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SELLING A BUSINESS

Apple Has Loads of Cash. Which Start-ups Might it Snatch Up?

Apple could make a huge acquisition. But entrepreneurs have an exit opportunity there, too. Here are some start-ups that may be on Apple's radar.
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Apple has a treasure trove so large it staggers the human imagination: $117 billion in cash. That's more than three times the GDP of Botswana.   

Though speculation about Apple acquisition targets has been rampant for at least a year, on Monday the Dealbook section of The New York Times culled an Apple shopping list that includes shiny technology ventures Square, the mobile payments company; Path, an app-based social media play; and, of course, Twitter.

While those companies could make sense for Apple by helping expand Apple's e-commerce strength with on-the-go electronic payments or by plugging holes in a perceived weakness in social media, Apple's real acquisition target is just as likely to be a stunner. Currently Apple has a market cap of $570 billion. In order to grow to, say, the $1 trillion mark--which is not inconceivable in five years with a compound annual earnings growth rate of 10%--analysts point out Apple would likely have to make a dramatic acquisition in another industry to do so.

The Walt Disney Company, Intuit, or even MasterCard and Visa are the major kind of companies analysts speculate Apple could buy. Such companies would offer Apple bold reach into content creation and payment transaction processing, which are only going to become more important as Apple continues to sell stuff to consumers through its iTunes online store.

"With [$117] billion, you can do almost anything you want," says Andrew Hargreaves, a senior research analyst for Pacific Crest Securities of Portland, Oregon.

Besides, Apple thinks outside the box not only about its products, but also about its future.

Entrepreneurs and innovators also have an exit opportunity with Apple, should they want it. Apple is likely to continue buying what Hargreaves calls "tuck-ins," smallish tech companies that complement Apple's existing core strengths. In July, as an example, Apple announced it would acquire AuthenTec, a biometric security and authentication company, for $358 million. AuthenTec's security technology can verify identities on the iPhone, iMac, and iPad, for instance.

Potential targets in app land that are bandied about include the nascent Recce, which has a next-generation mapping service that could give Apple the alternative to Google Maps it has been seeking. Apple might also be interested in news content aggregator Pulse News, which Apple already has close ties with for the iPad, experts say.

Other start-up possibilities might include Euclid, a retail analytics company; Tivli, which provides free access to TV on college campuses through digital devices; as well as Lytro, the camera technology innovator.

That said, Tivli president Christopher Thorpe isn't entertaining bidders just yet, not even Apple. Thorpe points out Tivli, which launched in 2010 at Harvard and now has 10 employees, can deliver better returns to its investors following its present growth path. Earlier this year Tivli received a seven-figure investment from Flybridge Capital Partners and New Enterprise Associates. 

Still, the possibilities leave entrepreneurs like Zalmi Duchman, chief executive of The Fresh Diet and #281 on last year's Inc. 500 list, hopeful.  Though it might seem like a stretch that Apple would acquire the 200-person, Brooklyn-based provider of fresh daily meals, Duchman has also built a substantial technology platform that's helpful for retail distribution.

"What would I do if Apple wanted to acquire The Fresh Diet? I'd throw a party," Duchman says.

IMAGE: Flickr/d'n'c
Last updated: Aug 1, 2012

JEREMY QUITTNER | Staff Writer | Staff Writer, Inc. and Inc.com

Jeremy Quittner is a staff writer for Inc. magazine and Inc.com. He previously covered technology for American Banker and entrepreneurship for BusinessWeek.




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