The Globalization and Localization Association (GALA) puts on its third annual conference in Lisbon on March 28-30, 2011.
For Sale? Straight Talk about Mergers and Acquisitions
Moderator: Serge Gladkoff (Logrus); Panelists: Dimitri Stoquart (Stoquart SA), Smith Yewell (Welocalize), Thomas Pennel (TransPerfect/translations.com)
Thomas: TransPerfect grew from $24 million to $240 million in ten years; provides 19 software products in addition to a host of language-related services; 18 distinct production centers. Owned by the two original co-founders. Strong balance sheet, pursuing acquisitions. If you want to sell your company, talk to Thomas (TransPerfect) and Smith (Welocalize) – but not if you are an SLV working for MLVs. Develop rapport 2-3 years in advance. Create a “100-day plan” before closing – agree on priorities and who owns what. Check out your buyers; often there is bad behavior around earn-outs. Check out the culture of your potential buyer; don’t just talk to the CEO. Get clear upfront about governance. Who is reporting to who and what kind of authority you will have – negotiate before you close.
Dimitri: Bought a small company that was in trouble (under receivership) – knew it was a good match because it was also their vendor. Not a financial strategy, but rather a production (operational) strategy. Michael Sank of TransPerfect helped as an advisor. Now about 30 in-house staff. The takeover took longer than expected. It took 6-8 months to reach break-even point. Had to re-motivate the staff and integrate the acquired staff in existing workflows. Still talking to the investors.
Smith: M&A is like getting married. You need a common language; agree on what’s the company worth. EBITDA is the usual metric in the T&I industry of what your business is really making. SDL is now trading at about 12 times their EBITDA; Lionbridge at about 10 times (challenged by Thomas who pointed out low earnings). How do you make your company more valuable? If both top and bottom lines are growing, and if it has a unique specialty, it is valuable. Can’t be serving only one client; can’t have history of legal problems and rocky reputation history. Have to decide if the company is a life style business or a growth business. Life style businesses are hard to value. Growth businesses re-invest their earnings.
Q & A:
Q: What kind of company you would consider for acquisition? A (Smith): Geography is important; next is competency; and finally client base (got Dell as a client by acquiring a company). A (Thomas): Similar to what Smith said; also if we can further mine the acquired client base by offering complementary services.
Q: How do you address the challenge of not knowing the culture of a company you are trying to acquire in a different country? A (Smith): We made 11 acquisitions and each was totally different (TransPerfect made 15). It comes down to trust and a lot of effort to build it. Face-to-face contact is crucial. Interestingly, acquisition in China was one of the easiest for Welocalize.
Q: At TransPerfect, the owners of acquired companies can stay on. How does it affect TransPerfect’s staffing? A (Thomas): There is some duplication. CFOs typically do not stay on; other layoffs are usually not mandated (unless financial results are unsatisfactory).
Q (to Dimitri): How did you achieve economies of scale? A: Mostly in IT and project management, sharing of TMs, good in-house translators.
Q: How do you fund your acquisitions? A (Dimitri): Financed by VCs (“public angels”); good reputation of the company helped. Dislike of banks. A (Smith): Welocalize is investor-backed; using raised funds for acquisitions. A (Thomas): Strong balance sheet, can fund acquisitions themselves. Has a strong line of credit. Conservative culture, does not like using bank credit.
Q: How would you characterize your “hit rate” (percentage of deals that actually close relative to the number of potential deals)? A: Welocalize: 1 in 5; TransPerfect: Talks regularly to hundreds of companies.
Q: What are the expensive lessons learned? A (Dimitri): We made an opportunistic deal; it was not planned. Have to deal with lot of things after closing the deal. Takes long to become profitable. A (Smith): Integration is the hardest thing you do. There are two camps – “rip the band aid” (integrate immediately) or easy your way in. Welocalize used both approaches; the first typically worked better. A (Thomas): Be careful about the disruptions you will go through when selling your company. Adopt good cop / bad cop strategy. Use a deal lawyer.