How to Buy a Team in IT

More and more of our IT clients are complaining that they can’t fill job vacancies for months. Even when someone comes highly recommended, a closer look often shows that the candidate is not what you’re looking for. And then you have to repeat the process. That’s why getting a ready-made team that works well together and uses the right stack might be a much better idea in today’s realities.

 This solution is still rare among Ukrainian companies. However, our laws do allow it. As the industry that is more responsive to Western values and business practices than any other, IT has been gradually adopting this tradition.

 So let’s see how you can buy an IT team and protect your company from dishonest sellers and associated pitfalls.

Finding the right IT team

I’ll say it right away – so far Ukraine has no single reliable place where you could browse for a team like in a supermarket, which is why networking is so important here. You’ll expand your options a lot simply by talking to colleagues in the industry during conferences, meet-ups, and other events.

 Check out professional communities, IT clusters, and other associations of CEOs and business owners. People there usually trust each other more and know a lot about features, needs, and opportunities for partnerships, including in such a delicate matter like buying a team.

 Also, if you’re serious about getting a team, you can make use of legal and consulting companies that have experience with M&A deals. They often have a lot of contacts among business owners and could set you up with someone who’s looking to sell a team.

 Or it could be that you already know the right team, like a contractor that you have worked with in the past, and you know they are the right people for the job. If so, you make an offer to the company they are working for.

 Of course, these aren’t the only options for finding the talent you need, but it’s a start.

Found it. What’s next?

Once you’ve found the team you’d like to buy, negotiate with the owner of their company regarding the price, process, and details of the deal. When buying a team, you’re essentially buying the rights and obligations between the specialists and their current employer set out in the relevant contracts.

 If you don’t want to buy a cat in the sack, be sure to hash out the following things with the seller:

• Total value of the deal;
• The seller’s obligation to change the contracts with his employees and re-sign them if you as the buyer don’t like certain aspects in the existing ones;
• The buyer’s option to interview and possibly test the team;
• Signing an NDA and a non-solicitation agreement (if the seller insists on this, say yes – it’s a fair and reasonable request);
• Splitting the deal into 2 stages:
• the seller re-signs contracts with his specialists under your name, and you pay him the initial sum;
• the seller supports the work of his former team in your company for a certain period of time (usually at least 1 year), after which you pay him the earnout.

Once you’ve discussed each of those issues, put it all in a letter of intent. This document is not legally binding, but it does provide a roadmap for the transaction as well as lists the preliminary arrangements between the parties, their rights and commitments, and each specific thing they are supposed to do. This will help prevent conflicts and misunderstandings in the future.

Need help with drawing up a letter of intent? Fill out the form here and we’ll be happy to help.

Legal aspects

The next steps will depend on your letter of intent.

1. Get to know the team. First of all, you should make sure that the people you’ve set your eye on are what you need, and that they are everything the seller claims they are.

 You have the right to interview each specialist on the team, or even have them do some trial tasks. What you are not allowed to do is soliciting them to work for you. It would also be a bad idea to disclose the details of your deal to a third party without the seller’s consent. If the deal is already in motion, it would be a faux pas, not to mention an unlawful one if you have already signed an NCA and/or NDA.

2. Examine the seller’s contracts with the team. Since you’re going to inherit all the rights and obligations set out in these contracts, make sure that you agree with everything in them and that they are something you can work with. That’s because some contracts are signed as an afterthought and lack the clauses required in IT, or your company may have its own special confidentiality requirements that the existing contracts lack, etc.

 In any case, if the contracts contain something you don’t want to be there or lack something you do want, ask the seller to:

• put the changes you need in the contracts;
• inform the team about it;
• re-sign the updated contracts;
• show the re-signed contracts to the team.

 3. Sign a contract on transferring the rights and obligations under the contracts with the team. As mentioned above, the best course of action here it to split the deal into two stages.

 You pay the first sum once the seller has transferred the contracts with his team to you.

 You pay the rest after a certain period of time, usually a year, provided that your newly-acquired team (or its key members) has not bailed on you in the meantime. You should discuss the conditions for paying the earnout to the seller in advance.

 The details of the earnout payment in each case will depend on the team composition and your priorities regarding its work. For example, you’ve bought a team of 10 specialists. The second part of the payment for it is $100k. If a team member leaves your company early, the seller’s earnout will be $90k, if two specialists leave – $80k, and so on.

 Here’s another scenario: the same team of 10 specialists has three key figures, but the rest you can easily and painlessly replace. In this case, you can set a condition that 100% of the earnout will be paid as long as those three remain on the team.

 The possibilities here are almost endless – it all depends on your arrangements with the seller. The important thing here is having the earnout clause to begin with, and making it large enough to matter. Otherwise the risk of losing your newly-acquired team will be high.

IT teams are always a unique resource

Buying a team may seem like an expensive way to meet one’s HR needs, but keep in mind that a team is a resource in which someone has already made an investment: by assembling it, fine-tuning work processes, giving out roles, organizing the team’s development and interaction, etc. In other words, in most cases and especially amid a personnel crisis, it’s worth it.

 If you want the team acquisition to be truly beneficial and as risk-free as possible, you should discuss all the details of the deal with the seller beforehand and correctly implement these arrangements in the contracts. Whether you are looking for a team or have already found one and you need legal counsel for the purchase – click here and we’ll happily lend you our support.