Apple Is Developing a Taste for Acquisitions

For years Apple has waded slowly, almost reluctantly into the boiling mergers-and-acquisitions waters of Silicon Valley.

The Apple way is to innovate from deep inside the bowels of its Cupertino campus, where black pieces of cloth cloak new products and access to R&D labs might as well require a drop of your blood. A culture of paranoia guards Apple's secrets.

While secrecy still reigns at Apple, signs point to a willingness to acquire technology.

One of the signs: Apple's recent $275 million purchase of Quattro Wireless, which came on the heels of two other acquisitions. Apple, of course, has the war chest to make such deals: "We have almost $25 billion safely in the bank and zero debt. This provides us tremendous stability and the ability to invest our way through this downturn," said Apple CEO Steve Jobs in October 2008.

Yet cash alone doesn't guarantee success at the M&A bargaining table, which is why Apple hired Goldman Sachs investment banker Adrian Perica. (Hint: It's another sign.) Sources close to Apple told BusinessWeek that they believe Perica is the first dedicated M&A specialist on staff.

What's driving Apple's change of heart? Last year, Apple fumbled a deal to acquire mobile advertising company AdMob. Wily M&A veteran Google picked up the ball and high-stepped it to the end zone by buying AdMob for $750 million. It's a good bet that Apple's failed AdMob bid was the impetus behind Apple's need to get serious about M&As.

Another reason: Thanks to the amazing success of the iPhone, which Jobs announced three years ago this month, Apple suddenly leads an emerging mobile market where things move at lightning speed. Picking up mobile-related technology and services from smartly positioned startups like three-year-old AdMob is the best way to stay ahead of the pack.

Yet there's no question Apple's long-held tradition of innovation from within—Apple has acquired only 11 companies since the return of Jobs in 1997—puts Apple at a severe disadvantage. Simply put, Apple doesn't have a lot of experience cutting M&A deals. Thanks to Perica, this is changing.

Sources told BusinessWeek that Perica helped Apple buy online music site Lala.com last year, even though Apple was bidding against Google. Apparently, Apple was faster on the draw, closing the deal in a few weeks rather than the typical two to three months. "They've always gone slow on M&A, but that's changing," a Silicon Valley banker told BusinessWeek.

Apple's aversion to M&A stands in stark contrast to the famous acquisition sprees of other iconic Silicon Valley companies, most notably big-game hunter Oracle and Google. Oracle single-handedly changed the landscape of Silicon Valley by acquiring giant companies such as Sun Microsystems, BEA Systems, Agile Software, Siebel Systems and PeopleSoft. Meanwhile, Google has gobbled up 11 companies in the last 18 months.

There's another reason M&A activity may be heating up in the Valley: good deals abound. Sure, Silicon Valley has always been a target-rich environment. But given the poorly performing IPO market—only eight VC-backed tech IPOs last year—venture capitalists lining Sand Hill Road see M&A as one of the more viable investment exits.

Now it looks like Apple is taking a seat at the bargaining table.

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