Apple-SoftBank: noncore bets
Apple says its $1bn investment in SoftBank’s enormous $100bn Vision Fund is about nurturing technology which might prove “strategically important”. Yet Apple’s $10bn annual research and development budget should do that; otherwise it has a problem.
The SoftBank investment would be better justified financially. Apple has $240bn of cash and has to put it somewhere. Like the other investors, which now include Qualcomm, the chipmaker, and Larry Ellison, the Oracle founder, as well as Saudi Arabia, the original backer, it wants a return.
That is going to be difficult. The pool of potential investments initially looks dauntingly large. Add in debt and the total firepower could exceed $400bn. That only puts Apple itself, along with Alphabet and Microsoft, out of reach in terms of enterprise value.
Smaller investments, however, can also be eliminated. This is a five-year fund. The money has to be deployed quickly and aggressively to have an impact. Masa Son, SoftBank’s founder, says he plans “a bunch” of $1bn buyouts, “several” $2bn-$5bn acquisitions and “one or two big size”.
An analysis of public technology companies using Bloomberg data show 590 fit that criteria. Remove the very largest, those where insiders hold more than 20 per cent of the shares, or have dual class voting rights, and there are 452. Add in tech-oriented media companies and private “unicorns”, perhaps wary of an initial public offering, and the list appears more extensive.
But the real disqualifying filter is companies in the advanced tech fields that interest Mr Son, such as robotics or internet of things, which justified SoftBank’s own £24bn acquisition of Arm Holdings last year. That field is thin. Valuations are already high for most tech companies — 20 of the $1bn-plus group are valued at more than 100 times earnings before interest tax, depreciation and amortisation and it is hard to envisage a profitable exit even at lower multiples. The road of tech buyouts is littered with carcases.
Other buyout groups are prowling the same territory. The real comparative advantage SoftBank has as an acquirer is sheer size but that is unlikely to count for anything unless it chooses to aim for $100bn-plus companies such as Intel or IBM. For the most part, SoftBank will be competing with established funds such as Silver Lake. Raising $100bn was the easy part; spending it and exiting with any return — for Apple or any other contributor — will be no mean feat