An acqui-hire (also known as an acquihire or acq-hire) is when a company is acquired for the primary purpose of obtaining access to its key employees. From a legal perspective, the transaction is still an acquisition and can be structured in the usual ways as a stock purchase, an asset purchase or a merger. The consideration can still be cash, equity or both. But using the term acquire-hire emphasizes that the deal particularly focused on acquiring the employees rather than another valuable aspect of the business, such as the intellectual property, revenue steam or customer list.
When the loosely-used term first became popular, it had a negative connotation and implied that the sellers primarily structured the sale of the (presumably failing) company to save face and avoid shutting the company down. But the term is also used positively to describe a company that has assembled an impressive team — that is, the buyer values the key employees so much that it is willing to acquire the whole company to ensure that the team remains intact. Use of the term acqui-hire alone does not indicate much about the sale and whether it was a good deal or a bad deal for the sellers or the stockholders. The term simply reveals what had been the most valuable part of the company.
Because the most valuable part of an acqui-hire transaction is the key employees, the terms of employment are likely to be a main focus of the negotiations. The buyer will want to require each of the key employees to stay with the new company for a certain amount of time and may tie their sale proceeds and/or employment compensation to that length of service. All key employees will want to ensure that their proceeds and/or compensation will still be paid if the new company terminates their employment without cause or if they decide to leave the company for good reason. The terms “cause” and “good reason” will be important and are often highly negotiated in an acqui-hire.
Investors will be focused on ensuring that the buyer’s total purchase price is allocated reasonably between stockholders’ acquisition proceeds and retained employees’ salaries and bonuses. The target company’s Board of Directors and stockholders will be required to approve the sale and will need to consider that split.
Acqui-hires tend to be smaller transactions, from a dollar perspective, than other types of acquisitions. However, they are still structured as acquisitions, so the usual terms need to be carefully considered — from tax matters to representations and warranties to closing conditions and indemnification.