All things about Acquihire arrangements

All things about Acquihire arrangements

Saptaswara Chakraborty| North Eastern Hill University| 13th June 2020  

“Facebook has not once bought a company itself. We buy companies to get excellent people”- Mark Zuckerberg

Introduction

Throughout the global sphere, there has been an increase in hiring individuals based on their talents. Facebook, Google and other such tech giants in the Silicon Valley have opted for this method of buying start-up companies. A lot of time it is found that the buyer or the acquirer has a little interest in buying or acquiring the assets of the start-ups. In India as well the wave of acquihiring has found its existence. Previously the hiring process would be the traditional way that is through campus placements or hiring agencies, but that is fast changing as they are adopting a new route to gain access to the talent.

What is an acquihire arrangement?

Acquihiring arrangement may be defined as a process where the acquihire acquires the company for the people and not for the company’s products or assets. This sort of an arrangement is mainly seen with the technological sector with the primary motivation of the buyers being to hire some or all of the start-up’s software engineers; they are sent back to their existing projects. High technology industries have increasingly been facing a shortage of talented human resources and so, therefore, to tackle with such a difficulty, a new phenomenon particularly prevalent in the Silicon Valley firms came, which is known as the “acquihire”. Through such a method, dominant firms acquire the control of smaller start-ups to procure the highly skilled professionals who share the same vision and is in sync with the parent company. One significant difference between an acquihire and an acquisition is that in an acquihire, the parent company cares more about the talent of the personals rather than the business that they are working in. Hence they are limited only to the hiring of the individuals and not in the investment of the business whereas in an acquisition the investor is rooted deeply both with the company and the employees working there because he/she can see the ability to solve `a unique problem that might arise in the near future. It is the idea that makes him invest in both the business and the individuals working there.

What are the motivations and the concerns for such an arrangement?

The main driving feature of such an arrangement is the acquirer’s motive or a specific project or task in mind that it seeks to accomplish, which often do not relate to the target’s objectives. Therefore in such an arrangement, usually it is found that the business of the start-up is often at a secondary level, at its best. It is essential to understand that lack of revenue, marked traction or other obstacles do not necessarily mean that there is a lack of creativity, instead the primary concern is that for the buyer is the post-closing employee retention when the objective for the company has been achieved. While for the target company investors, the primary concern might be reputational and economical. There might also arise occasions wherein the acquihire might result in less than a full return than what was actually invested. Under such a circumstance, the investor is required to assess the viability of the target in the future and the potential of a greater yield for the target in the market.

Legal issues of such acquihiring

  • Duty of care– The board of directors that consider an acquihire must be mindful of its fiduciary stakeholders. Duty of care and loyalty apply to all the board decision, including the sale process. Such an act requires them to act in a responsible manner that is it needs them to be well informed about the viability of the target company, take advice from the management, consider the viable alternatives that are available and the terms of the process.
  • Duty of loyalty– Boards considering the acquihires must be familiar with the duty of loyalty. The duty of loyalty requires that each director should make a decision based on the best interest of the company. They would also involve the management and the representatives of the venture capital where they must carefully evaluate any conflict of interests in connection with the acquihires

Advantages and disadvantages of an acquihire arrangements

Advantages

The most significant advantage of such an agreement is the low cost behind such employees. Such employees do not require any training of the employees as they are already well equipped with the latest technology to yield the maximum amount of profit from such a business.

Disadvantages

The most significant advantage of such an agreement would be the lack of commitment towards the organisation which is employing them. A lot of time, it can be found that the recruitments that are being done would consist of only a handful of talents that had held the start-up of the organisation. Similarly, people join such a start-up that they become a part of such a group only for the temporary thrill and enjoyment.

Conclusion

After having adopted the method of acquihire agreements, big technology companies have gained a tremendous amount of success because of the knowledge that such talents provide towards the corporation. Such a way of hiring is useful as they contribute towards the upliftment of the company. This method is here to stay for a considerable amount of time, but the only loophole of such an approach is that it can be afforded by companies which have a lot to spend rather than the medium based companies which still hires on the basis of interviewing.

460 259 LexForti Legal News Network
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LexForti Legal News Network

LexForti Legal News and Journal offer access to a wide array of legal knowledge through the Daily Legal News segment of our Website. It provides the readers with the latest case laws in layman terms. Our Legal Journal contains a vast assortment of resources that helps in understanding contemporary legal issues.

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LexForti Legal News Network

LexForti Legal News and Journal offer access to a wide array of legal knowledge through the Daily Legal News segment of our Website. It provides the readers with the latest case laws in layman terms. Our Legal Journal contains a vast assortment of resources that helps in understanding contemporary legal issues.

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