Tech Startups Long for the Days of Yahoo's Binge Acquisitions

Chalk up another casualty of Yahoo's failure to grow: the acqui-hire. As Yahoo Chief Executive Officer Marissa Mayer reverses part of her turnaround plan, Silicon Valley is sorely missing her old habit of making frequent, small acquisitions.

In 2013 and 2014, Yahoo was the top technology company conducting acqui-hires, an industry term for acquisitions done primarily for the talent, according to research firm CB Insights. Yahoo was tied for third in 2012, Mayer's first year at the company. In 2015, Yahoo has disappeared from the list entirely.

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When Mayer joined from Google, she was looking for an infusion of technical and entrepreneurial talent to improve the company's mobile and Web services. The fresh blood failed to revive the staid Internet portal, and now Yahoo is considering a spinoff of its core Web business to address investors' tax concerns. "They made acquisitions, and nothing came out of it," said Sameet Sinha, an analyst at B. Riley & Co. "The focus has shifted over the last few quarters to integrate, rather than acquire." Sarah Meron, a spokeswoman for Yahoo, declined to comment.

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The excitement surrounding talent acquisitions has dissipated throughout Silicon Valley, not just at Yahoo. Active acquirers, such as Apple, Facebook, Google, and Twitter, have started to pull back on buying for talent, CB Insights said. US talent acquisitions have declined 48 percent this year from a peak in 2013, the firm's data show. CB Insights compiled the information from company reports, which wouldn't include undisclosed purchases or those not classified as talent acquisitions.

Instead of pursuing costly acqui-hires, many companies have returned to old-fashioned recruitment, said Ben Narasin, a general partner at Canvas Ventures. "All of these top firms need more people, but are you really willing to pay a million-dollar cost of acquisition for a whole bunch of people?" he said. "I think acqui-hiring is dead."

Few people start a business with the goal of abandoning it to work at a bigger company, but entrepreneurs and investors appreciate the safety net of acqui-hires. Especially now, venture capitalists are doing fewer deals, leaving some younger companies cash starved.

The number of startups seeking a buyer has skyrocketed recently, said Jacob Mullins, the CEO of Exitround, a private marketplace for sellers of small businesses. He's seen a 30 percent increase recently in companies looking to sell themselves. "My phone is ringing off the hook about how to find an exit," Mullins said. "Companies are having a difficult time figuring out what to do."

While talent buys have fallen out of favor with tech giants, there may still be hope for failing startups. A new class of companies willing to use acquisitions as recruitment vehicles has emerged, according to CB Insights: The top companies making acqui-hires this year are Airbnb and Dropbox.

© 2015 Bloomberg L.P.