The State Of The Acqui-Hire In 2021: The Good, The Bad, And More

Palo Alto CA

15 February, 2021

7:45 AM

Description

In the technology industry, whether in Cupertino or elsewhere in the Global Silicon Valley, the competition for the top talent required to grow to scale can be fierce. For decades, there have not been nearly enough STEM graduates to fill open spots. The road from #garage2global is tortuous, and a key ingredient to becoming #bigtech faster than the next #startup is hiring engineers. For #bigtech companies to stay on the cutting edge, they often find that acqui-hiring a startup with ten engineers is a faster, better return on investment than hiring onesies on a drip-feed basis. What is an acqui-hire? Acqui-hiring refers to a merger, acquisition, or asset purchase whereby the buyer seeks to secure the target’s talent, engineers and personnel, rather than to develop or monetize the target’s technology, products, or services. It can be a very efficient way to grab talent in groups. When a #bigtech company acquires a group of highly-skilled engineers who have a strong working relationship, they can hit the ground running seamlessly and with gusto, which benefits all. Especially the bottom line. This “recruitment” process can cut costs and potentially prevent possible legal action relating to non-compete clauses, I.P. infringements, and breach of contract. An acqui-hire can also be tidier than a failing company’s wind-down process but often signals a distressed sale. Many of these companies could not get additional funding needed to continue, and often, the entity acquired is shuttered post-closing. History of acqui-hires — a threat to the competition? The tech sector phenomenon of acqui-hires is not new: Google has made 200 acquisitions since being founded in 1998 by Sergey Brin and Larry Page, the vast majority of which have been acqui-hires. Facebook has acquired more than 80 companies. In a 2018 interview with CNBC, Tim Cook, CEO of Apple, bragged that Apple acquires a company every 2 or 3 weeks, either for talent or intellectual property. Amazon has acquired over a hundred companies, and Microsoft many multiples of this number. Early in 2020, the Federal Trade Commission made public a probe into possible market abuse by #bigtech by demanding information on all acquisitions not already reported to antitrust authorities in the past decade. While investments over a statutory threshold are reported in a government filing before closing, acqui-hires are typically for amounts well below the threshold and have flown under the government’s radar. In its special orders issued to the big five #bigtech companies — Amazon, Apple, Facebook, Google, and Microsoft — the government asked for details on terms, scope, structure, and purpose of each transaction consummated between January 1, 2010, and December 31, 2019. Within the purview of the orders was a wide variety of transactions, no matter how structured, from minority investments to licensing deals to board designation rights. The article is originally published here. Louis Lehot is the founder of L2 Counsel, an elite boutique law firm based in Silicon Valley designed to serve entrepreneurs, innovative companies, and investors with sound legal strategies and solutions. Louis is a corporate, securities, and M & A lawyer. He helps his clients, whether they be public or private companies, financial sponsors, venture capitalists, investors, or investment banks, in forming, financing, governing, buying, and selling companies. Formerly the co-managing partner of DLA Piper’s Silicon Valley office and co-chair of its leading venture capital and emerging growth company team, Louis is praised by clients, colleagues and industry guides for his business acumen, legal expertise and leadership in Silicon Valley. WRITTEN BY Louis LehotLouis Lehot is a corporate, securities and M&A lawyer in the San Francisco Bay Area. He helps form, fund, buy & sell businesses. Follow on Twitter @lehotlouisFollow