From Start-up to Exit: the Acqui-Hire

As an entrepreneur an exit may seem a long way away when first assembling your team, but if you get that really right, you may find yourself receiving offers from buyers that would like your team for themselves. In a nutshell, that’s an acqui-hire: an acquisition which is aimed at obtaining a team.

It is otherwise a relatively loose term, and it can take different forms such as:

1. An acquisition of the corporate entity. However, larger acquisitive corporates may well not want to buy an unknown corporate and bring it into their group, particularly if they only want certain assets and don’t want to pick up liabilities.
2. An asset acquisition, perhaps where some IP that has been created is to be acquired alongside the team.
3. A simple payment to release the team from terms such as non-competes, and to waive any possible claims the seller may have against the buyer, perhaps with an IP licence to prevent claims in the future that the buyer is misusing the seller’s IP.

Acqui-hires usually happen relatively early in the growth trajectory of a business (possibly during a distressed time too), but they aren’t necessarily straightforward. For example, some of the key points that start-up teams faced with the option should be considering are:

1. What will happen to the company afterwards (assuming the corporate is not acquired)? Is it to be wound down? And if so, how long will that take? Or will there be a retained and continuing business? Linked with this, careful thought needs to be given as to what the deal means to creditors.
2. How is the price to be structured? The buyer will want to retain the people it’s acquiring, so may seek to defer some value and link it to retention. You’ll need to think through what happens if the buyer, for example, terminates without cause.
3. What will the price mean for any investors? For those operating in the digital assets space, this may also include people who invested for tokens.
4. The employment proposition for those moving over. Again, it’s likely that the buyer will seek to include deferred incentives, such as options, as part of the package. In addition, visa/immigration considerations may need to be considered, depending on the circumstances.
5. The tax treatment of the proposed deal structure. This will depend on many factors so taking early advice is crucial in order to maximise deal value.

So, if you’re being talked to about an acqui-hire, there’s a fair bit to consider, but at the very least it demonstrates what a great team you have.

Disclaimer

This note reflects the law as at 24 July 2024. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.