Are “Acqui-Hires” Helping Big Tech Sidestep Antitrust Scrutiny?

This story was featured in the Financial Poise Weekly newsletter.

Read the full newsletter for more of the week’s top stories.

The Justice Department is investigating whether Nvidia’s deal with AI chipmaker Groq last year was structured to avoid the antitrust scrutiny that comes with a traditional merger.

In a nutshell, the deal falls short of an outright acquisition– it licensed Groq’s technology, while Nvidia hired two of Groq’s top executives. It’s a type of arrangement often referred to as an “acqui-hire,” in which a company hires another company’s key employees rather than buying the business outright.

According to Lauren Hirsch and David McCabe at The New York Times:

• Similar deals have become increasingly common in AI. By licensing a startup’s technology and hiring its top talent without buying the company outright, Big Tech companies can avoid the automatic government reviews that traditional mergers and acquisitions face.
• Regulators are now examining whether these arrangements are being deliberately structured to sidestep scrutiny. The Justice Department opened its investigation shortly after the Nvidia-Groq deal was announced and has formally requested information from Nvidia. No wrongdoing has been determined, but Nvidia could face a fine if regulators find fault with how the deal was handled. The deal itself is unlikely to be undone.
• While some acqui-hire deals can siphon away so many resources that the original company is left a shell of its former self, Groq still continues to sell cloud computing services and recently announced a $350 million funding round that Nvidia planned to participate in.

Our take? The most important sentence in the Times piece is the one that says the deal is unlikely to be undone. Read that again: If Nvidia’s worst case is a fine, it’s a fine Nvidia surely will be able to pay. And if the ticket for parking in the fire lane costs less than the garage, the fire lane fills up. Expect a lot of parking.

The deeper problem is that antitrust law was written for a world in which the company was the asset. In AI, the company is the wrapper– the real assets are a few dozen engineers and the code in their heads, and both can walk out the door on a Tuesday.

Merger review asks “who owns it?” when the question that matters is “who controls it?” Our prediction: within a couple of years, the government stops trying to prove bad intent one deal at a time and simply adds a reporting trigger for licensing-plus-hiring deals above a dollar threshold, the same way it already does for mergers. Until then, the letter of the law is on Nvidia’s side, and Big Tech reads the letter of the law very carefully.

You have to give Big Tech points for creativity. We’ve already seen circular AI deals, where established giants buy from or invest in baby giants, and those baby giants then use the cash to spend heavily on making their services better for the established giants (check out this past issue). “Acqui-hires” offer another unconventional way to structure a deal– allowing a company to get the crux of what it actually wants, namely the tech and the people, without buying the company outright.