10 Acquisition Predictions For 2017: VRX, GILD, AmEx, SPLK, WFM

- January 1, 2017

Acquisition Prediction: Apple buys AmEx

apple_acquires_amexIf Trump keeps his promises, 2017 will be the year of spending for Apple. I think Apple makes one hell of a splash, shocking the market, and one way to do so is with American Express Company (NYSE:AXP).

With that said, I will detail why this makes sense later in a larger more detailed article. However, the premise is simple: AmEx is a powerful brand that can be left alone too run as is, but by acquiring AmEx, Apple would gain its technology and network as a transactor of payments.

We all know that the iPhone has become more of a commodity, with not much consistent year-over-year growth. Its Apple’s Services business that’s really driving the company forward, with growth of 24% and $6.3 billion in sales last quarter. That’s a legitimate No. 2 to Apple’s iPhone business.

Apple’s Services business is essentially the money that Apple creates from iOS, services like Apple Music, App Store purchases, and Apple Pay among others. Therein lies the reason that Apple should buy AmEx for north of $75 billion, because massive transactions take place on Apple’s network and specifically Apple Pay.

Apple receives just $0.15 per $100 spent on Apple Pay. That’s chump change for a company like Apple. However, if Apple becomes a transaction processor and creates a digital card of sorts for iOS users, already having relationships with banks, then 0.15% becomes 2-4% real quick. In other words, Apple capitalizes on AmEx’s seemingly mature business, but also the fast growing mobile payments space where Visa and MasterCard are currently king.

Like I said, the AmEx theory is complex with many layers, but the bottom line is that Apple could increase its Apple Pay revenue 20-30 fold. That’s an opportunity I think it pursues.

Acquisition Prediction: Kroger buys WFM

kroger_acquires_wfmIn the past, I would not have thought a Kroger Whole Foods Market Inc (NASDAQ:WFM) merger could be a reality. However, with WFM now trading at a far more attractive multiple of 20x earnings, and having mid-single digit growth, it is very possible.

Fact is Kroger is a very acquisitive company, and is known to acquire into new regions. Over the last 10 years Kroger has rapidly grown its market share in the retail grocery space. Still, Kroger wants to do better in organic/fresh foods and in online grocery sales. It would certainly achieve the former with a purchase of WFM, who has $15 billion in annual sales.

As for regional presence, one strategy I never understood is why Kroger is essentially absent from Florida. It has one Harris Teeter store that might as well be in Georgia. This makes no sense given Florida’s tourism and heavy population throughout, especially in Central and South Florida. My best guess is Wal-Mart, Publix, and WFM have built such an overwhelming presence that Kroger is wary of investing in the region.

However, Kroger could quickly solve that problem with the acquisition of WFM, a grocery retailer with deep roots throughout the sunshine state.  Sure, it would be an expensive move, but if Kroger can kill two birds with one stone in becoming the organic leader and moving into new regions like Florida, then makes sense to buy WFM.

 

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