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Acqui-hire – start-ups and scale-ups in M&A situations

How to retain talent without a ping-pong table

Mergers and Acquisitions
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By Michiel Klompen and Joost Mank | June 25, 2020

It is increasingly common for start-ups or scale-ups to be the target in acqui-hire deals - an acquisition with the aim of bringing in a talented team of employees with particular expertise. In the war for talent, more and more corporates are taking this route to acquire the talent they need. But how do you retain these employees after the deal?

Four out of five start-ups and scale-ups expect to be involved in an M&A deal sometime in the future. Only 18% of these start-ups and scale-ups have the clear expectation of growing as an independent organisation without any M&A activity. This follows from the recently released Willis Towers Watson Start-up Experience study.

However, the study also shows that nine out of ten start-ups and scale-ups have difficulties attracting and retaining employees. More than half the HR professionals within these types of organisation confirm that they expect the average employee to leave within one to three years. Talent retention in these companies is therefore considered to be quite complex. It will come as no surprise that attracting and retaining employees is a top priority, and in the current competitive labour market, especially for digital roles – such as developers and data scientists – there is a lot of competition from other start-ups and scale-ups, as well as from more traditional corporates.

Corporates see an excellent opportunity in acquiring start-ups and scale-ups for their talent that can help them grow further. Consequently it is important to keep this talent after the transaction. What can corporates do to prevent the newly “bought” talent from running away? The results of the Start-up Experience study provide insight into talent preferences and best practices from the start-ups and scale-ups on how to engage with such employees.

Unlimited numbers of holidays, flexible arrangements, hackathons, gym memberships, boot camp trainings, noise cancelling headphones, share plans…the list goes on and on. These are all benefits and perks which we directly associate with start-ups. And rightly so, as it turns out many start-ups offer these types of benefits. However, this does not necessarily imply that these working conditions form the basis of the culture in these types of organisation. The earlier mentioned benefits and perks are a layer on top of this culture. Offering such benefits is therefore not the key to unlock motivation.

When we look at the main reasons for employees to join start-ups and scale-ups, culture is indicated as a key attractor. It is the mission, vision and values of the company – it’s about challenging work and a variety of work and it’s about having the opportunity to learn new skills, as well as the reputation of the company itself. The desired culture, which engenders this behavior, is defined as an environment where making mistakes is accepted and learning from mistakes contributes to improving processes and work; processes and procedures also support working in an agile manner and the style of communicating with managers and leaders is informal.

Key reasons for employees to join or leave start-ups and scale-ups
Top reasons to join Top reasons to leave
1 Challenging / varied work 1 Base pay / salary
2 Organisation's mission, vision and values 2 Career advancement opportunities
3 Opportunities to learn new skills 3 Health care and wellness benefits
4 Career advancement opportunities 4 Job security

But why do employees of start-ups and scale-ups choose to leave a company where they feel connected to the culture, values and vision? The Start-Up Experience study shows that the main reasons for employees leaving are related to salary, career advancement opportunities, health care and wellness benefits, and job security.

Corporates can therefore make a difference in areas such as learning & development (L&D). Only 25% of start-ups and scale-ups have an L&D curriculum, and a similar percentage has career planning schemes.

What defines the start-up and scale-up culture?

83%

Interactions with leadership are informal

82%

Our policies/procedures facilitate an agile way of working

65%

We believe making mistakes is acceptable and contributes to improve our processes and the work we do

Focusing on employee retention in an acquisition of such a company is considered crucial to maintain the strengths of the target company. Hence, clear communication on this to the future (acquired) employees is important. Clarity about the employees’ future is important to remove uncertainty and ensure they feel involved in the new company.

Typical benefits and perks offered by start-ups and scale-ups. Ranked per category
Time and location Learning and development Wellbeing Office place Other
Benefits linked to work/life balance and office location Benefits linked to education and training Benefits linked to financial, physical, emotional and social wellbeing Benefits linked to the office environment All other benefits
Flexible working hours Personal L&D budget Free fruit and snacks Business gadgets Pension plan
Flexible working location Hackathons Gym membership Office pet policy Stock options
Unlimited vacation days Health insurance Noise-cancelling headphones Recognition programs
Bootcamp trainings

At the same time, it is necessary to look at the opportunities for making the difference as a corporate organisation. These opportunities are centered around communicating a clear organizational structure, benchmarking employment conditions for market competitiveness and setting up a learning and development curriculum. This way, the employees will have the best of both worlds. That is - a start-up / scale-up environment within a corporate organisation.

Authors

Global Product Lead SkillsVue and Artificial Intelligence and Digital Talent Survey

Lead Associate, Talent & Rewards

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