Acqui-hiring is becoming common among both tech and non tech companies in India, for companies to strengthen their tech teams and digital marketing team that can bring entrepreneurial leaders and fill roles across all levels- senior, mid and juniors. Though acqui-hiring can be done for multiple reasons, for more than 80% of the cases it is due to team hiring for skills and attitude.
At GrowthPal, we have been working with multiple clients who are looking to acqui-hire strong tech / digital marketing teams either to establish operations in India or strengthen their team or meet the needs of bulk-hiring at any time. Most common skills set sought by our clients are for – Java, Data Engineering, Data Analytics, Mobile development and other new-age technologies
Currently in India, most of the acquihire deals happen due to past relationships among founders or their VCs directly or indirectly. However, while talking to more than 100+ buy-side clients, we realized this is something that is on the mind of many founders, tech leaders or HR leaders in their company.
However most of the time, there was one question that was raised from both buy-side and sell-side companies on how to value these types of transactions. As these structures are still new, and no news is published about the past acqui-hire deals done, there is no clear format or structure on how to do it. Also one can not compare structures from the developed markets like the US, where the acquihire valuations are more startup/investor-friendly and valued similarly to acquisition deals
In India, startups are valued on mostly below parameters, if it is applicable in their transaction-
Founders quality- If the leadership team is strong, buyers are ready to give a better multiple or jump on the current Indian standards on market salaries and esops, with some upfront / retention bonus
Team quality and size– If the team is strong and well balanced at most of the levels, considering their past experiences, past projects they have worked on, and the demand of the skill set that the team brings to the table, buyers are open to give more hikes than the market salaries to the team members
Product IP– if the IP can be transferred directly to the buying company, third party valuation companies are engaged in the deals to assess the value of the IPs
Knowledge prototypes– If it can be used in some or the other way to develop products for the buying company, some upfront valuation is given to this. This is mostly dependent on the negotiation between buyer and seller
Assets– If the seller has assets like physical assets including laptops, furniture, Digital assets including content, question banks, strong network, that can be used by the buyer, this is valued independently. This is also mostly dependent on the negotiation between buyer and seller
Revenues- If the seller is generating some revenue that can add value to the buyer, revenue multiples of 1.5 to 4x is mostly offered to the seller in form of ESOPs, higher salaries and retention bonus. Even if the revenue is not relevant to the buyer, it can still bump up the ESOPs offered to the seller and can be a strong point during negotiations
Traction – If the traction in terms of existing customers, partners can be leveraged by the buying company, it also adds to the valuation
Company valuation: Sometimes companies are directly valued based on the past valuation to pay off the investors or previous loans
In India, the deal structure is mostly designed around upfront cash, salaries, esops swaps, milestone-based rewards, joining and retention bonuses, investor payouts and loan closures. However, the sad reality is that very few deals are seller-friendly and it is still a long way for these deals to be more structured and win-win for both parties.
Most of the deals are also killed in the last stages due to disagreement between founders of both the companies on salaries / ESOPs, joining designations, lock-in periods, which teams to retain and let go. Other things that also play a crucial role are buyer’s brand, glassdoor rating, terms and conditions around stops dilution, lock-in periods, etc.
In India, acqui-hiring is the last resort to which early-stage companies look for, so managing these deals is very important from buyer and seller perspective. At GrowthPal we are helping many of our clients in acqui-hiring. If you are an early-stage startup looking for a soft landing or you are an established company looking to acquihire or do a small acquisition in India, you are at the right place. Reach out at email@example.com for more information