Apple now holds $97.6 billion in cash, enough to purchase Sony five times over -- and seems set to use some of it for strategic acquisitions. Does this reflect a new phase of consolidation as M&A activity intensifies? Or is the company bucking a highly conservative trend?
Apple CFO Peter Oppenheimer is talking M&A, saying: "We have always discussed internally our cash. We recognize our cash is growing for all the right reasons, and I would characterize our discussions today as 'active' with what makes the most sense with the cash balance. When we have something to announce we will announce. Again, we are actively discussing the best usage of our cash balance." He echoes his CEO, Tim Cook, who also is telling analysts about how they're "actively discussing," but who likewise says nothing of any deals under consideration.
This isn't really a place to speculate about what Apple might plan to buy. But it isn't so hard to come to the conclusion that some of the company's potential takeover targets might already be operating within the company's supply chain.
Interesting then that the notoriously secretive company last weeklisted over 150 suppliers on its supplier responsibility page (PDF). This reads like a who's-who of tech. Some of these suppliers are critical to the entire smartphone industry. That's something that could make acquisitions from those already within the chain difficult to achieve, given that they would need to be cleared by relevant competition authorities.
This leaves the company focused on innovative new technologies it can use to make its products even more unique. One recent example of this would be Apple's recent acquisition of Israeli flash memory experts, Anobit. That purchase confirms the company is also interested in acquiring key knowledge and expertise.
That Apple is in position to make strategic purchases is good for the company, and also reflects the kind of conundrum other firms with deep pockets must also face.
Executives with a cash balance will inevitably be asking themselves if there are any deals out there that make sense, particularly in a depressed economic environment. After all, when the chips are down the deals get cheaper.
Take a look around and there's signs some firms are suffering, particularly in the traditional PC markets. Citing lower-than-anticipated sales, one of Apple's memory suppliers -- Elpida Memory -- is currently seeking a $1.2 billion lifeline from the Japanese government.
A recent Pricewaterhouse study took a look at some of the sensible benchmarks that should govern any future M&A activity.
The study tells us many deals just don't go through, and warned that using the current situation to enter new markets may not turn out for some. It does seem a good time to have the cash to begin such deals, with 40 percent of firms surveyed saying global economic woes have delayed planned M&A activity.
Consolidation and Industry Change
Given the economic situation, firms seeking growth may consider M&A activities. Nitin Kumar, who serves as Strategic Advisor to the Board for Association of Due Diligence Professionals, told IB Times that three drivers will govern such activities.
- Because things are sluggish, many companies are available at relatively low cost.
- Private equity funds are sitting on mountains of cash, though due diligence has become a lot stricter than before.
- Currency volatility is also creating unexpected bargains, bringing hitherto unachievable deals within reach.
Kumar's commentary seems to suggest that while 2012 won't be the busiest year for M&A, it could see some key deals. This tends to favor an expectation of some landscape-changing deals as well-heeled firms pounce on less stable but strategically important targets.
With activity focused on the mobile space, I'm predicting interesting times for RIM, and anticipate potential mergers between some of the Asian firms (LG et al), and a race to grab players in the heating-up component manufacture, cloud and connectivity markets. Of course, the question everyone will be asking for the next few weeks must be: "Who is Apple eyeing up?"