2015 has been the year of Mergers and Acquisitions. A number of large deals took place with a lot of cash and equity changing hands. 2016 might be similar to this one, probably with the exception that the most valuable company on the planet, Apple, might engage in a high profile M&A deal once again. There are rumors about several potential acquisition targets for the iPhone maker. This article takes a closer look on the possibility of Apple acquiring GoPro. First of all, the question is, can this deal happen? Several analysts certainly think so, stating that Apple could acquire the action camera maker to diversify its product line and expand its digital ecosystem.
The deal would closely resemble Apple’s acquisition of Beats Electronics in 2014. With a market cap of $4.4 billion, GoPro would overtake Beats as Apple’s largest acquisition to date. Both deals are relatively small deals compared to the recent M&A that has taken place, however when billions of dollars are involved, one cannot simply ignore them.
Apple is certainly not a firm that acquires companies for no reason. They had clear arguments for the Beats acquisition and if they do decide to buy GoPro, they will only do so if it perfectly fits with their plans. The following arguments are all in favor of the deal for different reasons;
Lack of corporate direction at GoPro
The paradox about GoPro is that they have a product, which is certainly outstanding, however they are not able to monetise it as well as they could. They spend very little on marketing and there is also much room for improvement in their corporate strategy. This is probably due to the lack of expertise of the management. The acquisition by Apple would easily help overcoming this issue. It could reestablish GoPro in the market as a premium brand and Apple would also do what they do best, create brand loyalty for GoPro and use their existing clients also to cross-sell GoPro products.
Great addition to Apple’s product portfolio
First of all, smartphones won’t ever displace action cameras, because the two products are aimed at different markets. Apple customers are unlikely to strap their precious and fragile iPhones to motorcycle helmets and surfboards, so a market for durable and compact GoPro cameras will probably always exist. Also other tech firms decided to invest in action cams instead of looking for ways to enhance their smartphones’ cameras. Apple for the time being seems to be left out from this market, and although Apple prefers being the first mover in the market, and it might not be too late for them to get involved.
Since GoPro’s camera feels like a natural extension of the iPhone and Apple Watch, it would be reasonable for Apple to buy GoPro to diversify its top line beyond iPhones and iPads. iPhone sales accounted for over 60% of its top line last quarter, while sales of iPads have fallen for six consecutive quarters. Buying GoPro would mean buying a business that generates over $2 billion in annual revenues, devices that complement its phones and watches, and an ecosystem that grows its user base by double and triple digits every quarter.
GoPro shares are very cheap
GoPro’s shares have been in negative territory throughout the year, after falling as much as 70% from their highs. In November, the company’s stock price traded below their IPO price of $24 for the first time, short interest in the stock also reached record highs. Following the acquisition rumors, also the share prices have increased slightly, however GoPro stock prices are still much lower than they could be. The low prices are consequences of the bad management as its performance is still very promising, GoPro has a strong balance sheet and generates positive cash flows.
Overall, there might be other interesting acquisition targets for Apple, however GoPro may be the perfect addition to the Apple universe. Some additional arguments can be drawn in favor of the deal. Even though Apple is probably working their way to revolutionise the car market, it still might be some time for that to happen. In the meantime, they might consider the possibility of exploiting the current high demand of action cams.