The Law Office of Lynnette Ariathurai A Professional Corporation

Acqui-hire business merger is common in California tech industry

The technology industry has always had a more entrepreneurial slant than many other sectors. In just about every other industry in California if a start-up business does not become profitable, the company will have to lay off workers and eventually close up shop. However, in the technology sector there is another option for start-up companies which are not able to make it on their own. This alternative is known as an acqui-hire, which is essentially a business merger with a larger company who acquires the start-up solely for the purposes of gaining the start-up staff's talent.

This alternative option is available in the technology industry because people who are proficient in creating computer software, apps, Web-based software and online services are high in demand. However, the low supply of people with these skills makes them valuable to technology companies. Therefore, many times it may be worth it for a larger company to acquire a smaller technology company to obtain the human capital of the smaller company.

Twitter was one of the many companies on the West Coast that have recently made acqui-hire deals. Last June Twitter acquired Spindle, which is a mobile app start-up company which helped consumers find local sales, events and concerts. The owner of Spindle was relieved after selling his start-up company to Twitter because he found running a start-up with limited resources to be draining and tiring.

Although this type of business merger is an alternative way to acquire a company, just like any other acquisition in California it is necessary to make sure the transaction conforms with the applicable laws. Also, the correct legal paperwork and documentation must be presented to the necessary regulating agencies. Failure to do so can result in future legal disputes which will be costly in the long run.

Source: The Boston Globe, Exit strategy for sputtering startups: Get acqui-hired, Scott Kirsner, Jan. 26, 2014

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