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Common Sense Advisory Blogs
Applied Language Solutions Sells to Capita Group
Posted by Donald A. DePalma on December 23, 2011  in the following blogs: Interpreting, Market Data, Supplier Business Issues, Technology, Translation and Localization
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Applied Language Solutions announced that it had been purchased by the Capita Group for £7.5 million (about US$11.7 million at today’s exchange rate), with a further consideration of up to £60 million (US$94 million) based on performance over the next four years. According to the announcement, the Capita Group is the United Kingdom’s “leading provider of BPO [business process outsourcing] and integrated professional support solutions.” In 2010 Capita Group had revenues of £2,744 million (US$4.3 billion). According to other sources, ALS had “135 employees and turned over £7.2m in 2010.”

Earlier this year Applied Language Solutions (ALS) made two major announcements. First, it won a large contract with the U.K. Ministry of Justice for translation and interpreting that could increase its revenue substantially within a few years. Second, it released its SmartMATE product with the goal of becoming a leading provider of machine translation (MT) technology – and presumably to break into the ranks of software developers and out of the lower margin language service provider (LSP) market.  

With these two major events, it looks like ALS decided that it stood a better chance of growing with a larger partner than it could on its own. Both LSPs and globalization software vendors have a higher level of risk in building a business and distinguishing their offering from their many competitors. CEO Gavin Wheeldon chose the earn-out path by accepting a smaller payment now and betting that his company’s performance will yield a bigger outcome several years from now.

What should other LSPs take away from this announcement? In our many conversations with investors and venture capitalists, certain themes always come up. First, valuations for most language service companies are low. How low? A multiplier that exceeds 1.5 is considered a rare event in this industry, while in other markets, a multiplier of two or even three is more common. This is due primarily to the low barrier to entry and limited differentiation in the market. Second, the earn-out model is becoming more common. It helps the buyer protect its investment by keeping the owner vested in revenue continuity for a longer time period. Expect to see more of these types of acquisitions as 2012 unfolds.


 

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Related Research
The Language Services Market: 2011
The U.K. Language Services Market in 2011
Trends in Machine Translation
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Keywords: Differentiation, Exit strategies, Interpreting, Machine translation, Mergers and acquisitions, Translation, Translation technologies

  
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