Apple eschews major acquisitions despite $165bn cash hoard and falling tech valuations

Even with Apple’s revenue growth projected to shrink 2% in  2023, the company appears to be doing even less on the acquisition front.

Apple's slowing growth and cash of $165bn (€152bn) on its balance sheet are again fuelling speculation that the world’s most valuable company should make a big acquisition.

Entertainment giant Walt Disney recently joined a long list of potential acquisition targets that over the years has grown to include Netflix, Tesla, Peloton, and Sonos. They all have one thing in common: Anyone betting that Apple would buy them has so far been sorely disappointed.

“You’re probably missing the value of the business if you think the key catalyst for investment is a major acquisition,” said Kevin Walkush at Jensen Investment Management. “It’s a low-probability bet.” 

Apple is famous for eschewing splashy acquisitions in contrast with peers like Microsoft and Amazon, which have continued to make deals despite increasing scrutiny by regulators. Instead, Apple favours buying small start-ups to augment its home-grown pushes into new markets even if those efforts take many years to bear fruit.

With Apple’s shares outperforming again in 2023, it’s unlikely the iPhone maker is shifting strategies. The shares are up 26% in 2023, outperforming its megacap peers for the second consecutive year. 

Over the past two decades, Apple has averaged an annual return of 39%, including dividends. The S&P 500 index, by comparison, sits at 10%.

“Not doing a big deal hasn’t impacted them and if it ain’t broke, don’t fix it,” said Gregg Abella, chief executive of Investment Partners Asset Management. “I’m pleased that Apple has a lot of discipline in this regard.” 

Apple’s biggest purchase in its history was the $3bn takeover of Beats Music and Beats Electronics in 2014. Microsoft’s pending acquisition of video game maker Activision Blizzard is valued at $69bn. 

Even with 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 totaled 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 has been so successful by making smaller, incremental acquisitions that a bigger 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,” Mr Purk said. “It would be so outside its normal course of action that you would have to ask why.” 

Bloomberg