May 30, 2014

Apple announces $3 billion acquisition of Beats

As we have discussed recently on this blog, Apple and Beats have been in talks of an acquisition deal. There were several possible reasons behind this acquisition strategy, including both technology and talent. Sometimes combining with another company can change up a business model that is not working as well as hoped. 

The deal between the two companies has been made official, with Apple acquiring Beats for a reported $3 billion. It is expected that the deal will be closed by October. An additional reason behind Apple's interest in Beats was for the talent assets it will gain from bringing Beats' founders Dr. Dre and Jimmy Iovine on board.

Notably, the popularity of the Beats brand has played a role in the company's success, but as Forbes notes, the Beats Music streaming service is of particular interest to Apple because iTunes has been experiencing a decline in revenue. Services that offer music streaming have been on the rise, and to keep up, Apple has to be able to compete. 

By being able to offer a successful subscription streaming music service, Apple could position itself to be more competitive against companies offering similar services, like Spotify. Apple did launch its own similar service, iTunes Radio, but the service has not been doing as well as expected, according to 

The article also details that this acquisition is Apple's largest. The deal entails $2.6 billion in cash and $400 million in Apple stock. There has been a lot of speculation surrounding this deal, and whether Apple's strategy will turn out to be a successful one, remains to be seen. 

A merger or acquisition can give a company assets and capabilities that supplement and enhance its current offerings. However, such decisions require careful consideration. Companies considering this path may want to consult with an M&A advisor to make sure their strategy is sound.