All About Acquihires

Mergers & Acquisitions gets a new offset in the wake of the talent shortage.

Mergers & Acquisitions gets a new offset in the wake of the talent shortage. Publications are taking notice that the competitive labor market and shortage has birthed a new type of merger and acquisition – Acquihires. Acquihires refers to a type of merger and acquisition in which a company purchases another organization for its employees.

Unlike a traditional M&A deal, acquihires are motivated by acquiring talent rather than IP, service, or other factors of pre-pandemic markets. The skills gap companies are facing is especially prevalent in information technology, a sector that is seeing a rise in this type of M&A. In the past the large companies like Google, Facebook, and Apple have utilized the strategy to obtain talent outside the US especially in India. Unlike the deals of big companies, smaller platforms are doing domestic acquihires out of necessity.

The Wall Street Journal reports of Skuid acquiring InFlight corporation for the sole interest of reliable talent. Another cause for the uptick in IT acquihires may also stem from the growing IT budgets in response to changing workplaces and growing demand for new products and services, reports Jonathan Simnett, director at Hampleton Partners, a London based M&A advisory firm, to WSJ.

The structure of these kinds of M&A deals is a little different than the traditional ones.

“Structures can vary, but typically it’s an acquisition of stock or assets, with the bulk of the purchase price being held for employee packages. If the buyer only wants the team, they may sign a release agreement where the company agrees to release the buyer for hiring the employees and include a defensive license agreement of the company’s I.P.,” according to mondaq. “When it comes to pricing, buyers frequently express the price on a ‘per head’ basis, and the rate can be a few hundred thousand or $2 million per head.”

Once the deal is done and the new employees are integrated into the owner’s company, there is work to be done to ensure everyone engages and has positive experiences that result in positive outcomes.

“To obtain a positive return on investment, a buyer needs a target talent to remain with the buyer,” according to mondaq. “Structuring payments to target talent over time can motivate teams to stay in their seats and achieve results. Should payments be linked to the passage of time, the achievement of milestones, or have some incentives for each?”

Clearly, we are seeing a pattern forming from the perfect storm of IT demands and labor market shortages. More than 60% of acquirers said that cultural issues hampered the creation of value, according to a PwC report on M&As. Employee experience, culture, location, and inclusion initiatives are taking a significant role in the new M&A deal.