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HiSoft Acquires Spanish LSP Logoscript
Posted by Donald A. DePalma on March 20, 2012  in the following blogs: Market Data, Supplier Business Issues
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Earlier this month HiSoft briefed us on its acquisition of Logoscript. HiSoft, a technology services provider headquartered in Dalian, China, last year was number 20 on Common Sense Advisory’s list of 50 largest language service providers (LSPs) with language service revenue of US$38.5 million. Logoscript, a smaller privately held LSP based in Barcelona, is one of the top LSPs in southern Europe. It focuses on software localization and booked US$5.63 million in 2010. As is common with the acquisition of a privately held company, both firms declined to say how much the deal was worth but it likely fell into our observed range of 70% to 130% of trailing (that is, the last year’s) revenue (see “The Owner’s Guide to Optimizing LSP Value,” Apr10).

Jonas Ryberg, HiSoft’s director of strategic initiatives, and Arthur Lin, Senior Vice President of the company’s Global Services division, joined Charles Lynch from Logoscript to brief us on the acquisition, the Chinese company’s first in Europe. They told us that HiSoft began looking to acquire a European LSP last summer and the deal closed in February 2012. Their desire for a presence in Europe began earlier, with the appointment of Ryberg in Sweden to oversee the single-language vendors and freelancers to which HiSoft outsourced some of its European language work.

According to Lin, two factors drove the acquisition: 1) a desire to meet global customer demand for more European language pairs and faster delivery; and 2) in-house capacity that would allow HiSoft to lessen its reliance on third parties in Europe and thus increase its margins on that work. The company sees Europe as a big opportunity, especially as many of its clients – including companies such as Autodesk, Citrix, and Microsoft – look for suppliers that can manage more of their language needs, regardless of languages.

HiSoft has been growing in its native Asia and sees opportunity to better serve its existing customers, those of Logoscript, and new ones in Europe with its own operation there. In its current markets, business is growing. In February 2012 HiSoft disclosed that overall net revenues for the whole company grew 49.4% and profit 42.1% over 2010.

Besides being another example of acquisition in the language services industry, we find this deal interesting in three ways:
  • East buys west. For years, the most common direction of merger and acquisition (M&A) activity was American or European firms buying Chinese ones. In this case, a Chinese services company is buying a European LSP. With the ongoing financial crisis in Europe and the fat pockets of some Chinese firms, this deal may portend a shift in the market dynamics. As we predicted in 2007, “Chinese firms that are well-capitalized with venture cash, good cash flow, innovative ideas that they can turn into joint-ventures, and already public companies will begin to acquire firms outside the country” (see “Offshoring Language and IT Services to China,” Jul07). Our annual global market study shows that Asia is gaining ground each year.
  • Buyers demand global capacity. Regardless of their location, clients hoping to meet the burgeoning requirements of world markets have to translate into many languages. For American, Asian, or European LSPs translating into just their regional languages, they will miss some of the 16 languages that our research shows they need to support (see “Top-Scoring Global Websites,” Mar11). Beyond that basic linguistic support, LSPs need to manage delivery, customer support, and other critical services in the time zones where their clients work. Project managers in Spain can be more responsive to European clients than their counterparts in Beijing or Dalian.
  • Costs need controls. Not surprisingly, even companies in low-cost geographies must contend with higher-cost resources for languages where they don’t have a presence. HiSoft’s margins on European language jobs have been lower than average due to the cost of outsourcing that work to freelancers and single-language vendors in the region. With local staff, the company will be much more able to predict and manage the cost of delivering services for European language pairs.

Of course, HiSoft has a lot of work ahead of it in integrating Logoscript into its operations without losing the things that made the Spanish LSP an interesting acquisition, managing its global customers between Asian and European operations, and dealing with the inevitable issues of blending a big services firm from China with a smaller company from two very different cultures. We expect that other Asian LSPs on our top 50 list will study this deal closely to see how it plays out in creating a competitive multinational provider.

Note: This post was updated on 20 March 2012 to correct the title of Arthur Lin and to update the information about the amount of the deal. See our Corrections page for further information.

 

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Related Research
The Owner's Guide to Maximizing LSP Value
Offshoring Language and IT Services to China
Top-Scoring Global Websites
The Language Services Market: 2011
The Top Language Service Providers in Southern Europe in 2011
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Keywords: Exit strategies, Localization, Market sizing, Mergers and acquisitions, Software localization, Supplier rankings, Translation

  
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