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Key takeaways:
- Acquihiring is a form of recruitment via the purchase of an entire company
- It can give efficient access to talent and complete teams that might not be otherwise available
- It is a high-risk strategy which requires careful management with no guarantees of success
- Careful preparation and proper planning are essential for maximizing the chance of success
Acqui-Hire
An acquihire is a business acquisition strategy where a company buys another company primarily to acquire its talented employees rather than its products or services. It is often used to quickly gain access to skilled teams.
This can occur because a company desires the services of a specific collection of individuals currently working for an outside business or because a team with certain skills is needed, and it is easier to find one that already works well together than to create a new one by hiring individuals.
Sometimes, an acquihire takes place simply to attain the services of one specifically talented person, with the rest of the team dismissed once it is complete. This was the case when Yahoo! paid Tumblr $1.1 billion, largely to gain the services of its founder, David Karp. Acquihire is also a common practice for Google, with Superpod, Neven Vision, DNN Research, and more all being purchased primarily for the skills of their teams rather than the businesses they had built.
Benefits of Acquihires
Most commonly used in industries that require high levels of specialized skills, acquihiring can be beneficial for people on all sides of the deal in several ways. Among the potential advantages of this process are:
| Benefit | Description |
|---|---|
| Efficient Access to Proven Talent | Quickly acquire a team with a proven track record, reducing the risk associated with new hires. |
| Complete Hiring of a Cohesive Team | Acquire an entire team that has already worked together, ensuring synergy and reducing integration issues. |
| Recruitment of Target Individuals | Gain access to individuals who may not have been available through traditional hiring methods. |
| Reduced Onboarding and Training Time | Minimize the time and resources needed for onboarding and training, as the team is already familiar with each other and their roles. |
| Preventing Competitors from Recruiting Individual Talent | Secure top talent and prevent competitors from hiring them, thereby maintaining a competitive edge. |
| Continuity of Leadership and Management Structures | Maintain existing leadership and management structures, ensuring stability and continuity in operations. |
| Bypassing of Recruitment Processes and Pre-Hire Salary Negotiation | Streamline the acquisition process by avoiding lengthy recruitment and negotiation phases. |
| Continued Employment for Personnel of a Failing Business | Provide job security for employees of a struggling company, preserving their livelihoods and expertise. |
| Protection of Investors | Safeguard investor interests by acquiring a failing business, potentially turning it around and preserving its value. |
| Potential Tax Benefits | Depending on the deal structure, there may be tax advantages that can be leveraged to reduce the overall cost of the acquisition. |
Additional Benefits and Considerations
| Benefit | Description |
|---|---|
| Access to New Markets | Acquiring a company with a presence in new or emerging markets can provide immediate market entry and growth opportunities. |
| Intellectual Property Acquisition | Gain access to valuable intellectual property, patents, and proprietary technologies that can enhance your product offerings. |
| Cultural Fit | Ensure a better cultural fit by acquiring a team that has already demonstrated compatibility and shared values. |
| Brand Enhancement | Strengthen your brand by associating with a successful and reputable team or company. |
| Strategic Synergies | Leverage synergies between the acquiring and acquired companies to enhance operational efficiencies and innovation. |
In technical sectors, acquihiring is also a technique used to aid development and innovation within the acquiring business. By integrating the knowledge, skills, and IP of a team that has made significant advancements or has the potential to do so, a business can bypass the potentially costly and lengthy process of getting to the same stage by other means.
Challenges of Acquihires
While the potential benefits of acquihires are clear, it is a process that also comes with significant challenges and risks. For example, the talent targeted in the deal may choose not to stay with the company. In extreme cases, an acquired company’s founder may decide to take any payment earned in the deal, leave, start a new company, and begin rehiring the original team, leaving with acquihiring business with little to show for their efforts. Additionally, as most acquihires involve a large business taking over a smaller one, the employees may have trouble adjusting to the different working culture or discover the corporate structure does not suit them.
All this must be taken into account by any business contemplating an acquihire when assessing the value of the company it wishes to buy and the size of the offer to make. No form of recruitment offers guarantees of success, but the cost of an acquihire means the purchasing business has much more to lose if things do not work out. It should also consider the potential resources needed to integrate acquihired workers into its business and keep them happy in their roles for as long as required.
Best Practices for Successful Acquihires
While the risks can never be fully eliminated, maximizing the chances of a successful acquihire can be achieved by following certain best practices. Activities and ideas that should be considered before beginning an acquihire process include:
1. Due Diligence
When it comes to acquihires, knowledge is king. Before making an offer, it is important to understand not just the value of the target company and the talent hoped to be recruited but also the likelihood of each individual staying and what can be done to improve this. Where it is intended to keep some workers and dismiss others, knowing how this will affect the team dynamic is also important. The factors that can affect the outcome of an acquihire are many, so gaining as much information as possible before making decisions is key.
2. Clear Communication
When acquihiring a team, you are involuntarily transporting workers from a familiar environment into an unfamiliar one. Among the quickest ways to make this go sour is by delivering poor communication. Demonstrating you care about the new workers by communicating openly and continually with both individuals and the team will help minimize the risk of alienation, dissatisfaction, and even suspicion. Listening is just as important as speaking, potentially more so.
3. Conscious Integration
To ensure an acquihired team settles into their new position smoothly, it is important not to leave integration to chance. Have a clear strategy to ensure every worker feels motivated, listened to, and valued. Also, consider how the new team will interact with existing employees and what should be done to ensure relationships are built quickly and, as far as possible, without issues. An acquihire is not simply a method of attaining new components for an existing machine; it is about bringing people into a community, and it must be managed as such.
In addition to these practices, any business considering an acquihire should take time to learn lessons from previous cases, such as Yahoo!’s takeover of Tumblr which saw David Karp leave the business soon after the deal was completed, the value of Tumblr crashing, and Yahoo! taking a huge loss.
When done effectively, acquihiring can be an efficient way to access talent, skills, knowledge, and technology in one action. If badly judged or poorly executed, however, it can be extremely costly and damaging.
FAQ
An acquihire is the purchase of a company primarily as a method for recruiting the talent working for it, rather than the services or products that make up its business.
Extensive research and an effective plan for integration are the key factors for a successful acquihire. The risks of an undesirable outcome are high so executing any preparation and processes which might minimize this is essential.
