FAQS
What is an acquihire?
- Operations
- Exit
An acquihire is an informal term for a type of transaction in which a buyer purchases a target company—or a substantial portion of its assets—primarily to obtain the services of the team of individuals working for the target company rather than for the purpose of acquiring the business of the target company.
The goal of the buyer is to bring on a team of talented individuals who are experienced at working together to assist in developing the buyer’s products or services. Because the business of the target company is not highly valued by the buyer, it is typically shut down or no longer actively pursued by the buyer.
An acquihire is usually structured such that a significant portion of the purchase price is used for retention and incentive compensation to keep the team in place for a period of time after closing. As a result, investors in the target company often receive minimal or even negative returns. The consideration to be paid to the team being acquired is typically dependent on meeting certain future conditions such as the team remaining employed by the buyer for a specified period of time or achieving product development or other goals determined by the buyer.
An acquihire is often the result of the target company being distressed, unable to raise necessary funding to continue operations, or otherwise being unable to realize any significant value for the products or services it is developing. Because an acquihire generally does not result in substantial consideration being paid to the target company’s stockholders, the target company’s directors must be especially careful to consider whether the transaction will be in the best interests of the stockholders, particularly where individual directors are “interested” in the transaction due to compensation they may receive as members of the team employed by the buyer following the closing (click here to learn more about director duties in the M&A context).
Additionally, the company should review its covenants with its lenders and other creditors to ensure that an acquihire is not prohibited or doesn’t otherwise require consent or a notice.
The buyer may purchase only a minimal amount of assets (or none at all), leaving the target company to deal with those assets and any liabilities such that it must go through a separate wind down and liquidation process, or potentially even file for Chapter 7 bankruptcy or seek other protection from creditors, after closing. We recommend that any company considering an acquihire transaction consult with legal counsel as early as possible in the process.
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