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Reasons to acquire nothing

|Includes: Apple Inc. (AAPL)

It’s funny to read all the querying and puzzlement over Apple’s acquisition of Lala. There was a breakthrough of sorts in the WSJ yesterday, something about music in the cloud for iTunes, which could be very interesting, but still it seems that nobody has the reason down pat. Or, at least, it remains unclear what Lala provides to Apple which Apple could not have already mastered on its own. There is speculation to be sure, but most of it peppered with question marks, maybes, and if-then statements. Moreover, the reported purchase price does not recommend the target highly, although reports are conflicting and there is no official word.

For now, while we continue to puzzle over Steve Jobs’s rationale, we may want to look into this acquisition as a possible lesson about deals to come. This may or may not be a prototypical transaction in the Internet world, but Lala is certainly not the only popular web service with little revenue, volatile audience trends, and a second-tier ranking in a field in which the top-tier participants could, if they really wanted to, replicate almost anything on their own. In such an environment, and for such a target, a big part of the acquisition value – or maybe all of it – is prone to be classified under “other”… and Apple’s acquisition of Lala may just be a case study of what “other” means.

The top reasons that I’ve been able to gather up, having read this and the other article on the subject, include the following primary deal features:

  • Acquisition of a talented management team.
  • Acquisition of a technical platform that seems robust enough to handle Apple-sized traffic. (Yes, Apple could build its own, and maybe it eventually will… but having the Lala system in-house can’t hurt one way or the other. And even if it saves Apple 6 months of testing and perfecting, that could be an eternity in this industry.)
  • To prevent another competitor from acquiring same.

I am especially fond of that last bullet point as a reason, because it diminishes competition for the buyer. In a less competitive (i.e., pressing) environment, the first two bullets become less crucial and at the same time more valuable.

But regardless of which reason is most important, this list – and there are undoubtedly other items of similar type – is in my opinion reflective of a new style of acquisition of which we are likely to see more in days ahead. After all, Apple is not the only formidable market force, and Lala is not the only mid-tier competitor on the Internet horizon with just enough to be noted but not so much that couldn’t be replicated. One could well make a case that most mid-tier competitors on the Internet horizon fit that profile.

It’s a matter of price, really, and beauty is in the beholder’s eye, but the HR acquisition may become a more popular deal theme in a sector in which HR is the asset most likely to be unique, sort of.

Disclosure: No positions