Here is what typically happens during an acquihire.
Keep in mind that these steps aren’t universal for businesses.
Still, this step-by-step guide will give you a general idea of how the process works.
Step 1: Get Approval from the Board
The company that wants to acquire another firm must get approval from the board of directors.
Therefore, companies must start making deals and buying out smaller businesses with careful review and decision-making.
Board approval requires a thorough review by executive team members, such as the CEO and CFO.
Also, some companies need shareholder approval before proceeding with any deal.
Once everyone agrees on an acquisition plan, the process can move forward.
Step 2: Structure the Deal
The company that wants to acquire another firm must decide how to structure the deal.
In most cases, companies choose an asset purchase agreement (APA) instead of a stock purchase agreement.
An APA is one of the most common acquisition agreements because it allows buyers to choose which assets they want for their company.
In the case of an acquihire, talent acquisition is the primary asset a buying company wants to get.
Therefore, these companies might structure the deal with an employee contract agreement.
For example, the buying company may have a set amount of time the new employees must work for them to ensure the company’s product gets off the ground correctly.
Structuring deals demands considerable attention.
The larger business must consider several things, including the following:
- Employee compensation
- Contracts
- Amount of the deal
- The items that are considered intellectual property
Step 3: Assessing Post-Merger Liabilities
The acquiring company must assess all potential post-merger liabilities.
These liabilities can include things such as:
- Employee benefits
- Tax implications
In addition, the buying business must ensure they are getting a fair price for the purchase.
Therefore, buyers should conduct due diligence before signing anything.
Step 4: Explore Alternatives
In addition to acqui-hiring, there are other alternatives companies can explore.
One alternative is a strategic partnership.
A strategic partnership is a type of agreement that allows the two businesses to benefit from their respective strengths.
Also, this partnership gives each business a chance to work together without merging or acquiring the other firm.
As you have seen, an acquihire demands a lot of paperwork and considerable attention before things move forward.
Further, a joint venture is another option for larger companies looking to purchase a startup.
Joint ventures are a type of partnership that involves two companies sharing resources to create a new entity.
Therefore, a joint venture is an excellent option for businesses that want to work together without fully merging.
Lastly, a spinoff is another way companies acquire talent and assets without going through the acquihire process.
In this situation, a company can buy out investors without taking on the business.
Companies have several other options to pursue and pitch if an acquihire situation seems like too much.
Step 5: Research Tax Questions
Step five involves researching relevant tax questions.
For instance, companies must research and answer any tax-related queries before moving forward with an acqui-hire.
In some cases, the larger company might have to pay taxes for the employees that transfer over in the deal.
The tax considerations are one reason why it’s essential to explore all the possible tax implications with a professional accountant.
Professional accountants should be able to tell you what type of taxes you must pay, which should help you plan accordingly.
The acquihire process can go completely sideways if one company does not consider the tax side of the deal.
That said, taxes can be an expensive aspect that businesses do not consider.
Step 6: Plan Compensation for New Employees
The last step in the process is to plan out what type of compensation each employee will receive after the deal is done.
Creating compensation plans means that both parties must agree upon a salary and benefits package for each new employee.
Also, it’s important to note that companies do not have to pay employees directly from their cash reserves.
Instead, they can use stock options or other forms of compensation to pay for new employees.
In addition, it’s essential that companies provide an incentive package that entices employees to stay at the company after the deal is done.
An incentive package could include things like:
- An additional bonus
- Vacation time
- Any perk that makes the job more attractive and worthwhile for employees
Since employees are the primary reason for most acquihire situations, the acquiring business must fairly compensate them.
Otherwise, the startup could look for a different target company to buy them out.
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