Acqui-Hiring on the Rise in Midwest

By: Steven J. Enwright, Esq.

We all know the garage-to-greatness stories about Steve Jobs, Larry Page, Jeff Bezos and the like. But we have to wonder – for each of these winners, how many brilliant, conscientious entrepreneurs with equally exciting products failed simply because they couldn’t muster the investors, resources or good luck.

We may never know, thanks to the increasing trend toward acqui-hiring. This portmanteau word describes the process in which “Company A” acquires a modestly successful (and often underfunded) start-up “Company B-Minus” for the sole purpose of hiring its brain-trust. This tactic is good for Company A, because it’s a quick way to assemble a team of tech-savvy big-brains ready to invent new revenue streams. And it looks good on the CVs of the acquired talent, because instead of admitting their venture failed, they can say it was “acquired.” The only downside is that the product Company B-Minus offered will most likely be shelved in an acqui-hire situation. In fact, the price paid to acquire the firm is often calculated as a “price per head” without regard to any products or intellectual property that generally come along with the deal.

What is of interest to us is that this phenomenon is rapidly spreading to the Michigan and other Midwest states, where economic recovery has spawned a flurry of start-ups. If you’re a company that’s on the buying or selling end of a pending acqui-hire deal, there are a number of things to consider.

Acquiring companies want to make sure:

• You get what you pay for. Will the targeted talent remain after their lock-up periods end?
• The costs outweigh the benefits. How will this ROI be measured?
• The deal doesn’t crush morale. Consider the effect on loyal employees who will be expected to work with “outsiders” who walk in with big-time salaries. Will you need to award retention bonuses or other compensation to keep your own team intact?

The target company should consider:

• How much intellectual property (if any) needs be included in the sale?
• Is it important to continue developing the business or projects that inspired you in the first place? Is this realistic?
• Is accepting this deal worth walking away from other potential opportunities?

The bottom line? As long as acqui-hire strategies provide a solid exit strategy for eager entrepreneurs and investors, they help mitigate risk and encourage innovation. That’s generally good for everybody.

If you would like to discuss how acqui-hire strategies and transactions could work for you, please contact attorney Steven J. Enwright at steve@enwrightadvisors.com or 248-990-2208 or visit his website at www.enwrightadvisors.com