With the war for talent gaining momentum, recruitment strategies of organizations across the world are undergoing a sea change. New strategies are coming to the fore, with the old ones being put on the back burner. Acqui-hire, the latest addition, is now gaining prominence.
What is Acqui-hire?
In a layman’s language, the term ‘acqui-hire’ is an indirect way to state that a company is being bought for its outstanding teams/employees, not for products or services. According to some recent data, a majority of acqui-hires are of the organizations that have failed to raise more than $5M of outside funding. On the other hand, as per the anecdotal data, a majority of these organizations are unable to fetch additional fund required to go on. Most of the time, businesses obtained through this way are closed following the acquisition. Payments are usually made in buyer stock, cash, or a mix of both the options.
There are plenty of examples of acqui-hiring. For example, Facebook acquired two companies—Drop.io and Hot Potato—only for their founders. Similarly, after buying the app development company, Milk, Google completely discarded all the projects of Milk and engaged the team to its Google+.
How are acqui-hire deals structured and valued?
They may vary. Usually, it is the acquisition of assets or stocks and a large amount of the purchase price is collected for various packages pertaining to employees. If a buyer mainly focuses on the team, a release agreement is signed. Thereafter, in exchange for the payment, the company allows the buyer for recruiting employees.
When it comes to pricing, buyers mostly expect the price on a “per head” basis. At present, the rate varies anywhere starting from a few hundred thousand to two million per person.
Difference between acqui-hiring & acqui-sourcing
It’s important to mention that acqui-hiring and acqui-sourcing are not synonymous. In the process of acqui-sourcing, buyers, at first, locate decision makers in a company. Thereafter, they contact them for a live conversation where the acquiring/partnering issue is discussed. On the other hand, acqui-hiring refers to the actual acquisition process.
Things to consider for acqui-hiring deals
When it comes to acqui-hiring deals, several issues are discussed. However, they are not broadly different from the things you need to consider for a traditional M&A deal.
Always structure the deal in a way that ensures not only your people and assets but your company is acquired. It will help the company not to go through a separate wind-down procedure.
Make sure that your stockholders and board are well aware of the transaction and most of them, if not all, approve it. Thereafter, consult with the lawyer about the best possible way to insulate the board from claims.
Consider all post-closing liabilities to the stockholders and team and how to manage these liabilities in the best possible way.
Do not forget exploring various ways to make sure that you have got the best possible deal for all stakeholders.
Always ensure that all obligations to your creditors would be satisfied.
You will have to find out early if there are more complicated tax questions, like parachute payment tax considerations.Last but not the least, no matter what the size of your deal is, no deal can be considered ‘less expensive’ or ‘less complicated’ from the legal perspective. So, it is better to consult your attorneys beforehand about the process.