“Oh, it was only an ‘acquihire,'” the founder sneered.
This entrepreneur was annoyed that a competing startup’s sale to an industry heavyweight was lauded as a big accomplishment. Rather than validating the startup’s technology, he argued, the big company was interested only in cheaply adding employees.
Among tech builders, this is an important distinction both for reputational and monetary reasons. Building coveted technology comes with more prestige and a higher company valuation than transferring a team of workers. That’s why the portmanteau of acquisition and hire, which was coined in 2005, has developed a murky connotation — one that varies by company stage.
When a company is especially early, founders often celebrate a well-timed acquihire, like the 2017 acquisition of a tiny Brooklyn dating app or the 2020 purchase of Baltimore-founded polling startup Arbit. In contrast, insiders debated whether the prominent sale of 80-person Philadelphia-based internet-of-things startup Zonoff to Ring was a splashy exit or a firesale acquihire.
Tiny deals like these are slowly growing in number after a collapse in mergers and acquisitions in the last half of 2022 amid changing economic conditions, according to a Morgan Stanley analysis. So far in 2023, the overall volume of deals remains below its pre-pandemic trend, according to PwC. Deals are expected to return. With entrepreneurship booming, M&A is increasingly both an alternative to research and development and a supplement to hiring. One analyst told me small acquihires might be the first acquisitions to rebound as employers look for inventive ways to build teams.
The trouble is that retaining employees after acquisition is hard. A third of startup employees bail within a year of an acquisition, according to MIT research from 2019. Employees fare better when the acquired firm is bigger and more established, but the point remains that M&A is often better for executives than employees.
That divide has become even more pronounced during the pandemic years, said Unisys digital workplace director Weston J. Morris, Sr. It’s always been difficult to bring together different companies with different cultures. Gaps have grown wider though. Now not only is there a split between those at the acquired and the acquiring company, but there are also uneven standards around remote work and tech deployments.
“What happens after the press release?” Morris said. Not enough attention is paid to the 30, 60, 90, 120 days or even a year after an acquisition. For example, after a torrid period of acquisitions, Kweli Washington, the COO of customer insights company Piano, told me last year he’s learned to move to wherever an acquired company’s staff is largely based to demonstrate his commitment. Morris said it takes that kind of leadership investment to ensure an M&A succeeds at any size.
“If I’ve just brought on 50 employees from a company that I’ve bought, are they engaged, are they connected, do they feel like first-class citizens, do they know how to get to the HR stuff and all that, you know, do they know, especially if I’m going to take away some of their tools, are they going to be, you know, happy, and do they understand things?” Morris asks. Those questions need to be answered before, after and long after the deal.
Morris shared that technology adjustment is one of the most common challenges. The focus is commonly on moving technology securely, ensuring data privacy and providing training for people.
“Let’s not forget the human element of this whole thing,” Morris said. “Let’s make sure that we’re managing the change from a human perspective, just as much as we’re managing it from a technology perspective.”
Employees may feel like second-class citizens or feel disconnected, Morris said, and their experiences may vary between those working in the office and those working from home.
One reason that sneering founder looked down on his competitor’s acquisition was because of a mismatch between public perception and reality. Still, smaller acquihires can have a lasting impact when employees stick around. So, put simply, how do you retain those employees after an acquisition? Culture, compensation and consistency. No two companies are the same, so working to even org culture is a familiar roadblock. Likewise for compensation and general benefits packages — losing that small perk can cause unexpected pain. Last, using an integration plan of a year or more, rather than weeks or even months, is most effective.
“The key is to plan, be prepared, communicate early,” said Morris. “A change management program needs to be in place that takes into account the human factor over the long term.”
Written by Technically Media CEO Chris Wink, Technical.ly’s Culture Builder newsletter features tips on growing powerful teams and dynamic workplaces. Below is the latest edition we published. Sign up to get the next one.
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