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  • Aalim Azeez Ur Rehman

How do Markets see Apple's M&A Performance?



Overview

Apple has made no secret of its M&A strategy ever since Tim Cook became CEO. Its strategy has been focused on buying small companies which can easily be integrated into company projects. Although, Apple hasn’t always followed this strategy. One of its largest deal’s consisted of acquiring Beats Electronics for $3 Billion back in August 2014. Even Apple’s biggest critics wouldn’t deny that Apple’s growth can largely be attributed to its heavy acquisition volume. For Apple, constantly purchasing companies has provided numerous benefits which give it the operational and innovative edge against competitors.


In an interview with CNBC, Tim Cook mentioned how its M&A plans differ from other big tech firms. He mentions how Apple doesn’t buy competitors, indirectly referencing Facebook’s purchase of Instagram. Instead, the tech firm engages in M&A to overcome challenges in accessing intellectual property and improving R&D while eventually making them a feature of the iPhone. This can be seen with the acquisition of The Dark Sky Company back in March 2020. Dark Sky’s services which include weather forecasting now form the basis of Apple’s new weather app on iOS 14. By acquiring such companies, Apple can always remain ahead of the curve and hold its current tag of being the leading innovator in the smartphone market.


How have Markets reacted to M&A deals?

Investors have had varied reactions to acquisition announcements made by Apple. Share prices have increased and decreased after press releases. It can be linked to how markets view the acquisition in line with Apple’s ambitions. There have been cases where investors were unable to make sense of acquisition and shareholder value decreased. However, usually acquisitions translate to appreciation of share prices. I will explore two cases to capture sentiment to certain acquisitions.



The chart above captures the reaction to the announcement that Apple has acquired The Dark Sky Company. Traders understood the rationale behind the deal and became bullish on the stock. This translated into substantial share price increases in the coming months. It was clear to see that Apple had seen potential in the company to complement its in-built applications for its new operating system. Dark Sky’s technology is clear to see in the new weather app Apple provides and its integration is what investors speculated back when the deal was announced.



The chart above depicts the market’s reaction to Apple announcing its takeover of Beats Music was complete. At the time, the deal didn’t make sense as the music company wasn’t in line with what Apple acquired traditionally. Until recently, a lot of sentiment towards the deal focused on how Apple made little use of Beats. Arguably, Apple was going through a lot of criticism of how it was rebuilding after the death of its founder, Steve Jobs, which the Beats deal was a symbolism of given its confusing rationale. This resulted in a continuous decrease in the share price for two months. This acquisition shows how markets haven’t always been so rosy to Apple’s acquisition announcements.


Can Future M&A Activity result in Share Price Accretion

Markets tend to react positively to acquisition announcements as long as they feel it complies with Apple’s historical M&A strategy. The Beats deal shows that Apple can use its acquired companies to benefits and doesn’t necessarily worry about potential bearish reactions in the stock market. It is clear that all acquired targets are used in Apple’s operation somehow and all contribute to the development of the iPhone. For these reasons, I believe Apple’s M&A performance will continue to attract investors which will benefit shareholders in the long run.


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