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Apple Says Repatriated Cash Won't Change Its M&A Strategy

By Natalie Walters - Updated Feb 14, 2018 at 3:36PM

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Looks like Apple won't be buying Netflix anytime soon.

Apple (AAPL 0.17%) has often been called "boring" when it comes to its mergers and acquisitions (M&A) strategy. 

Some investors would love for the tech giant to do something with its large cash pile, like scoop up Netflix or Tesla. But that's simply not Apple's style. The company has never approached M&A in the way you would expect based on its balance sheet. 

With the lowered repatriation tax rate, many people were expecting Apple to change up its strategy and go after some bigger fish. But the extra cash doesn't change anything, according to Apple CFO Luca Maestri's comments on the first-quarter earning call.  

People walk into an Apple store with large glass windows

Looks like Apple won't be buying Netflix or Tesla anytime soon. Image source: Apple.

Maestri talks about Apple's 2018 M&A strategy

When news broke about the new tax code, Apple moved front and center into the news cycle as one of the largest beneficiaries of the lowered tax rate for cash held overseas. 

"Our thought process around M&A has always been the same and really doesn't change," Maestri said on the earnings call. 

In 2017, Apple acquired 19 companies that would help it to accelerate product roadmaps, fill in gaps in its portfolio, or provide a new experience for users, Maestri said. He went on to say that Apple considers all sizes of companies and will continue to do so. "We have plenty of financial flexibility, of course," he said. "[But] we had that even prior to tax reform." 

What companies did Apple acquire in 2017?

You might be surprised to hear that Apple bought 19 companies in 2017. Certainly, none of them got the attention that the Amazon-Whole Foods deal received even though Apple is a mega-cap tech company. This should give you an idea of how small Apple's acquisitions have been. 

The one deal that managed to excite investors was Apple's December purchase of music discovery app Shazam, which is worth $400 million, according to TechCrunch. But even on that deal, Apple was characteristically quiet and nonchalant about it. At the time, famed Apple analyst Gene Munster said: "That's how Apple does investing and M&A. They don't make a big flashy announcement." Munster is also a managing partner at Loup Ventures, which specializes in tech research. 

However, Apple also acquired lesser-known companies like the popular U.S.-based automation app Workflow, Finland-based sleep-tracking device maker Beddit, U.S.-based artificial intelligence (AI) tech start-up Lattice Data, German eye-tracking company SensoMotoric Instruments, Canadian augmented reality (AR) headset maker Vrvana, and French computer-vision company Regaind. 

If you look at that list, you can see that Apple often scoops up smaller companies to help it fill gaps in its own hardware and software, as Maestri said on the earnings call. A number of the acquisitions, such as the eye tracking company, can help speed up Apple's research and development in relation to AR. Previously, during the fourth-quarter earnings call in November, Apple CEO Tim Cook said AR "will change everything." 

How much cash does Apple have for M&A? 

Apple's cash pile hit a new high of $285.1 billion last quarter, up from $268.9 billion in the previous quarter. As many people have pointed out, that's more than the GDPs of a number of countries, including Iraq, Pakistan, and Portugal. 

 

More importantly, Apple's net cash position is $163 billion. The company says it plans to spend that money thanks to the "increased financial and operational flexibility from the access to our foreign cash," according to Maestri.  

When asked about the timeline for spending this cash, Maestri said it would provide more color in its next earnings call. The quarter that includes March is the one in which Apple usually outlines its shareholder-return plans, and Maestri hinted that much of the money will indeed be returned to shareholders. 

"When you look at our track record of what we've done over the last several years, you've seen that effectively we were returning to our investors essentially about 100% of our free cash flow," he said. "And so that is the approach that we're going to be taking."

So while Apple is acknowledging its extra cash due to the change in the tax rate, the company isn't switching things up as of now. Apple will adhere to its same M&A strategy, as well as to its tendency to return cash to investors. In other words, it's a good year to be an Apple shareholder. 

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