Most acquihires are structured as asset purchases because the buyer wants the team and technology but not the seller's liabilities, contracts, or cap table complexity. A stock purchase transfers the entire legal entity including all liabilities, which is rarely what an acquirer wants when the primary value is the engineering team.
Most acquihires in Silicon Valley are structured as asset purchases rather than stock purchases. The buyer acquires the company's intellectual property, technology assets, and selected contracts, while simultaneously extending employment offers with retention packages to the key employees it wants to hire. Gurpreet Bal advises both buyers and sellers on this structure because an asset purchase lets the buyer cherry-pick what it wants and leave behind liabilities, unwanted contracts, and legacy obligations.
Retention packages in acquihires typically consist of new employment offers with sign-on bonuses or restricted stock units that vest over two to four years post-closing. These payments come from the acquirer, not from the acquisition proceeds, and are structured as compensation rather than equity to tie the team to the buyer directly.
The entire deal economics in an acquihire hinge on whether key employees actually stay. Buyers structure retention through sign-on bonuses, equity grants with fresh four-year vesting schedules, and sometimes earnout payments tied to retention milestones. In Gurpreet Bal's experience across more than 50 M&A transactions at Foley and Lardner, the retention package value often exceeds the formal purchase price, which creates governance complexity around how the board approves a transaction where the primary beneficiaries are the employees rather than the company's investors.
In an acquihire, SAFE holders are typically treated as unsecured creditors or offered a negotiated settlement, often receiving a fraction of their invested capital. Because acquihires rarely generate enough proceeds to satisfy preferred equity at full liquidation preference, SAFE holders frequently receive pennies on the dollar or nothing at all.
SAFE and convertible note treatment is the single most contentious issue in acquihires. Early investors hold instruments that may or may not be triggered by an asset sale depending on the specific SAFE terms. If conversion is triggered, the investors may consume most or all of the acquisition proceeds. If not triggered, investors are left holding paper in an empty shell company. Gurpreet S. Bal advises founders to review their outstanding SAFE and convertible note terms early in the acquihire process to understand the conversion implications before negotiating the purchase price.
In an acquihire, the technology is often the entire value proposition for the buyer. Any gaps in IP assignment — code written by contractors without assignment agreements, open-source contamination, or co-founders who left without signing IP transfer documents — can kill the deal or result in significant price reductions and indemnification obligations.
Buyers in acquihires diligence IP chain of title aggressively. Every founder, employee, and contractor who touched the codebase needs to have signed proper invention assignment agreements. Gaps in IP assignment, including co-founders who departed without separation agreements or contractors without confidential information and invention assignment agreements, can materially affect the deal price or kill the transaction entirely. Gurpreet Bal routinely advises startups to maintain clean IP documentation from formation specifically because acquihire diligence surfaces these gaps years later.
In Gurpreet's experience, much of what actually happens in an acquihire depends on the target's founder-investor dynamic — specifically, whether the investors have the size, presence, and willingness to exert real leverage on the buyer. Institutional investors who can credibly threaten to complicate or block a transaction will find their instruments get better treatment. Smaller or more passive investors may simply be left high and dry, receiving little or nothing while the acquisition proceeds flow to retention packages. Founders going into an acquihire process should understand this dynamic clearly: the outcome for your investors is often less about what the documents say and more about who those investors are and how hard they are willing to push.
Gurpreet S. Bal is a Partner at Foley and Lardner LLP in Silicon Valley, where he advises startups, founders, and investors on SAFE financings, venture capital rounds, mergers and acquisitions, acquihires, and IPOs. He has represented clients in hundreds of transactions with aggregate deal value exceeding $60 billion across AI, semiconductors, fintech, and emerging technology.