Startup Sold! Now What About Those Flashy Benefits?

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By Carmen Castro-Pagan

Sept. 2 — As they acquire more and more tech startup companies, Amazon.com Inc., Wal-Mart Stores Inc. and other big-name companies may be rethinking how to retain employees of the startups. One way they are doing this is by keeping some of the nontraditional, flashy benefits startups usually offer.

Smaller companies with acquisition power are following suit. In June, Virginia-based Snagajob acquired PeopleMatter and immediately started assessing how it could incorporate some of its competitor’s benefits, including unlimited paid vacations and a four-week paid sabbatical, Candace Nicolls, a senior director at Snagajob who led the benefits merger strategy, told Bloomberg BNA.

Tech startups are well known for offering generous benefit packages that include unlimited paid vacations, free meals and drinks, massages, free gym access, flexible work hours and game rooms. With so much pressure to recruit and retain the best talent, acquiring companies that usually don’t offer these nontraditional benefits are becoming very aware of their importance.

To the extent that the acquired company’s value is tied to the employees, the acquiring company’s investment theory would recognize it and the benefits would be of major importance to the proposed transaction, Donald Harrington, senior vice president and global director of private equity and corporate acquisition at Lockton Companies Inc., told Bloomberg BNA.

Separate Entities, Great Benefits

For some acquisitions, the buying company keeps the startup as an independent entity in order to keep it competitive and to retain the talent advantage. This is a common practice, and the decision is based on several factors, including competitors and the business focus of both companies, Harrington said.

This practice seems to be working for retail giant Amazon and Wal-Mart. Both companies have kept some of the most innovative startups they have recently acquired as separate entities and maintained their nontraditional benefits.

In 2015, Amazon acquired Oregon-based Elemental Technologies. The backend video service company had every nontraditional benefit of a typical startup and after the acquisition it mostly stayed that way. Elemental Technologies continues to offer up to $1,100 in transportation benefits, volunteer time off, an on-site gym, coffee shop tabs and fully stocked kitchens.

Few benefits have been reduced since Amazon bought the company, a current software engineer wrote on the jobs and recruiting website Glassdoor. The main thing that was lost was the six-week paid sabbatical Elemental Technologies offered to employees after working five years with the company, the engineer wrote.

The story repeats with Twitch Interactive Inc., a game-video service provider, that was acquired by Amazon in 2014. “Twitch has done a great job keeping its startup gaming culture after the Amazon acquisition,” a current engineer wrote on Glassdoor.

Some acquisitions by Wal-Mart also share similar stories. In 2011, Wal-Mart acquired Kosmix, which later became @WalmartLabs, an idea incubator for Wal-Mart’s online business. According to @WalmartLabs’s summary in Glassdoor, the company still has a flexible work culture and offers gourmet cafés, free beverages and snacks, paid volunteer time and a free gym.

“Wal-Mart is as corporate as you can get,” Nicolls said. But in the tech sector the competition for talent is high and offering nontraditional benefits is one way to appeal to this demographic, she said.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at ccastro-pagan@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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