The tech giant, Apple, is once again at the centre of acquisition rumours, with its slowing growth and $165bn cash on its balance sheet. The company has famously avoided splashy acquisitions, instead favouring smaller start-ups to augment its home-grown efforts. This strategy has been successful, with Apple’s shares outperforming its megacap peers for the second year in a row, up 26% in 2023.
Potential acquisition targets for Apple have grown over the years, including Walt Disney, Netflix, Tesla, Peloton, and Sonos. However, anyone betting that Apple would buy them has so far been disappointed. The company is not likely to shift its strategy anytime soon, and with its shares outperforming, it appears to be working. Apple’s biggest acquisition to date was the $3bn takeover of Beats Music and Beats Electronics in 2014. In contrast, Microsoft’s pending acquisition of video game maker Activision Blizzard is valued at $69bn.
Despite Apple’s revenue growth projected to shrink 2% in 2023, the company appears to be doing even less on the acquisition front. It spent $306m on business acquisitions in 2022, down from $1.5bn in 2020. In the most recently reported quarter, Apple removed the line item in its financials that accounted for such activity. Instead of splurging on deals, Apple returns much of its excess cash to shareholders via share buybacks and dividends. Those expenditures totalled more than $100bn in 2022, and it still had $165bn in cash, cash equivalents, and marketable securities.
For Logan Purk, an Edward Jones analyst, Apple’s success has been due to its incremental acquisitions, and a big deal would raise a lot of concerns. “If Apple tried to do some massive deal that was outside of its wheelhouse, not complementary, really changing its story, that would make me worried,” Purk said. “It would be so outside its normal course of action that you would have to ask why.”
While Apple’s cash reserves could afford a big acquisition, it seems that the company is content with its current strategy of smaller acquisitions and returning cash to shareholders. Apple’s discipline and success in this regard have pleased investors and analysts alike.