Traditionally, companies hire talent by sourcing candidates from various talent pools. Sometimes, it’s colleges, workforce development organizations, and job fairs. Other times, it’s headhunting, internal career mobility, or employee referral programs. But there’s one method of hiring might not be thought of as a recruiting strategy: acqui-hiring.
Acqui-hiring is a combination of the words “acquisiton” and “hiring” and refers to the process of purchasing a company in order to hire its employees. Typically, this recruiting strategy is used by larger employers who have the resources and capital to do so. These companies may struggle to compete with venture-capital-backed start-ups for talent and use an acquisition to get ahead.
One extreme example of an acqui-hire deal is Yahoo’s infamous $1.1 billion acquisition of Tumblr, which aimed to recruit Tumblr’s founder David Karp. Unfortunately, this deal didn’t prove successful in the end.
That said, acqui-hiring can be a rewarding method for talent acquisition when done properly. Let’s discuss what exactly acqui-hiring is, the benefits and drawbacks, how it’s done, and how you can take care of employees during an acquisition.
What is acqui-hiring?
First, let’s break down the definition.
What is acqui-hiring?
The definition of acqui-hiring is the process of acquiring a company for the purpose of hiring its employees. The primary goal of this deal is to integrate the new team among the acquiring company’s employees.
In some cases, the acquiring company may be interested in the other company’s product or service. However, most often, acqui-hiring is used to bring on a group of talented people all at once. That way, the acquiring company can avoid the lengthy process of sourcing candidates and hiring individuals one-by-one.
The benefits and drawbacks of acqui-hiring
Acqui-hiring has been a successful strategy for tech giants like Google, but it definitely comes with some risks. Before a company moves forward with this process, they should be sure to measure the pros and cons.
Benefits of acqui-hiring
Acqui-hiring can be beneficial for both the acquiring company and the small companies being purchased. Here are some the key benefits:
- Allows you to hire top talent in large numbers, without a lengthy hiring process or the need for extensive salary negotiation
- Can provide an easy exit for a startup that’s struggling financially
- Provides tax benefits, since agreements can be structured strategically and transaction costs may be able to be written off
- Protects the venture capitalists that invested in the smaller company, especially if the other option would have been to shut down the startup
Drawbacks of acqui-hiring
Acqui-hiring can be risky. There’s no way to guarantee that the talent you’re acquiring will be loyal to the new company or integrate quickly enough to make up for the purchase price. Here are a few other acqui-hiring challenges to consider:
- The acquired company’s founder may have no incentive to stay with the new company, especially if they receive a large sum of money from the acquisition deal
- If the startup founder does leave or isn’t asked to stay after the acquisiton, they may start a new venture and later recruit their team to come with them
- Employees that are used to the working for a small company may not enjoy a more corporate environment, especially if they are used to flexible working hours and a casual atmosphere
- An acquisition can cause resentment among the acquiring company’s employees if they don’t feel valued, leading them to look for opportunities elsewhere
The general process of acqui-hiring
The acqui-hiring process can be complex. Companies preparing for an acquisition should be sure that they’ve taken all legal, financial, and tax considerations into account. They must also have a solid plan for integrating and retaining acquired employees.
1. Structure the deal properly
Any business looking to purchase a company should make sure that the deal is structured to purchase the entire company, not the employee and assets separately. Otherwise, the deal could take months to go through as the company is liquidated.
2. Get approval from the board of directors and stockholders
Before the acqui-hiring process can begin, the acquiring company’s board of directors and stockholders (if applicable) must give their approval. This could involve a series of meetings to explain why you want to use this recruiting strategy, explore alternatives, and otherwise make sure everyone is on board with the decision.
3. Doing your financial homework
Doing your “homework” is crucial to any financial decision, but especially to an acqui-hiring deal. Companies must make sure to do their due diligence on each of these points before moving forward:
- Assess and limit post-merger liabilities
- Review tax considerations, like parachute payments
- Make sure there’s a plan in place to pay the acquired company’s creditors
4. Evaluating compensation
One of the benefits of acquiring employees is that you don’t have to go through the salary negotiation process again. However, if you want to retain your most valuable employees, it’s a good idea to review compensation packages and provide an increase or bonus if possible. This can boost employee satisfaction and morale as they go through the challenge of transitioning to a new company.
5. Integrating new talent
The final and most important step is the process of actually integrating employees into their new work environment. If you don’t have a solid plan in place here, it can harm the employee experience and quickly lead frustrated team members to search for new job opportunities. Integration is also important to employee productivity and efficiency, which can have a direct impact on the company’s bottom line.
What to consider before an acqui-hire
Before acquiring a company, it’s important to consider all of the logistics — is the timing right? Have you sought legal advice? Are you prepared to onboard so many new team members?
If you want your acqui-hire to be truly successful, though, you’ll have to take things a step further. Make sure you also ask questions like, is your company’s purpose aligned with the one you’re acquiring? If not, consider what would motivate new employees to stick with you.
Research shows that for start-up employees, it’s not just about the money. They care about the company’s mission and culture. When these team members begin working for a larger company after an acquisition, it can be challenging if they feel disconnected from the bigger picture. It’s important to consider the best way to help these employees feel fulfilled, aligned, and connected.
How to take care of employees during (and after) acqui-hiring
Whether your company is being acqui-hired or you’re the one welcoming new employees, you can help the process go more smoothly. Here are a few tips to take care of your team members throughout an acqui-hiring transition.
If you have acquired another company:
- Keep communication lines open and be transparent about changes
- Offer new employees plenty of opportunities to for career and professional development
- Show that you care about new team members’ dreams, goals, and skills
- Help employees become intrapreneurs by giving them the chance to influence and innovate within the company
If your company has been acquired:
- Share your professional goals and aspirations with your new team early and often
- View the acquisition as an opportunity to improve your work-life balance, since working for a larger company means you will have more support and less responsibilities
- Be patient as the dust settles from the transition — it may take time to feel comfortable in your new role and connected with your colleagues, but it will happen with time
Making acqui-hiring an intentional process
Ultimately, the outcome of an acqui-hiring deal is unpredictable, and with that comes risk. Companies who go through with the process need to have a solid plan for employee retention.
By intentionally acqui-hiring, businesses have the opportunity to bring on new talent quickly. They can ensure their success by making sure employees feel connected to the company’s mission, having a solid plan for integration, and preparing for the financial and operational logistics.
For any sort of acquisition, change can be turbulent for employees. BetterUp can help. With access to coaching, you can ensure you’re building resiliency with your workforce. Your employees can feel supported knowing they have a coach in their corner.