After we heard that this long-rumored deal had been signed, we spoke with Smith Yewell and Eugene McGinty, CEOs of Welocalize and Connect Global. Welocalize will book US$13 million this year, while Connect Global’s will bring in US$7 million. That aggregated US$20 million means that Welocalize could leap onto our list of top 20 language companies. However, because the current list is based on 2004 revenue, we’ll have to wait until everybody publishes their 2005 financial results.
So what drove these two companies to each other? Size and global reach. McGinty told us that large buyers look at you differently if you’re small. They don’t want their projects to constitute 10-20% of an LSP’s business, so that means the bigger deals go elsewhere. Yewell acknowledged that the mid-year Lionbridge and SDL acquisitions accelerated his and McGinty’s decision to merge the companies as they looked around at the rapidly changing landscape and decided it was time to join the race for the so-called “middle tier,” LSPs booking less than US$100 million per year. The combined company will have offices on both U.S. coasts, Ireland, Germany, and Japan. The bigger Welocalize will continue the vertical orientation of the U.S. company, adding telecom to its life sciences, e-learning, security and storage, and supply chain management practices.
Yewell and McGinty have been talking about a merger for the last 2 years. Closing it took so long due to the hard-to-ignore entrepreneur’s question of “what will happen to my company after the merger?” The two spent a lot of time building trust levels, figuring out the business model, and determining where everything fits. Yewell said that since there was no client or staff overlap, he sees no need for a reduction in force. McGinty was more forceful, emphasizing that “this is no crash-and-burn merger where all we want to do is drive efficiencies.” Unlike many such mergers where the subsequent rationalization of staff and accounts means that 1 + 1 = 1.8, this one could equal 2.
The natural next step for the enlarged Welocalize will be to expand its presence in Asia beyond the Tokyo sales office with some production capacity in China or India.
Looking out over the next 12 months, we see more such mergers as LSP seek the right mix of size, service offerings, and global reach. This growth will come from acquisition and merger, not from internal organic growth. With that in mind, “Gentlemen, start your engines — for the race to the middle!” doesn’t strike us as the most compelling call for more M&A action.