There are many reasons that can lead executives to pursue the acquisition of a company. In his time as President and CEO of Generational Equity, Ryan Binkley is certain he has encountered pretty much all of them. Especially in today’s robust seller’s market, the potential for M&A activity is at its highest point since the Global Recession.
Yet, one strategy you might not have heard of, but is a quickly growing trend in the M&A industry, is “acqui-hiring”. Acqui-hiring is the practice of a firm purchasing a smaller company not for its revenue, assets or intellectual property, but for its employees.
Some of the world’s largest enterprises have been at the heart of this rise in acqui-hires, including Facebook, Yahoo and Amazon. As Mark Zuckerberg said in an often-repeated quote:
“Facebook has not once bought a company for the company itself. We buy companies to get excellent people.”
However, acqui-hiring is not just an acquisitions strategy for larger corporations. The current fertile M&A landscape when aligned with the goals and concerns of middle market businesses have created an environment where acqui-hiring could become a widespread trend.
Why acqui-hiring responds to middle market concerns
So, why would middle market businesses today take a closer interest in the potential of acqui-hiring? A survey recently conducted by SunTrust Banks offers a likely answer – nearly 50% of middle market executives stated that attracting and retaining employees is their biggest challenge in 2018.
Ryan Binkley touched on this idea in a previous blog post on how M&A will drive middle market businesses this year. The U.S. Labor Department’s February Employment Situation report revealed that businesses recruited 313,000 employees in February 2018, the highest amount since July 2016. As such, current job growth is double the expansion in the labor force, making the hunt for great talent even more challenging for middle market companies.
The issues surrounding the supply and demand of skilled, innovative employees is one of the biggest hurdles that businesses need to overcome in their pursuit of further business growth. Conditions are ideal for greater investments, but without the right team in place, can companies realize their true potential?
That is where acqui-hiring offers a true benefit to these businesses in need of building a star-studded cast of employees. If you believe a smaller company’s team could help guide your business towards your ambitions, acqui-hiring can save you time on recruiting staff individually and bring on board specialists with a proven track record.
This is why acqui-hires have proven popular in the technology industry. 38% of corporate executives have acquired a software company for its talent in the past five years. But, this M&A strategy can be effectively applied to businesses in all sectors.
The benefits of acqui-hiring
The prospect of purchasing a whole company just for its talent sounds somewhat bizarre at face value – why not just headhunt employees separately?
While this is certainly an option, here are a few key advantages acqui-hiring presents businesses, both on the buying and selling end:
- The acquiring company brings onboard a cohesive, experienced team with a proven track record, which is an ideal concept when buyers are looking for a quick, significant expansion;
- The pre-existing camaraderie between the seller’s team will make it easier for them to adjust to their new environment;
- It allows middle market companies to introduce new products/services to their repertoire to continue their growth and branch out to new customers.
How can you take advantage of the acqui-hiring trend?
The important thing middle market business owners need to keep in mind when they decide to exit is that buyers buy for a wide variety of reasons. One buyer’s goal could differ wildly from another’s, which could make your company attractive to industries you would never have considered before.
As mentioned above, acqui-hiring allows businesses to innovate their existing practices and products. This opens up opportunities for cross-industry deals, as recruiting specialists in another field will help a buyer branch out into different markets. Ryan believes the trend of acqui-hiring should encourage exiting business owners to contact an M&A advisory firm that knows buyers across all industries, rather than one that focuses on a single industry.
Your staff is an intangible asset with no definitive price. Buyer A might value your team higher because of their interest in acqui-hiring, while Buyer B’s focus is on your company’s products or intellectual property. With this acquisition strategy building steam in middle market M&A, sellers may increasingly discover that the key to finding their optimal buyer lies in the strength of their workforce.
Is acqui-hiring in your future?
Ryan Binkley hopes this article has given you a valuable insight into acqui-hiring, and why this is an emerging trend in middle market M&A. Even a basic understanding of the advantages of acqui-hiring will help sellers secure an optimal deal if a buyer’s primary motivation is the addition of talented staff.
For further advice on growing your company through M&A, or guidance on determining the ideal exit strategy for your business, contact Generational Equity’s experienced team. Under Ryan’s direction, the firm’s skilled dealmakers and advisors have the expertise to help you achieve an optimal deal.
Alternatively, if you would like to learn more about Ryan Binkley and connect with him on LinkedIn, visit his profile.