Technology talent in M&A: retention, incentives and integration risk

The legal and commercial arguments in an M&A deal will often converge around tech talent. In many deals, people are not just part of the asset; they are the asset that determines whether the deal works. Increasingly, buyers are treating workforce resilience as a core component of technology diligence. Questions around succession planning, the location and availability of critical know-how and retention risk can all be relevant to assessing whether the anticipated value can realistically be achieved.

“We have seen a shift over time, certainly in the startup and growth company world, where target companies won’t necessarily have extensive customer relationships, but they will have some interesting technology, and talented engineers that develop that technology,” says Jon Gill, Partner, M&A and Private Capital, in the UK, at Eversheds Sutherland.

But while the term ‘acquihire’ has been in the lexicon for years, deals often disappoint because acquirers focus on named key individuals without considering broader organizational implications. That includes other staff whose knowledge is crucial to making technology function, especially when it’s being separated from a parent group. And increasingly it applies almost as much to non-tech sector businesses that are underpinned by tech infrastructure.

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Identifying the people who hold critical technology knowledge

“Clients put more emphasis on the data and IP because there is much more value there than there used to be,” says Jean-Robert Bousquet, Partner, M&A and Private Capital, in Paris, at Eversheds Sutherland. “But the employees are affected, too, because even when you lock down the data, if you don’t have the people who know how to run, manage, and compute this data, you can get lost.”

Employment due diligence needs to become more strategic, as well as more granular. Buyers increasingly need to assess whether critical know-how is concentrated in a small number of individuals, whether key talent can realistically be retained through and beyond completion, and whether workforce-related risks could undermine the assumptions underpinning the deal valuation.

Buyers need to understand not only who the key employees are, where they are located, as well as what contractual protections apply – for example, whether invention-assignment and confidentiality terms are robust, whether covenants are possible and enforceable in the jurisdictions where those people work, and whether retention arrangements are likely to be effective.

Post-Covid patterns of remote working, new engagement models, cross-border hiring and distributed work make these questions more complicated, because the law that governs an employment relationship may not align neatly with the contractual provisions or the laws that more broadly govern the target company.

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Managing cross-border employment and restrictive covenants

Tech talent is scarce enough to have promoted cross-border hiring. You might have situations where employees have employment contracts which include a range of restricted covenants, but they’re working in a country that does not recognize the enforceability of restrictive covenants in the same way. That creates complexities because the contract has been issued with a certain employment landscape in mind, but the courts are enforcing in a different jurisdiction.

Second, restrictive covenants are becoming a less reliable answer to retaining tech talent. It’s not just the policy focus from governments on increasing labor mobility. In some key jurisdictions, such as California, posttermination non-compete restrictions are generally unenforceable subject to limited exceptions, while other jurisdictions impose varying limits on scope, duration or compensation requirements. There is a growing practical reluctance in the tech ecosystems to enforce them aggressively even in places with tougher employment protections.

“In the UK tech sector, people are focused on making the environment more competitive, so they talk about actually reducing the use of restrictive covenants because that slows the market down,” says Gill. “But I’m seeing US acquirers, in particular, really push the envelope in terms of five-year or termination deal covenants for key company stakeholders. That can be a challenge when trying to negotiate the fine detail in deals in the UK or Europe.”

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Designing incentives that protect post-deal value

That shifts more of the burden onto positive incentives. Equity culture, stock option plans, retention packages and earn-outs in technology-dependent transactions have become more important. Legally, that means more detailed drafting around vesting, forfeiture, employment conditions, restrictive covenants on sellers, good leaver/ bad leaver terms and the interaction between employment law, corporate structure and stock consideration mechanics.

Third, tech talent risk is now central to integration. Buyers may successfully acquire the relevant technology, intellectual property and data assets, yet still struggle to achieve the expected benefits if key individuals depart. “Many businesses, even those not within the tech sector are now starting with the technology function, when they look at any form of restructuring,” says Hannah Wilkins Partner, Global Employment and Labor, and the co-lead for the Technology sub-sector, at Eversheds Sutherland in the UK. “On first blush, you wouldn’t think there is a huge technology issue in certain sectors. But increasingly, the tech is fundamental and underpins the value in the business to be carved out and so ensuring the tech talent is secure and incentivized in restructuring is crucially important."

Buyers cannot assume that money alone will keep teams in place inside larger corporates, either. People who thrive in a growth-company environment may not enjoy life in a larger corporate post-acquisition, however generous the incentives. That is not just a cultural warning; it is a legal, operational and transactional one. If value depends on those people staying long enough to transfer knowledge, maintain product velocity or support integration, the deal documents and post-closing plan may need to reflect that dependence much more explicitly.

The broader market context suggests the issue is widening beyond pure software. That means ‘tech talent’ increasingly includes not just software engineers, but also specialists in cyber security, industrial systems, data infrastructure and operational technology.

And it’s worth noting that for many businesses today, acquiring IP or other tech assets without buying in the people responsible for creating or even just maintaining it also risks that unique market proposition disappearing. A skilled engineer or coder may be able to replicate an app, critical software tool or even approach to managing a database at a rival, post-deal, particularly where know-how resides primarily in people rather than documented systems. This can increase competitive risk where intellectual property protections, contractual restrictions and knowledge-transfer processes are not sufficiently robust.

Legally, this is a reminder that technology diligence is incomplete without workforce due diligence. Identifying where key know-how resides, how it is protected and whether it can be transferred, checking whether contracts and incentives are fit for purpose, helping structure retention packages that align with local law, and ensuring that post-deal integration plans do not quietly destroy the very capability the buyer thought it had acquired.

Increasingly, more novel engagement models are being utilized and demanded by tech talent at the same time that governments are moving to legislate to protect non classic workers across the world. “Protecting value in that scenario is something that we’re going to have to look at in the future,” says Wilkins.

“It has a whole range of additional legal risks, because the governments are going in exactly the opposite direction. Across multiple jurisdictions, policymakers are increasing scrutiny of worker classification, platform-based work, contractor arrangements and contingent labor models. They are trying to protect individuals and give employees more rights.The EU’s Platform Work Directive is a classicexample of that. Similar developments include the UK’sproposed employment status reforms under theEmployment Rights Act 2025, and legislative initiatives in anumber of jurisdictions relating to worker misclassificationand aimed at extending employment and social protectionrights to individuals working through non-traditionalengagement models.”

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