DealLawyers.com Blog

In an acqui-hire, the buyer is primarily interested in the skills and expertise of key employees of the target, and not necessarily its products/services or assets. Circa ten years ago, acqui-hires were quite popular in Silicon Valley, but it seems that companies in more industries have caught on and started considering these transactions when they’re appealing — that is, where the target’s founders and employees are more valuable to the buyer than the underlying business.

This Sheppard Mullin blog notes that, while these transactions tend to be on the smaller end in deal value, they also tend to be just as, if not more, complex than other types of M&A and identifies some of the key issues presented in acqui-hires, including tax treatment, the focus on employment terms, unique valuation considerations and structural issues. This excerpt from the blog discusses corporate approval considerations given the composition of the board of directors of many acqui-hire targets:

In many acqui-hires, the target board of directors will include members of the employee team that is being acquired. Directors generally owe fiduciary duties to a company that requires them to act in the best interest of all equityholders. Accordingly, there is risk that by approving the deal, these employee-directors may be acting in their own self-interest with respect to the compensation package they are being offered rather than in the interest of all stockholders. To protect themselves from these types of claims, the board should work closely with the company’s lawyers to make that all compensation issues are fully disclosed and that proper approvals (including any required by stockholders of the target company) are obtained.

– Meredith Ervine