Piper Jaffray analyst Gene Munster has a new note out on Apple (AAPL) buying Beats.
He calls it an expensive “acquihire” — an acquihire is when a company buys another company just to get employees. It’s hiring through acquisition — with Apple going after Jimmy Iovine.
“Apple’s motivation to acquire Beats for $3.2 billion (still unconfirmed) appears to be to bring Jimmy Iovine, a founder of Beats (and rumored to own 25% of the company) and long time record and film producer, to lead Apple’s content strategy. While gaining Iovine is a justification for acquiring Beats, we believe that $3.2 billion is a steep price to bring on one high-level executive, given our stance that Beats doesn’t appear to offer anything to Apple aside from a brand — which is not a weakness of Apple’s. The good news may be that if the Beats deal does in fact happen, it may open the door for other larger scale acquisitions that could include something to improve Apple’s Internet services.”
Iovine does seem to be a very smart executive who could help reignite Apple’s music efforts.
Last year, Iovine laid out his vision for how the music industry should work. With Apple’s money, and muscle, it will be great to see if he can execute his vision.
Iovine isn’t the only person at Beats that industry people respect. Re/code’s Peter Kafka, who knows the music industry cold, calls Ian Rogers, the head of the Beats Music streaming service, the most important new hire Apple is getting.
That said, it’s an expensive price to pay for two executives, no matter how talented they are. But Apple has the cash, so why not spend it?
Munster also thinks that Apple would be better off buying a company like Yahoo (YHOO) or Square, which would bolster Apple’s internet services, and bring in a solid executive team. He sees Apple’s willingness to buy Beats as a sign that it might be willing to open up the checkbook for other companies, too.
On an somewhat related tangent, there is something strange about Apple paying $3.2 billion for Beats, while Google (GOOG) pays $3.2 billion for Nest. Both companies have smart leaders, but one of them seems much more important for the future.
This is part of the reason people are struggling to understand this acquisition. It doesn’t feel like it’s bold and forward looking. It’s not a bad deal. It’s arguably a great deal, it just doesn’t capture our imaginations like drones, and home automation.