“As an M&A analyst at a technology company, you are tasked with structuring the valuation and consideration for an acqui-hire: acquiring a 15-person AI engineering startup with negligible revenue, where the buyer is paying primarily for the team and its underlying technology, not for a stream of cash flows.”
As an M&A analyst at a technology company, you are tasked with structuring the valuation and consideration for an acqui-hire: acquiring a 15-person AI engineering startup with negligible revenue, where the buyer is paying primarily for the team and its underlying technology, not for a stream of cash flows.
Task: determine how much to pay for an acqui-hire target and how to split that amount between upfront cash and retention-based consideration for the acquired engineers.
The target has almost no standalone revenue, so the deal terms below are built around the team and the technology rather than a multiple of earnings.
| Line Item | Value |
|---|---|
| Number of Engineers | 15 |
| Market Cost-per-Engineer Benchmark | $1.2m |
| Standalone IP / Technology Valuation | $8.0m |
| Upfront Cash Consideration | 40% (0.40) |
| Retention-Based Consideration | 60% (0.60) |
| Retention Vesting Period | 3 years |
Talent-Based Value = Number of Engineers × Cost-per-Engineer Benchmark
Using this formula, compute the Talent-Based Value.
Total Deal Value = Talent-Based Value + Standalone IP / Technology Valuation
Using this formula, compute the Total Deal Value.
Upfront Consideration = Total Deal Value × Upfront %
Retention Pool = Total Deal Value × Retention %
Using this formula, compute the Upfront Consideration and the Retention Pool.
Per-Engineer Annual Tranche = Retention Pool / Number of Engineers / Vesting Period
Using this formula, compute the annual retention tranche paid per engineer.
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