Acqui-hiring: M&A strategy to boost talent pool and enterprise value

In tech, who you have working for you is everything. If you don’t have the best talent, you’re not going to be able to compete. For many tech firms, particularly the larger players, recruiting the brightest and the best isn’t as easy as you would think. Many are already deep into their own projects and hoping to make a fortune out of their innovations. In this situation, the best way to recruit these people is often to acquire their businesses.

Even for a relatively modest valuation, many are willing to say goodbye to their dreams of growing their own businesses and instead start working for their acquirer. Often, the product they were working on falls by the wayside, as collateral damage for what is, in reality, a ‘acqui-hire’ or talent acquisition.

For businesses looking to boost their tech talent pool with ambitious, entrepreneurial people, acqui-hiring is a great way to go about it. While for those running small, innovative businesses who know they would be an asset to a larger tech firm, selling to one might get them a great new job, as well as pocketing them some serious cash.

What are the benefits of acqui-hiring?
For the buyer, acquiring a business that has a small number of tech experts or even a large number of talented coders or engineers, for example, can be a very quick and effective recruitment method. The target company has put in the time and effort needed to find and recruit these employees, so the work has already been done. Sure, the acquisition itself will cost money, but for a large tech firm with money to burn, the convenience and speed could well be more important than the cost of the deal.

Even major tech corporations struggle to recruit talent. There’s a well-established skills shortage in the industry that may take another generation to solve. Certain areas, such as AI and cybersecurity, are particularly problematic, as they are rapidly developing and growing, alongside the demand for skilled personnel. However, there’s a major shortage of these skills among the existing workforce.

Some expertise is available through taking on staff on contracts, but this is highly expensive, while training can also cost far more than simply paying new skilled employees’ salaries. It’s not difficult to see why taking over a small business, even with just a handful of AI or machine learning experts could be a sensible move for a major player such as Twitter or Amazon. But there’s also no reason this model can’t be used by smaller businesses in other industries. Acqui-hiring itself is not new, it’s simply one of the many deal types seen over the past decade or so, but it has certainly grown in popularity in the tech industry in recent years.

For some acquirers, the major attraction lies in the synergy of an expert team who are already working and collaborating together well. To build such a team from scratch is often an arduous and time-consuming process.

For the business being acquired, there are also benefits. Start-ups often become targets for acqui-hire deals when they are already heading for financial trouble. Without adequate investment, many start-ups fail pretty quickly. An approach from an acqui-hire prospect is often a lifeline for business owners and their entire staff.

Tech giants lead the way in acqui-hiring
A report from GlobalData in March 2021 found that Apple was the leading acquirer of smaller AI firms between the years 2016 and 2020, taking over an astonishing 25 AI firms over the period. The report found that the main motivation for these takeovers, which were almost exclusively of small or start-up businesses, was to acquire talented engineers.

One of the long list of start-ups it purchased over the past few years is Spectral Edge, an imaging tech start-up based in Cambridge, UK. Spectral Edge was taken over towards the end of 2019, after being spun out of the University of East Anglia and awarded a US$5.3mn funding round in 2018. As soon as the deal was complete. Apple set about shutting down Spectral Edge’s website and getting rid of its board members. It’s likely, though, that it brought its engineers on board, along with their cutting edge expertise in imaging, to help enhance its iPhone camera tech.

Back in 2019, Apple’s CEO Tim Cook gave an interview with CNBC where he claimed that Apple acquired a business every two to three weeks. Cook claimed that these deals were “primarily looking for talent and intellectual property.”

Other recent UK aqui-hire deals
Google has recently picked up a UK-based data warehousing start-up called Dataform in a deal that has been widely dubbed an acqui-hire. Ironically, the two founders of Dataform, Lewis Hemens and Guillaume-Henri Huon, are both former Google employees who had started their own business, only to be acquired by their former employee’s Google Cloud division a little later down the line. A really great result for the two entrepreneurs.

In this case, Dataform was not struggling financially, with an insider claiming it was close to securing Series A funding. Instead, it opted to sell to Google for what has been described as a deal that the founders have done very well from.

Guillaume-Henri Huon did suggest that the deal went a little further than a simple acqui-hire, as the move to Google will enable the founders’ ideas to become a reality.

He stated: “..., as a team of just 7, in a complex, competitive and rapidly changing market, we had more ideas than we had people or resources to accomplish. There has always been so much more we wanted to do each quarter than we could achieve. With the support of the BigQuery and Cloud Analytics teams and our combined thought leadership and efforts, we felt that together we could achieve something bigger than we could separately”.

Facebook is another US tech behemoth behind a large number of acqui-hires of smaller UK AI and machine learning start-ups. Bloomsbury AI, Scape Technologies and Deeptide Ltd. have all been taken over in the past 18 months or so. Facebook keeps the deals on the lowdown, but they are understood to largely be strategic deals to boost its talent pool of promising young engineers working in AI, VR and machine learning.

The fact that many of these takeovers are done extremely quietly, with very little attention from the outside world is worrying for some industry commentators. Techcrunch stated that their sources valued the Deeptide deal at around US$40m, and that it was effectively an exercise in recruiting the engineers behind the firm’s Paper with Code product, which helps the ‘community track newly published machine learning papers with source code and quickly understand the current state of the art,’ according to a statement from founder Robert Stojnic.

The concern is that these recruitment drives could actually stifle UK tech innovation by herding up the brightest minds in the UK tech business, as well as their products and services, before they have a chance to even get started.

Tech start-ups with a serious innovation on their hands, and a smart team behind it, shouldn’t be surprised if one of the biggest tech firms in the world comes knocking at their door. Acqui-hire deals may not even offer the entrepreneurs behind these innovations an amazing deal, from a monetary perspective. Many will not have had the chance to raise funds and bring their innovation to market yet. However, the temptation to sell for a small windfall, then to start working for Facebook, Google, Apple or Twitter on a good package may simply be too great a temptation for many to resist.

Also read:
UK recruitment sector M&A remains buoyant in an uncertain economy

Why staff are key to a successful acquisition

How ego and pride can ruin a good business deal...and a company

Search BSR for recruitment businesses for sale

Share this article

Latest Businesses for Sale

---

---

---

View more businesses for sale