Acqui-Hiring of Singapore Companies: How Does It Work?

What is Acqui-Hiring?

Acqui-hiring is a process whereby a company acquires some or all employees of another company specifically for their talent.

An acqui-hire is distinguished from a typical acquisition, where the focus is on acquiring the business ideas, products, services or earning streams, instead of the talent (but which is usually also acquired). Nonetheless, if the acqui-hiring company is keen, it may also acquire the intellectual property of the acquired company.

Acqui-hiring is most common in the technology sector, due to the inherent competitiveness of the industry. The acquirer recognises the talent and skills of the employees of another company, and accordingly seeks to hire them. The acquired company is usually a start-up.

If you are a well-established company, and are considering acqui-hiring budding companies, this article covers some things that you may wish to consider, including:

• When might a company wish to consider acqui-hiring?
• The pros of acqui-hiring
• The cons of acqui-hiring
• The steps to acqui-hiring

When Might a Company Wish to Consider Acqui-Hiring?

Companies that are performing well may want to consider acqui-hiring to give themselves an edge over others. Acqui-hiring helps to maintain that edge by recruiting a group of qualified candidates that have a proven track record and niche skills.

For instance, Google acqui-hired 2,000 employees from HTC’s smartphone design division in 2018 for US $1.1 billion to improve Google’s smartphone line.  In 2019, Google also acqui-hired Superpod’s co-founders, who had created an app that allows users to post questions and quickly receive answers from experts. The acqui-hire was likely intended to enhance Google Assistant’s search features by leveraging on Superpod’s complementary technology.

An acqui-hire may also increase your company’s competitiveness. This can be achieved by being on the look-out for firms that have capable leaders and employees. It is important not to overlook companies that have a non-profitable start-up business model or where the business is unfortunately no longer performing well, for example, due to limited resources. This is because the main goal of an acqui-hire is to recruit talent. In turn, these employees can be compensated with access to more resources, better pay, etc. (more on this below).

What are the Pros of Acqui-Hiring?

As opposed to regular hiring, acqui-hiring brings numerous cost benefits to the company. One would be the reduced costs of training. Given that acquired employees have already proven to be stellar in a particular field or skill, they may be able to contribute to the company from the get-go with minimal additional training.

Moreover, the acquirer can acquire the resources and creations that were made by the start-up. This can the acquirer help save time and reap more desirable profits arising from the reduced time to develop a product.

What are the Cons of Acqui-Hiring?

However, you may want to be aware of the potential cons that come along with acqui-hiring. Most notably would be the failure of the start-up in integrating with the bigger company. Such a problem is not negligible, where a 2018 study found that 33% of acquired workers usually leave within the first year of their startup’s purchase. This is a 15% increase in likelihood in comparison to new hires.

One reason for the failure of start-ups being able to integrate would be the loss of freedom that employees of a start-up may have previously enjoyed, due to the greater presence of bureaucracy in the larger company. Although this problem can be addressed at the acquisition stage, start-up employees who are not founders may not have a say on whether the acquisition should go through, or on any organisational changes after the acquisition has been completed. They may therefore attempt to leave the company when they begin to resent their loss of freedom that they had previously enjoyed in the start-up.

Nonetheless, the risk of such problems can be alleviated by assessing whether the nature of the start-up to be acqui-hired is complementary to that of your own company.  Such an assessment would ensure that everyone has similar goals and visions so as to create a more harmonious working environment. Moreover, including attractive staff benefits that were previously not offered by the start-up may also encourage retention.

What are the Steps to Acqui-Hiring?  

If your company is interested in an acqui-hire, here are some steps to follow in order to ensure a seamless and smooth transition.

1. Identify the company you wish to acqui-hire

It is crucial to conduct due diligence on the financials and legal documents of potential companies that you wish to acqui-hire. Such checks would ensure that the company is not in any serious financial or legal crisis and is worth acquiring. The exercise of due diligence may also include interviews of the target company’s employees to better ascertain the value of the employees beforehand.

2. Determine the type of deal structure 

Being clear on exactly what the company wishes to acquire is essential. For instance, do you want to acquire all or only some of the employees in the other company? Are you also interested in acquiring the product and/or technology of the start-up?

A more detailed outline of the rights and obligations of each party would allow for more negotiation and prevent conflict at a later stage, and help avoid a situation of the acquired employees failing to integrate into the company.

If you intend to hire the team to continue to work on the same technology or a similar product, an intellectual property assignment would likely be necessary to ensure that your company will have the right to use such assets.

3. Sign the acqui-hire agreement 

Once you’ve decided on the company you wish to acqui-hire and the type of deal structure, both parties should sign an acqui-hire agreement according to the agreed terms.

A typical acqui-hire agreement usually includes the following terms:

1. Transferring Employees
   • Offer of new employment
   • Termination of new employment
   • Employee responsibilities
   • Existing employer’s obligations
2. Waiver of Liability and Indemnity of Acquirer
3. Payment
   • Acquisition amount to be paid to the existing employer
   • Salaries to be paid to the employees
   • Fee for assignment of intellectual property (if any)
4. Warranties (to protect the acquirer by ensuring that the acquired company has assets and is not shut down, and also to protect the acquired employees by the acquirer warranting that the acquirer is still a validly existing company)
5. Confidentiality (if desired)
6. Completion (terms that each party agrees to fulfil before an agreed completion date upon which the employees will be acquired)

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An acqui-hire is an extremely context-specific practice based on the wants and needs of both the acquirer and acquired company. Given that an acqui-hire may be an expensive and risky venture for the company, engaging a corporate lawyer would be worthwhile to protect your interests in the acquisition.

A corporate lawyer can help you draft the necessary employment contracts and obtain intellectual property rights from the company you are acquiring, if any.

You may get in touch with experienced corporate lawyers here.