast majority have been for significantly smaller companies without a large public profile.

While the big rivals in technology regularly strike multi-billion dollar transactions, Apple followed a different strategy. He refined the “acquisition,” or strategic purchase of a small business primarily for its staff.

People who joined Apple through an acquisition and participated in the acquisition process told CNBC that Apple’s acquisition strategy focuses on securing talented technical staff from small businesses, valuing often these companies in terms of the number of engineers working there, and integrating them quickly and quietly. in teams at Apple.

Apple has used acquisitions to accelerate its expansion in areas where it needs technical talent or where it sees specific technology that could set it apart from its rivals. While acquihire is a common technique among large tech companies, Apple’s almost exclusive focus on small transactions sets it apart.

“We have seen companies like Google, Facebook, Intel and Amazon close many billion dollar deals,” said Nicklas Nilsson, analyst. at GlobalData, a company that tracks M&A transactions. “Apple buys more small startups while others spend more on established players.”

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

Other past acquisitions have become features of Apple products. In 2017, Apple purchased an iPhone app for power users called Workflow, which is the basis of the Shortcuts app. In 2018, he purchased Texture, which reappeared as Apple News +, his subscription news service. Even Siri, his voice assistant, is the result of an acquisition in 2010.

Apple has splurged by choosing multiple companies in the areas of augmented and virtual reality, artificial intelligence, cards, health, and semiconductors, heralding future products or features.

Purchase of technical staff

Many of Apple’s offerings have gone under the radar. According to a CNBC analysis of public reports, Apple has bought 55 companies since January 2015, according to a congressional report last year and significantly lower than Cook’s own tally.

People who participated in the Apple acquisition process say Apple expects discretion – no surprise given how secret the company is. Apple generally does not announce small acquisitions and warns staff at acquired companies not to update LinkedIn profiles to say they have been acquired by Apple. If a member of the media gets wind of a deal and asks, Apple sometimes backs up deals with a catch phrase that it usually “doesn’t discuss” its purpose or plans for the acquired companies.

One person who sold a business to Apple said that after his deal was announced, he couldn’t respond to his friends and family to congratulate him. He asked not to be named because he is on a non-disclosure contract.

While each deal is different in its specifics, Apple’s approach has a few things in common. Apple is generally not interested in continuing with the acquired company’s line of business and forces the acquired units to abandon future products or to get rid of customers. The revenue generated by small businesses is generally unimportant and unimportant to Apple, which reported $ 274.52 billion in sales in its fiscal 2020.

Apple is particularly interested in technical staff, often called “individual contributors” in Silicon Valley jargon. He is less interested in hiring sales or support staff, depending on who was involved in the process. Apple put conditions on transactions that a number of technical employees must join Apple or the deal would fail.

These technical employees are given what are called “golden handcuffs”, or large packages in stock that are acquired over three or four years. The staff acquired is also remunerated for their participation in the company acquired. Some people familiar with Apple’s process claim that it values ​​companies based on the number of technical employees, with a price tag of around $ 3 million per engineer, instead of basing it on revenue or performance. start-up’s fundraising track record.

No bankers

Often, the process of acquiring Apple begins after a demonstration to Apple’s technical teams. Apple frequently invites other companies to show off technology that Apple might want to partner with or license, and sometimes these meetings kick off an acquisition process.

When a manager of these teams decides he wants the technology or the talent, he submits it to the M&A team, which acts as a service organization helping Apple’s engineering groups to close the deal smoothly. said a person familiar with the process.

Once the transaction is complete, Apple has a team that focuses on onboarding new employees into the specific technical group where they will be contributing. Individual contributors who join Apple through an acquisition often stay past their first acquisition cliff, meaning their first large chunk of Apple stock has been awarded to them and can stay with the company for years, signaling a effective integration.

For small transactions, Apple generally does not deploy bankers. Apple’s M&A team performs due diligence, interviews team members, and keeps the deal on track for completion. One person who declined to be named due to NDAs said the Apple team are exceptionally trustworthy and professional compared to other companies they have engaged in discussions with, even though they know what they are talking about. ‘she wanted to pay for the business when the process started, he said.

A closer look at what Apple is buying can reveal where the business is growing fast. One area is augmented and virtual reality technologies, where Apple has bought 12 companies since 2013, as part of the creation of the Technology Development Group (TDG) division, which works on laptops. Apple is working on a high-end VR headset for release in 2022 and more advanced, lightweight glasses in 2023 or later, according to reports.

For example, in 2018 Apple bought Akonia Holographics, which was working on lenses for smart glasses. Last year, Apple bought NextVR, which dealt with content for virtual reality headsets, and Spaces, a DreamWorks Animation spin-off that created location-based virtual reality experiences.

More recently, Apple has picked up companies working on artificial intelligence, buying 25 companies in space since 2016, according to GlobalData.

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

Apple last year bought a Seattle-based company called Xnor.ai for a reported $ 200 million. He followed this up by purchasing Voysis from Ireland, which was working on speech comprehension. In 2019, he bought Pullstring, who made tools to make talking toys like Barbie.

Apple could certainly go for a bigger game with over $ 200 billion in cash and cash investments and over $ 80 billion in annual free cash flow. Wall Street bankers encouraged a big purchase in the past, and Apple spent $ 1 billion buy Intelthe wireless modem company, which had 2,200 employees, in 2019. That year, Apple promoted its director of mergers and acquisitions, Adrian Perica, to its management team reporting to Cook. Still, Apple has been shrewd, leading many financiers to believe that a major acquisition is not part of the company’s DNA.

“We are not afraid to consider acquisitions of all sizes. But our priority is valuation and strategic fit, and we generally focus on small, innovative companies that explore technologies that complement and help our products move forward, ”Cook said at the shareholder meeting.

Apple declined to comment for this story.

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