4 things HR leaders need to know when 'acquihiring' talent
Editor's note: This is a contributed piece by Mike Amiot, a senior director in West Monroe Partners’ M&A practice, and Mike Hughes, senior director who oversees West Monroe Partners’ operations excellence practice.
Across all industries, many HR leaders are struggling to recruit skilled tech employees and developers. Software engineers are listed as the fourth most in-demand job right now, and experts predict that the role will see 19% growth by 2024. As a result, companies are doing everything they can to attract these workers away from the competition — and they’re getting pretty creative.
One trend in particular is on the rise: “acquihiring.” That’s the process of acquiring an entire company with the main objective of gaining its skilled employees. According to a survey we conducted with Mergermarket, 38% of corporate executives say they’ve acquired a software company for its talent in the last five years.
As the tech talent gap widens in the coming years, it’s likely that this rate will rise even higher. But is it easier to acquire a whole organization instead of recruiting individual developers and tech professionals?
In many cases, yes. There are a number of causes for this trend. For one, enterprises that are launching large-scale tech initiatives like new websites, internal programs or applications often need entire teams of developers at once. Considering that these employees have already invested time developing internal processes and are accustomed to working with one another, the acquirer saves time and money they would’ve spent individually training each new employee and adjusting processes.
On top of that, these employees were likely present for the conception and development stages of their technology, and therefore know its ins and outs. So, they are able to provide support for their product when issues arise, which cuts research and IT costs in the long-run.
Lastly, on a broader scale, it’s important to recognize that skilled technologists likely receive a number of compelling opportunities and offers from other companies. By acquihiring, companies can sidestep the competition to secure talent.
With these factors in mind, it’s no surprise that companies in the process of their own digital transformations are executing strategic acquisitions as a way to recruit technologists. But whenever a company buys another primarily to gain its employees, HR leaders face a unique set of challenges. Here are four strategies HR professionals should keep in mind during this transition:
- Be willing to adapt to new employees’ processes and policies. Even more than with traditional acquisitions, the target company often has an advantage for talent-related negotiations in an acquihiring situation. For example, if the newly-acquired company is accustomed to a more relaxed dress code or differed PTO benefits, HR leaders need to be willing to provide flexibility in this area. Because these types of mergers are primarily based on employees’ skill sets, the acquiring company will likely need to bend their own policies more than with other types of deals.
- Perform cultural due diligence to avoid a clash. Another West Monroe study from 2015 found that 67% of enterprise executives believe cultural integration is extremely important to the success of a merger or acquisition. When a company is in the early evaluation stages of a talent-based acquisition, it’s more important than ever to carefully consider culture compatibility to ensure that both staffs will mesh well, as both sides of the deal will need to compromise with one another when it comes to culture. It’s critical that HR executives are involved in the acquisition process as early as possible to avoid culture-related problems during the negotiation process or even post-close. In the same way that companies perform technological and financial due diligence during the deal making process, they need to place emphasis on cultural due diligence as this is imperative when acquiring for talent.
- Avoid turnover by recognizing pre-existing employees’ needs. While it’s important to adapt to new employees’ culture and welcome them onto your team, HR executives too often forget to acknowledge their pre-existing employees during this transition stage. Employment terms during an acquihire often provide perks or stay bonuses to encourage new employees to stay with the team after the deal; however, this can create disparity between new and old employees, which could lead to disputes or even turnover. When sweetening employee perks to incentivize acquired talent to stay, consider providing current staff similar compensation. Not all factors of the deal will be equal for all employees, but acknowledging pre-existing employees’ needs and opinions can help facilitate a smooth transition.
- Make retention a top priority. HR professionals are always looking for ways to boost retention; but considering talent is the reason for an acquihire in the first place, it’s more important than ever to ensure that acquired employees don’t jump ship. In this case, the most valuable acquired asset is the new employees and the technological skills they bring to the table. In the planning processes of the deal, work with executives to develop a retention plan. This includes mapping out which employees may be the most essential and which may be most likely to leave, as these individuals may require the most attention post-close.
It’s clear that talent-based acquisitions pose a unique set of challenges for HR professionals. However, as skilled tech employees become more difficult to come by, companies will need to get used to acquihiring and performing the necessary cultural due diligence and retention strategies that come with it. In time, HR leaders will see the positive effects of acquihiring as a recruiting strategy when their companies are able to achieve ambitious goals that they never could before.