Brand, tools, talent, data richness, and financial muscle have always been the main ingredients of the growth recipe of a company. Nonetheless, with the world turning completely digital, this recipe is evolving. In fact, the talent in the industry has become more vital as compared to other factors. All companies want the best-in-class talent available, which is why acqui hiring has become commonplace.
Acqui hiring is a very hot topic in the world of startups these days. Each and every company wants to get the best for their firm. And this method of recruiting the best talent and capable candidates is what everyone is targeting.
What is an Acqui- hire?
The Acqui hiring process or acq hiring is the combination of two words – acquisition and hiring. It is a new kind of strategy that has come in the tech industry for hiring the best talent. This process stands for purchasing companies in order to recruit and acquire its employees. And with this, the product or service of the company becomes secondary.
To put it simply, when a company acquires another company and gains access to its talent (with or without its intellectual property) is called acqui hiring. And this acquisition process is usually not for its customers, revenues, or services/products, although the company does benefit from it as well. A lot of the tech giants in the world like Google, Facebook, and Amazon have been tapping into the best talents in the industry by using the acqui hiring process.
Why does Acqui-hiring happen?
In recent years, the share of acqui hires in the total acquisition and mergers has greatly increased. As a matter of fact, there are a lot of acqui hired companies that are deep tech startups. This just means that the companies are searching to strengthen their tech capabilities. For the last few years, there has been a sharp increase in the number of acqui hires of deep tech startups. Clearly, successful startups have found acqui hiring to be highly effective in obtaining new-age talents, and this trend is expected to continue.
There are many reasons why a company decides to use the acqui hire deal structure:
- Building Tech Capabilities: With the changing technology landscape, companies always have to get the best workforce. By acquiring tried and tested talent, the company does not have to spend time to upskill candidates before setting them to their tasks.
- Product Portfolio & Market Expansion: It helps in expanding the product portfolio and also strengthens the current market cap of the acquiring company.
- Entrepreneurial Culture: As technology giants grow, their tendency to pivot and take risks reduces. The team of entrepreneurs helps build an innovative and bold culture. And by adopting agile and lean methods, and a result-oriented mindset, companies that want to stay ahead of the competition gain a lot of benefits.
- Allows for Expensive Hirings: A technology company finds itself in an awkward situation when hiring new talent and has to offer more salary than an existing employee. But with acqui hiring, the company can get employees without the negotiation of regular hiring.
- Makes Failure seem like Successes: If the company fails, the company doesn’t have to take responsibility. Instead, they can say that the company was purchased.
- Keeps VCs happy: The primary benefactors in a startup are the venture capitalists (VCs). An acqui hiring process would protect the VC and keep them happy as it would not ruin their investment and help them grow instead.
- Has tax benefits: This process offers tax benefits. In fact, employees do not have to treat their bonuses as salary. Instead, they can list the money as capital gains, which has a much lower tax rate. Moreover, the purchaser can easily write the purchase agreement in the best way for tax purposes.
Due to all these benefits, acqui hiring is something that every company is now adopting. It is one of the most efficient inorganic ways to acquire niche talent. It also saves the acquirer a lot of time and energy that would otherwise be needed to build a fast-paced team via an organic talent acquisition mechanism.
So, when is acqui hiring the right option for a company? Well, acqui hiring is best for the companies that have:
- Newly founded teams that are leveraging niche skills
- Rapidly growing teams as the integration challenges are fewer
- Products where ownership can be rapidly transitioned to new teams – new solutions/services/products
- Critical and important gaps in the product roadmap that need to be filled
Pros and Cons of Acqui-hire
All companies want the best skilled and talented techies now and these positions are quickly filled. And since the recruitment of the best tech talent is not easy, companies tend to use the acqui hiring process then. Let us look into the advantages and disadvantages of this process before you move ahead to adopt the process:
- Safe exit for Entrepreneurs: In case a company is not doing well, acqui hiring can help them make a safe turnover. And it is not that you are giving up on the company. You are just adding a stabilizer to increase efficiency.
- Powerful and Effective Recruitment: Recruiting the normal way does bring great results, but not usually the quickest results. But acqui hiring can be the fastest way to get the best in no time.
- New opportunities for Acquirees: Everyone wants to be a part of the ocean and not just a pool. Acqui hiring is a golden ticket to success.
- Wrong Attitude: The management of newcomers can become a trouble. Basically, new employees would have to join the old team. And the old employees would have an “US vs THEM” attitude which can badly affect the company in the long run.
- Competition: New employees would be in a bigger ocean now where the battles become harder. And with high competition, it can be difficult to gain the right momentum. You might find a few who end up quitting.
- Loss of interest: Coming to a new company means that the employees would have to work hard again to impress their bosses. And if it doesn’t work, they would prefer to exit the market than be there.
Steps Involved in Acqui-hire
The general hiring steps in acqui hire deal structure is as follows:
- Seeking legal advice
- Seeking approval from the board and stockholders
- Structuring the deal to ensure that the company itself is acquired
- Assessing post-merger liabilities
- Exploring alternatives
- Researching tax questions (parachute payment tax consideration)
- Planning compensation for the new employees
- Terminating existing employees
- Making sure creditors will be satisfied
How does the acqui-hiring process work?
The success of the acqui hiring process rides mostly on obtaining stakeholder buy-in and building the right process. So, to get it right, these are the main steps you need to take care of:
- Step 1: On-board senior leadership, including site leader, technology/product leaders, corp dev., and strategy.
- Step 2: Identify areas with capability, for example, product roadmap.
- Step 3: Build assessment dashboard, identify and curate startups based on fitness.
- Step 4: 1-1 interaction with startup founders, key resources, and internal leaders.
- Step 5: Negotiate terms – valuation, time frame, etc., – and execute.
And as you follow these steps, you will be able to increase the odds of success in acqui hiring. With this, here are some key factors for reaching success:
- Global stakeholders buy-in – including strategy and corporate development
- Well-defined boundary conditions in terms of valuation and team size
- Clear thesis with skills and technology basis by which startups will be qualified
- Standardized templates for valuation, terms, and conditions for sign-off
- Clear roadmap for deal closure and team integration
What is the difference between Acquisition and Acqui-hire?
Usually in a traditional acquisition, a business buys another company for the customer base or the product. The company that has been bought has assets that executives at the larger company believe have value. And the goal of the company is to acquire those assets and strengthen the position of the purchasing company.
On the other hand, an acqui hiring process has a much simpler goal. The workers in the company have a lot of value that purchasing the complete company is a good idea to gain their services. This is the main reason it is called acqui hire – it is an acquisition to hire the employees of the company being bought in the process.
Interested in Acqui-hiring new talent?
Everyone knows that most small businesses fail in the first two to three years. They do get funding from VCs but if they again fail, it becomes tough to get the next round. All the cash burns out in paying the employees. Big corporations keep an eye on such companies that also have the best talents. And using the acqui hiring process, they buy the company and all the employees, saving the company from closure.
But before starting the acqui-hiring process, it is a good thing to know that you have options for your startup. Pay your employees through shares. It would not just motivate them but also help the company in the long run. And as you do this, remember to keep track of all the shares in your company. This can be done by using an advanced cap table application like Eqvista. Learn more about it our platform here!