3 Jul /18

Ownership and Liquidity in the Translation and Localisation Industry

Typically, in the overall global market, it is quite commonly assumed that public companies driven by a market valuation make for the most successful and adaptable companies; whereas private equity is the realm of value investing – buying out companies for the sake of making a profit.

In reality, markets worldwide are littered with the remains of successful private companies that were ill-prepared for going public, while the success of private equity companies often comes at the expense of customer relations and satisfaction.

This can take a toll on every business, but businesses that deal exclusively in the service sector can be the most affected. On one hand, the trend of being acquired by public companies means innovation and more profitable industries, but can easily leave customers feeling shortchanged; and on the other, the private equity investments have the opportunity to improve the efficiency of a business, but are riskier compared to investments in publicly traded companies and need to yield high returns and quick cash flows, to service the funding debt, and as well usually come at the expense of the customers.

Looking specifically at the translation industry, on the surface, we observe the continuing trend of consolidation with private equity firms buying, both private and public, Language Service Providers. With the most notable recent examples the H.I.G.Capital’s purchase of the largest publicly traded translation and localisation company in the United States, Lionbridge, along with its attempt to acquire the world’s largest language service provider by revenue, TransPerfect and Clarion Capital Partners’ acquiring a majority interest in Moravia, a leading localisation company. But analysing the valuation of the language services market in details, it becomes clear that the market is highly segmented, with the top 100 LSPs comprising approximately 15% of the total global market and large- and medium-sized LSPs, combined, merely generating 1/5 of the market’s sales, meaning that the vast majority of all translations worldwide are done by individuals or companies with annual sales of under EUR 8.5 million.

Going deeper and looking at Germany, for example, there are only 6 German LSPs that make it to the top 100 LSPs worldwide and whose combined sales volume of EUR 115 million makes up for approximately only one tenth of the German translation market (with the second largest LSP, the Wieners+Wieners / Apostroph Group, acquired by the German ECM Equity Capital Management GmbH private equity fund, bringing in the mere EUR 20 million), with added-on EUR 50 million generated by German middle-sized LSPs, leaving the remaining 85% of the German language services market to individuals and small-sized LSPs.

Edward Vick, Founder and CEO of EVS Translations
Edward Vick, Founder and CEO of EVS Translations

And back to the United States, where 40% of all large- and middle-sized LSPs are headquartered and where there are more private equity firms than there are stocks on the NASDAQ, to the story of the co-founder of the aforementioned TransPerfect, who not only outbid the private equity firm H.I.G. Capital and acquired the shares of the company after a lengthy court battle with the other founder, but who half an year after becoming the only sole owner reportedly led the world’s largest language service provider by revenue to a 20% increase in sales, followed by the successful acquisition of the San Francisco-based TranslateNow LSP (well-positioned on the Chinese emerging technology market) and the return of most of the former senior executives on board.

And forth to Germany and to the story of EVS Translations, one of the large global LSPs that is completely owner operated even after nearly 30 successful years in operation (by its founder, who started out as a one-person translation company driven by his love for languages) retaining its ability to be more responsive to customer needs and actual market conditions and letting the company make the determination, but not outside forces.