The article doesn't mention one of the most important reasons companies do HR acquisitions: competition forces them to. If company A offers to acquire a startup and company B merely offers to hire the founders, all other things being equal the founders will take company A's offer.
That explains why companies pay more during an acquihire than they'd pay for a normal hire. But it doesn't explain why acquihires happen instead of just paying a higher salary.
It would seem buying up talent is like buying up land. There is only so much of either to go around, and the price is just going to get higher and higher.
The article raises an interesting question on tax practices regarding aqui-hires. If the IRS does decide that such gains should be treated as ordinary income, will investors still be able to "save face" when, legally speaking, they can't even call it an acquisition?
I'm a bit ignorant into corporate law and taxes, but if one legal entity bought another legal entity for reasonable value, how is the sale of the company not capital gains to the previous owners? Unless the buying company vastly overpaid for the acquired company, I'm not sure what the IRS could do about this.
> Not only because suing an entrepreneur can cause major reputational damage, but also because the entrepreneur still has the right (in California) to just up and leave
Because clearly the world would be a better place if financial agreements were more like indentured servitude.
While I am reluctant to suggest that the courts require specific performance (continuing to work) for employment contracts, awarding damages to the other party does not seem terrible. Does California law allow for damages to be awarded in such cases?
How does this work from an employee point of view? Are they compensated in the buyout? Do they get to do any negotiation with their new employer? The cynic in me thinks this could easily be a raw deal for non-owners.
I'm sure it depends greatly on the exact situation. I worked for a company (Company A) where some deal was worked out with another company (Company B) where Company B was free to hire all of Company A's employees and took over Company's A existing office lease and such but didn't outright buy Company A (they didn't want to own or continue working on the same projects, they just wanted all of Company A's employees to work on something new).
Company B basically just hired all of Company A's employees for their existing salaries with no individual negotiation for raises or bonuses. Almost all of Company A stayed around to begin with because Company A had a lot of smart people who enjoyed working together, but within 6 months a lot of people (including myself) bounced from Company B for a whole host of reasons.
All in all, for me the situation was neutral. Company A was basically dead in the water without Company B anyway, but all that really happened for me is it delayed my having to find a new job for a few months. After deciding to leave Company B I quickly found a new job with a good raise over what I was making so that's cool.
Of course, YMMV, I'm sure every deal like this is very different.
> How does this work from an employee point of view? Are they compensated in the buyout?
It depends on the employee. The employees that the acquirer wants are treated differently than others.
Both are paid for their stock and vested options. "The wanted" may get retention bonuses, additional grants, etc.
> a raw deal for non-owners.
What do you mean by "non-owners"? Are you referring to employees without any options or stock or to folks that don't have much in the way of options/stock?
Stock/options owners are compensated per their ownership.
Of course, the interesting question is how well the stock/options owners are treated, and there are different classes, hence the whole section about VC liquidation preferences.
[+] [-] pg|13 years ago|reply
[+] [-] lacker|13 years ago|reply
[+] [-] autophil|13 years ago|reply
[+] [-] nicholassmith|13 years ago|reply
[+] [-] michael_miller|13 years ago|reply
[+] [-] elechi|13 years ago|reply
#edited to fix grammatical errors.
[+] [-] dm8|13 years ago|reply
[+] [-] tptacek|13 years ago|reply
[+] [-] krakensden|13 years ago|reply
Because clearly the world would be a better place if financial agreements were more like indentured servitude.
[+] [-] ShabbyDoo|13 years ago|reply
[+] [-] edabobojr|13 years ago|reply
[+] [-] georgemcbay|13 years ago|reply
Company B basically just hired all of Company A's employees for their existing salaries with no individual negotiation for raises or bonuses. Almost all of Company A stayed around to begin with because Company A had a lot of smart people who enjoyed working together, but within 6 months a lot of people (including myself) bounced from Company B for a whole host of reasons.
All in all, for me the situation was neutral. Company A was basically dead in the water without Company B anyway, but all that really happened for me is it delayed my having to find a new job for a few months. After deciding to leave Company B I quickly found a new job with a good raise over what I was making so that's cool.
Of course, YMMV, I'm sure every deal like this is very different.
[+] [-] anamax|13 years ago|reply
It depends on the employee. The employees that the acquirer wants are treated differently than others.
Both are paid for their stock and vested options. "The wanted" may get retention bonuses, additional grants, etc.
> a raw deal for non-owners.
What do you mean by "non-owners"? Are you referring to employees without any options or stock or to folks that don't have much in the way of options/stock?
Stock/options owners are compensated per their ownership.
Of course, the interesting question is how well the stock/options owners are treated, and there are different classes, hence the whole section about VC liquidation preferences.
[+] [-] philwelch|13 years ago|reply
[+] [-] notbitter|13 years ago|reply
[+] [-] vexxt|13 years ago|reply
And we all know what happens when you try to hire away employees due to no-poach collusion, the hirer get's fired after Steve Jobs's email.
[+] [-] chermanowicz|13 years ago|reply
[+] [-] joshu|13 years ago|reply