Is Apple Ready for Merger Mania?

The company has hired a banker from Goldman Sachs and looks to be in a more acquisitive mode

By Peter Burrows

Historically, Steve Jobs has not been the acquisitive type. Since he returned to Apple (AAPL) as chief executive in 1997, the company has bought only 11 small companies, far fewer than Silicon Valley counterparts such as Cisco Systems (CSCO) or Hewlett-Packard (HPQ). Google (GOOG) has bought 11 companies in just the past 18 months.

Last year, Apple quietly hired a Goldman Sachs (GS) investment banker, Adrian Perica, to help the company cut deals. Multiple sources close to Apple say they believe Perica is the first dedicated M&A specialist on staff. The company has also stepped up its pace of acquisitions: Three of Jobs' 11 deals have come in the past five months, including the $275 million purchase of Quattro Wireless, the largest buy since Jobs' return. "Given Apple's strong stock price, it is in a position to be generous [in doing deals]," says Michael Kwatinetz, a general partner with venture capitalists Azure Capital Partners in the Valley. Apple spokeswoman Katie Cotton declined to comment on the company's acquisition strategy or whether it has had deal specialists on staff in the past.

Jobs has long preferred for his company to develop technology in-house and avoid the risks that come with integrating other companies into Apple's unique, finely tuned culture. In the past, there was no organized M&A effort, say three former executives at the company. Instead, business chiefs were supposed to keep an eye out for deals and go to Jobs if they thought there was a beneficial one to be made. After getting Jobs' O.K., the champion of the idea would pull together a team to make an overture, negotiate terms, and work through the administrative details. "It was super ad hoc," says one of the former executives.

But Apple lost out on a deal last year, in part because of its improvisational approach. As the company was negotiating with the mobile advertising firm AdMob last fall, Google swooped in and quickly bought the company for $750 million.

Perica helped make sure Apple didn't make the same mistake with its next deal, say four sources familiar with the situation. Late last year, Apple entered the bidding for the online music site Lala.com, after Google and several other potential acquirers had gotten involved. The company moved unusually quickly, closing the deal in a few weeks, rather than the more typical two to three months. It was clear that Apple didn't want to lose out again, and especially not to Google. "They've always gone slow on M&A, but that's changing," says one Silicon Valley banker.

Perica has a reputation for being direct and likable. He graduated from West Point and was a U.S. Army officer before joining Goldman. While he doesn't report directly to Jobs and is not part of Apple's most senior team, "he brings a DNA that's not native to Apple," says an investment banker who has worked with the company.

There are obvious strategic reasons Apple might want to become more acquisitive. The company is moving beyond its traditional base in personal computers and charging into smartphones and mobile computing. As mobile computing takes shape, Apple, Google, Nokia (NOK), and other traditional tech titans have become more active in searching for startups that can help them with the new terrain. In Apple's case, it has a war chest of $23 billion in cash and short-term securities to pursue acquisitions. "Their [business] model is evolving, and you can expect them to broaden their horizons," says Bill Whyman, an analyst with International Strategy & Investment.

Many experts believe Apple still won't be making any huge deals—the multibillion-dollar, headline-grabbing transactions other companies specialize in. Whyman says Apple has been an "organic grower" and will likely keep its acquisitions small. Rich Geruson, a former Nokia executive who sits on the boards of seven startups, says big companies like Google often wait to acquire a startup in an emerging field until they see which one is the most dominant. But that's not Apple. "The pattern I've seen with Apple is that they buy very, very small companies," he says.