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Common Sense Advisory Blogs
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The Titan Corporation and L-3 Communications Agree to $2.65 Billion Merger
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A defense contractor (L-3) has agreed to buy a national security solutions provider (Titan) in the latest instance of consolidation in what U.S. President Eisenhower termed the "military industrial complex" way back in 1961. Spurred now by the war on terrorism and economic pressures, these defense firms hope to achieve the same economy of scale and broader product and service portfolio that drives consumer-oriented companies like Proctor & Gamble, Qwest, SBC, and Verizon to acquire smaller rivals or complementary organizations.
This merger interests us for two reasons: 1) its potential in consolidating military and intelligence translation activities; and 2) longer term M&A possibility.
First off, Titan is already one of the largest language service providers with at least US$200 million in translation revenue. Who buys from Titan? The Department of Homeland Security, the armed forces, the CIA, the FBI, and other intelligence agencies generate Brobdingnagian volumes of published materials and telephone intercepts (and lots of other things we'll never know about) to be translated and analyzed. LSPs without security clearances and a General Services Administration contract in place cannot even bid on these jobs, so it's a market closed to the usual translation and localization suspects.
On the second score, we ask whether there is potential for these companies to become consolidators in the broader language services marketplace. In briefings with executives of the translation divisions in some of these defense contractors, we have asked about their ambitions for the more visible markets inhabited by Lionbridge, Merrill Brink, Moravia Worldwide, and other translation firms. They always say "never" because they think the defense and public markets are too different.
We think otherwise -- both defense contractors and LSPs for the general marketplace offer a human-delivered service enabled by language technology. All that really differs is the sales and support channel. A defense contractor that finds business reasons to sell into the general market can easily and quickly buy its way in. It's only a matter of making the business case.
Would non-government buyers of language services benefit from L-3's entrance into the commercial market? It depends on what they offer, which in turn depends on who the bigger L-3 would buy to enter the market. We'll continue monitoring activities in this sector for when the M&A balloon goes up.
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