the art of aqui-hire

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Amidst the hot market for talent in the tech industry, companies may be considering acquisitions to solve their recruitment needs. “Acquisition-hire” transactions — a term coined to describe an acquisition where a key driver of a transaction is the hiring of a group of employees — has long been a fixture of the tech M&A landscape. Opportunity to bring together a group of employees who, in many cases have worked together over a long period of time as a team and have a proven track record of success, in a competitive job market struggling to hire workers. Can be a very attractive proposition for tech companies. Those looking for workers with a rare skill set.

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However, the term take-hire can be used to describe a wide variety of M&A transactions that come with a broad spectrum of actions – ranging from a simple hiring action that can be completed with minimal execution time and cost. Can be a far more expensive and time-consuming acquisition of an entire company. While all take-hire have one main purpose in common, namely the hiring of employees, it is largely the other objectives of the transaction that determine the form of a take-hire.

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• Simple case. If the buyer’s sole objective is to get the employee team on board, the transaction usually involves a simple agreement between the buyer and the target company. In this simplified form of the transaction the buyer pays the target company, and in return the target company agrees (1) to offer them employment with the buyer, in order to provide the buyer with access to relevant employees, (2) ) release any employees who accept employment with the buyer, offer the target company any non-compete, confidentiality or similar obligations that may restrict their ability to work for the buyer and (3) waive any claim against the buyer relating to the solicitation of the buyer and the enlistment of the applicable. employees.

There is no general rule for the size of a payment to be made to the target company – the amount will usually depend on the particular facts and circumstances involved. For example, the target company may intend to close its operations following the transaction, in which case the payment should be made to the target company’s creditors, negotiating contract termination with customers and vendors, and completing the closing process. Should be enough to do. If there are investors in the target company, the payment should be sufficient to satisfy their expected return on investment so that they do not object to the transaction. There may also be competition from other companies that are interested in hiring the team or taking over the company, which will affect the amount the target company is willing to accept from the buyer.

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• More complex cases. If the buyer is also interested in acquiring the target company’s business or a narrow set of the target company’s assets, a different structure will be used. While an in-depth discussion of tax, accounting and legal considerations for deciding on a particular structure is beyond the scope of this article, it is worth highlighting some of the considerations related to the most important categories of assets. A technology company separate from its employees, namely intellectual property and contracts.

• IP views. The buyer may wish to acquire the technology and intellectual property developed by the relevant staff being hired. For example, the buyer may see independent economic value in these technology and intellectual property assets and specifically wish to incorporate them into their products and services. In other cases, the buyer may wish to acquire these technology and intellectual property assets primarily to avoid claims by the current owner or future owner, depending on the risk of the employees concerned, for these assets.

Even if the buyer’s plans are not taken into account, team members naturally want to reuse work that they have previously created, and to do so will not allow the buyer to infringe or abuse the IP without the appropriate rights. will put you at risk. Claim. The buyer may insist on acquiring ownership of the technology and intellectual property—particularly where the buyer wishes to obtain enforceable, exclusive rights in those properties or to ensure that there are no limits on the exploitation of those assets. In other situations, where the technology and intellectual property is more “to be good” and is not original to the buyer’s plans, the buyer may be satisfied with a comprehensive license, which enables the planned use of the buyer’s technology and intellectual property but is reduced by a lump sum ownership. Even in the simple structure described above, it is common practice for the buyer to obtain at least one license, which is relevant to the hiring team, to avoid potential misappropriation or infringement claims in the future.

Finally, when Buyer acquires ownership of the relevant technology and intellectual property, Seller may be required to return the license, so that Seller may have any existing contract to terminate performance under any retained business. have the necessary rights to do so. those who have not been transferred, and/or to terminate their affairs. The interplay between the assignment and licensing of relevant technology and intellectual property can be quite complex and requires careful negotiation.

• Consideration of the contract. If the buyer is interested in conducting all or part of the seller’s business after the transaction, the buyer may wish to obtain certain principal contracts relating to that business. These may also include licensing of technology or intellectual property, favorable supplier arrangements or customer agreements. In the most common forms of take-hire transactions, the buyer is receiving the individual asset, not the entire company. In that structure, each contract must be analyzed to determine whether it can be assigned to the buyer or whether the buyer needs consent from the other contracting party to take the contract from the seller. Conducting this due diligence exercise and seeking and documenting contractual consent can be time-consuming and costly, and if significant contracts require consent to evaluate the transaction, they may be about to close the agreed deal. can create uncertainty.

To use the transportation analogy, an acquisition-hire can be anything from a scooter to a luxury sports car. The trick is determining which vehicle is best suited for the trip the buyer wants to take, and whether the greater flexibility and added features are worth the extra cost and complexity.

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