The "acqui-hiring" trend has been especially apparent among tech players, especially Yahoo Inc. (Nasdaq: YHOO), which has conducted dozens of transactions as a means of enlisting the talent behind a company. The tactic, which prompted Yahoo to be recognized as Mergers & Acquisitions' 2013 Mid-Market Strategic Buyer of the Year, has become synonymous with strategic buyers, but an inverted version of it has been used by private equity firms for years, according to Jim Rosener, a partner at Pepper Hamilton LLP.
These days, private equity firms are more aggressive in their courtship of savvy individuals that have earned recognition in their respective circles for growing companies, Rosener says. Tapping experienced executives within various sectors is what makes for a significant win in the future when it comes time to buying a new portfolio company. The talent would already be in house, Rosener says.
Where did the term "reverse acqui-hire" come from?
I coined it during a recent seminar. It's inspired by strategic buyers that need talent in a particular area, so they acquire a company to get the talent that comes with it. Need an IT team? You hire an IT company and gain a department. The reverse acqui-hire comes from the 25-year evolution of PE firms, from their financial engineering, to attaining serious resources and know-how. A PE fund traditionally develops a network of former CEOs and CFOs of companies within a certain space over the years. So, if a food company is for sale, a PE firm would already have a network of people that they've worked with in the past that know the industry and have significant operating experience.
Does this give PE funds a competitive edge?
If you have a 28 year-old MBA student versus someone who is experienced, has a reputation in the industry and knows people who work in the industry, and both show up saying "I want to buy your company," you're more likely to return the telephone call of the veteran. Investment banks are more likely to bring you those opportunities because they know you have both interest and capability in that industry. Whether its Blackstone Group (NYSE: BX) or KKR & Co. (NYSE: KKR), all the way down to smaller businesses, there's virtually a good number of PE funds that have experienced operating talent and have been built around skilled operating partners.
How has PE changed over the years?
There's more talent now than there has been in the past. There's a maturity and sophistication to the industry. It's a natural evolution. Tech is a good example because relationships are pretty strong. A lot of the work I've done is in the tech space. But while strategic buyers are looking for a particular skill set, and buy a company to acquire the talent, the first thing PE funds do is acquire the talent that it's going to use in the future. They're in the business of buying companies. In order to make sure these potential investments are successful, it helps if the talent is already there and they don't need to add it. Maybe the leadership of the company they buy is up to the task of running it. If not, they have those people ready to replace them. They constantly look for the best talent to run the business, wherever those people are.