Acquihire structures
Acquihire purchase or acquisition of employees


Talent, mainly technology talent, is currently more crucial to a company's growth than anything else. Consequently, Indian companies have found alternative strategies of talent acquisition. One such strategy that has gained momentum in recent times is "acquihiring".

Acquihiring comprises two concepts: acquisition and hiring. It involves a non-conventional process of talent acquisition wherein one company acquires another company primarily to gain the talent, skill and expertise of its human resources, rather than the services, business or products that are commonly found in the technology sector. However, in the acquisition process, both human resources and its business are valued by the acquirer.

The acquirer (ie, the acquihiring company) is generally a mature technology company or a stable start-up that is financed by venture capital firm.

The target or acquihired company undergoes acquihiring to avoid financial liability, whereas the acquihiring company provides a favourable exit strategy to the employees/staff with an offer to join a bigger and prominent company by following its hiring process.

In a normal acquisition the acquirer buys the idea on which the target business has been built, whereas in acquihires, the acquirer buys a team that is skilled to provide ideas and accelerate its growth.

Acquihire structures

There is no defined structure or rule for an acquihire transaction. The structure of the deal mainly focuses on the value of the talent and what it brings to the new company, while most of the acquisition money goes into acquiring the employees.

The acquirer pays a set amount for human resources to be acquired and hired. The basic criterion is that the target company should not have debts. If it does, however, the acquirer should be aware of these. The promoters need to make sure that the debts are paid off by the target company as the acquirer shall take no responsibility of any existing liability or debt of such company. Further, in order to ensure a strong acquihire process, the acquihired team must agree to join the new company for a long time.

The two commonly used structures in acquihire are as follows:

  • The acquirer buys the assets and hires the employees of the target company. The consideration in this regard consists of cash or stock that is used to acquire the assets and/or equity to compensate the shareholders and/or investors of the target company. For an investor in the target company, this can also act as an attractive exit scenario, particularly if the company is not performing well.
  • The acquihiring company engages the employees, including the founder, by paying them a fee prior to the dissolution of the company.

In India, many acquihires have been evaluated on "per head" basis, where the majority of the total acquisition price has been allocated to pay for each hired employee.

Acquihire purchase or acquisition of employees

The three key drivers of a successful acquihire process that can be reflected at the term sheet stage are:

  • employee retention – for the buyer to obtain a bigger return on investment, it needs to acquire the employees who will continue to stay in the new company for long time and achieve the desired results;
  • non-compete and restrictive clauses – in India, non-compete clauses are usually unenforceable after the termination of the employment; however, non-compete clauses are enforceable if the acquihire transaction is happening in connection with selling the goodwill of the business of the target company; and
  • personalisation – while identifying the key element of its business's success, the buyer must dedicate time to working with the target company and its workforce. Elements of the acquihire deal should be personalised to capture the value of the circumstances of each target company, including:
    • employment agreements;
    • equity awards;
    • employee stock ownership plans (ESOPs); and
    • offer letters.

The acquihire deal is a combination of the employment agreement, asset transfer agreement and the intellectual property and/or technology transfer agreements. Therefore, the following considerations are important when a definitive acquihire agreement is made:

  • the purchase of assets generally relates to technology (eg, websites and domains); however, the new company may not always have any interest in these assets;
  • settlements with the investors are mostly made in cash. The investors of the target company are usually provided with the depressed returns;
  • the acquirer needs to assess the integration cost in advance;
  • as the main aim of the acquihire is employee acquisition, the employment agreement that has been entered into is essential and must feature:
    • a minimum period of employment term;
    • protective clauses (eg, non-compete and non-solicit clauses);
    • an ESOP; and
    • an earn-out period.
  • ESOPs and short-term cash-outs (or a combination of both) should be agreed with the acquihired employees. They may also be provided with a joining bonus or/and relocation bonus; and
  • the acquihired employees' work needs to be covered under the intellectual property/technology transfer agreement. It is essential to include a non-compete clause and the assignment of the technology developed by such team if engaged in similar business.


In order to make an acquihire deal successful, the acquihiring company needs to address more than the legal, contractual and financial due diligence issues. The new company should not be oblivious to the potential resentment and emotional turbulence of its new employees. Therefore, leaders need to equip their managers and the whole team with correct mindset and skills to make the acquihire process pleasant and effective for all parties.

For further information on this topic please contact Nooral Hassan and Nidhi Rai at Lakshmikumaran & Sridharan by telephone (+91 (11) 4129 9800) or email ([email protected] and ). The Lakshmikumaran & Sridharan website can be accessed at