With Dell considering a move towards going private and BMC being taken private by Bain Capital and Golden Gate Partners, would this open the door to even more gigantic moves, such as Apple Inc. employing the services of the private equity industry? Consider the following quote:
“Any company with cash on its balance sheet, little debt, real estate, a known brand, and a sagging stock, will “be in the LBO conversation,” according to Robert Smalley, a credit strategist at UBS Securities LLC in New York. Investors are “yield-starved, and banks are willing to lend, so that spells more higher-yielding transactions,” he said in a telephone interview. “The volume’s definitely been turned up.”
Does this quote not describe Apple? Let’s look at the five conditions mentioned.
One condition is a sagging stock price. Since peaking in September 2012, Apple has been under a good deal of pressure, with the stock price down about 35% over the prior nine months. One can put a check next to this condition. Check: one.
The second condition is a generally healthy cash balance sheet. The most recent Apple filing puts one measure of cash assets at about $40 billion, about $55 billion in operating cash flow, and about $30 billion in levered free cash flow. In summing all measures of cash, Apple has about $145 billion. By any cash flow measure, Apple meets the requirement of having healthy cash flow conditions. As a matter of fact, no other public company in the world has more cash than Apple. Check: two.
A third condition is for the target company to have little debt. Prior to Apple’s May announcement that it would issue $17 billion in cheap debt, Apple had very little debt. The recent three month offering only carries a 0.45 percent rate, 15 basis points above what Treasuries were yielding at the time. Overall, Apple has a very appealing debt position for any private equity investor. Check: three.
The fourth condition is real estate ownership. Answering this question would require a good deal of dissertation-type research. One thing appears clear, though. Apple is not one of the largest land owners in the world, largely because individuals with government connections legally own a ton of land. Check: unknown
The fifth condition is for the target firm to have a known brand. According to Branddirectory.com, Apple is the most most well-known, respected brand in the world. Check: five.
Overall, with at least four out of the five conditions met, Apple is certainly a likeable target to any reasonable private equity investment firm.
Why hasn’t it happened? The simple answer is probably sheer size. By one measure there’s about $360 billion in private equity cash looking for investments this year. It’s probably going to take more than $360 billion to snatch up Apple. A lot of work, but not impossible for the innovative private equity professional.
Comments on this entry are closed.