Apple (NASDAQ:AAPL) has roughly $200 billion in cash to spend, and speculation is rife that it plans to buy a large tech or industrials company. GoPro (NASDAQ:GPRO) or even Tesla Motors might fit this bill.
However, it's questionable whether the tech giant would benefit from owning either company (or another two enterprises named as likely targets). Nevertheless, this brings up a key question: what exactly does Apple look for in an acquisition?
Motley Fool analysts Sean O'Reilly and Dylan Lewis take a quick look at the company's acquisition history, and its taste in takeover targets.
A transcript follows the video.
This podcast was recorded on Dec. 11, 2015.
Sean O'Reilly: Alright, so Dylan, we talked about these three or four potential acquisitions. We probably should've talked about the prospects of buying the Federal Government of the United States, but maybe that'll be the show next week.
How does this fit in to what we've seen from Apple? Because if memory serves, they kind of just buy patents and tech, not really products.
Dylan Lewis: Yeah. I think that's always really telling, right? You look at a company's acquisition history -- generally what they tend to do with their capital -- and that generally tends to play out in the future, right? I mean people will surprise here and there, but I think Apple, it kind of has a very consistent march to what they do with their acquisitions. And so it also, that's another reason I'm kind of bearish on acquiring any of these four companies. It's just really not consistent with what they've done in the past. So Apple, they typically acquire these small tech companies that have weird names, and they do it for a value, so where ...
O'Reilly: Dylan Lewis -- calling it like he sees it.
Lewis: ... in like the 7 to 8 digit range. That tends to be the value of the acquisitions.
O'Reilly: So we could start a tech company, give it a weird name, and sell it to Apple. Perfect.
Lewis: O'Reilly Lewis Enterprises.
Lewis: It's something like that. And then what they typically do is take them and plug them into in-house initiatives which is easy. You don't have these, I think one of the things we've talked about in the past with some of the huge mega mergers in tech is it's really tough to realize the synergies you think you're going to realize.
O'Reilly: Not only that, but merging cultures particularly in tech.
Lewis: Very difficult.
O'Reilly: I've never done it because I'm 30 and working with Motley Fool, but I'm going to say it borders on impossible.
O'Reilly: Especially with a company like culturally, like Apple.
Lewis: Yeah and you wind up with a lot of extra employees. It's like what do you do with all these people? There's definitely some duplication there of efforts and the way that they've gone about acquisitions in the past is kind of managed to avoid a lot of that. I don't really see that changing anytime soon.
O'Reilly: So what are some previous acquisitions?
Lewis: Yeah previous acquisitions within the last year or so, they acquired Faceshift. It's a company that creates and animates avatars of people's faces in real time. Kind of interesting.
O'Reilly: Have you ever done that?
Lewis: I have not. Perceptio, a company that uses AI to classify photos on smartphones. VocalIQ, it's an AI start-up focused on context derived meaning for voice commands. And I think something that you see kind of consistently throughout these is the, they're not themselves something that you can immediately offer to consumers, but there's something that plugs into ...
O'Reilly: Something that Apple does.
Lewis: Something that they're working on, right? I mean like VocalIQ obviously has Siri implications. That's a very clear plug and play there. And something that's been consistent with all of these acquisitions and if you read the news items that follow them, the PR releases, there's always this line from an Apple spokesperson, "Apple buys smaller technology companies from time to time. And we generally not discuss our purpose or plans." That is like the boilerplate ...
O'Reilly: In every single one?
Lewis: Yeah it's like every single one. And that's just the comment that they give whenever they're reached out by journalists.
O'Reilly: Only Apple could put out that disclosure.
Lewis: And that's just their angle and that's what they do. And aside from the Beats acquisition, was that a year an a half ago?
O'Reilly: You know what? I forgot about Beats.
O'Reilly: I said they never buy products, but I wow, I forgot about Beats. I can't believe that.
Lewis: So that was a $3 billion acquisition which is crazy compared to pretty much everything else they've bought in the last 5 years. But in a lot of ways that's kind of an easy transition for them. It's like Beats you can easily sell in the stores.
O'Reilly: And they want their flag in the music industry is what they want.
Lewis: Yeah and the Beats music platform was something that was very portable over to what they were doing with Apple Music and the roll-out they were trying to get into on the streaming side and more of a subscription service type model.
So I think even that kind of made sense, even thought the sticker price was a lot higher than what they're used to paying. That's the argument I guess with GoPro right now is it fits well into what they know well. But I still think it's a little bit too far removed from their core business for it to truly make sense.