A NEW M&A TECHNIQUE HAS TAKEN HOLD IN SILICON VALLEY
An interesting development in VC M&A (esp in AI) has emerged- the HALO transaction.
The HALO is a cousin to the "Acquihire" (where a usually struggling startup would be bought whole for the purpose of getting the talent), The HALO transaction (Hire And License Out) has evolved to allow tech companies to acquire talent and write a big check back to the startup that they came from to "license" the IP from the previous company. This cash, in theory, is then used to take care of the vested employees left behind by paying or dividending the cash back to them and the cap table.
Why would an acquirer like Google, OpenAI or Meta do this?
1) This (for now) avoids anti-trust scrutiny because the company remains intact and the deal can get done very quickly
2) The IP around AI is changing so quickly that the emphasis is on the talent being able to evolve and build at scale in the AI space. The IP (and cashflow) is almost beside the point.
3) Culturally, there is still an appetite to make venture company employees "whole" and to keep the cap table happy. This may change over time (and informs the big push by VC to move companies from DE to NV — which is becoming very permissive)
FYI- this is a pretty tax inefficient way to pay the company founders especially in the new QSBS environment.
A CAUTIONARY TALE OF POOR CONFLICTS OF INTEREST MANAGEMENT
(h/t Matthew Sellers and Investment News)
In this Blair case, the court found that "UBS can’t avoid court in a case where trustees say the firm’s advisor mishandled a foundation’s investment accounts worth hundreds of millions."
"The dispute dates back to 2015, when John N. Blair - then serving as Attorney Trustee of the foundation and one of three voting members of its investment committee - executed an agreement to open brokerage accounts with UBS, where his son Jay worked as part of the Arthurs Malof Group. The trustees claim the move was self-serving and lacked proper oversight. According to the complaint, John Blair signed a client relationship agreement with UBS, which included an arbitration clause, but did not inform the other trustees or provide them with access to account details."
"For years, the trustees say they were kept in the dark. They didn’t receive regular statements and had no visibility into the accounts unless they went through John Blair. In 2020, the investment committee voted to terminate UBS as advisor. A few months later, John Blair was removed as trustee for cause. . . .
"The ruling keeps the lawsuit alive, including claims that UBS “countenanced and indeed sanctioned” a scheme that funneled “hundreds of millions of dollars” from the foundation into accounts managed by a conflicted advisor. The trustees are seeking to rescind the agreement, along with restitution, damages, and fees."
FOR WEALTH AND INVESTMENT PROFESSIONALS:
1) the decision is a reminder that arbitration clauses can’t be treated as a fallback. If you want to rely on one, you need to act like it from day one.
2) When family ties and fiduciary roles overlap, the stakes — and the scrutiny — go up fast."
WITH THE PASSAGE OF A NEW EXPANSIVE "NON-COMPETE" BILL, FLORIDA IS NOW THE MOST EMPLOYER-FRIENDLY STATE IN THE COUNTRY
This bill may be a recruiting feature in Florida's efforts to bring companies in from high tax states. It may also be a nasty surprise to highly compensated, important employees looking to keep more control of their careers.