There is renewed speculation that Apple, with its slowing growth and a massive cash reserve of $165 billion, should pursue a large acquisition. The entertainment giant Walt Disney recently became one of the many potential acquisition targets that include Netflix, Tesla, Peloton, and Sonos. However, Apple is renowned for avoiding significant acquisitions, preferring to purchase small startups to complement its home-grown efforts to enter new markets, even if they take years to mature.
While other tech giants, such as Microsoft and Amazon, have continued to make deals, Apple’s strategy appears to be working. In 2023, Apple’s shares outperformed its mega-cap peers for the second year in a row, with a 25% increase in value. Over the past two decades, the company has averaged an annual return of 39%, including dividends, compared to the S&P 500’s 10%.
According to Kevin Walkush, portfolio manager at Jensen Investment Management, betting on a significant acquisition from Apple is a low-probability bet. Apple’s biggest purchase was the $3 billion takeover of Beats Music and Beats Electronics in 2014. In contrast, Microsoft’s pending acquisition of video game maker Activision Blizzard is valued at $69 billion.
Despite its revenue growth being projected to shrink by 2% in fiscal 2023, Apple seems to be doing even less on the acquisition front, having spent $306 million on business acquisitions in fiscal 2022, down from $1.5 billion in fiscal 2020. Instead, Apple returns much of its excess cash to shareholders via share buybacks and dividends, with expenditures totalling more than $100 billion in fiscal 2022. Gregg Abella, CEO of Investment Partners Asset Management, praised Apple for its discipline in avoiding significant acquisitions, stating that “if it ain’t broke, don’t fix it.”
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