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RWS Acquires CTi to Grow U.S. and Life Sciences Presence
Posted by Donald A. DePalma, Hélène Pielmeier on November 6, 2015  in the following blogs: Market Data, Translation and Localization
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We spoke with company chairman Andrew Brode about the RWS acquisition of Corporate Translations Inc. (CTi), an LSP in the United States specializing in life sciences and linguistic validation. RWS (#7 on our list of the 100 largest LSPs) is publicly traded on the London Stock Exchange. It's in a quiet period pending release of its fiscal year 2015 numbers (its year-end was September 30th), so Brode couldn't provide any details about CTi's financial performance. The company will announce its results in early December.

  • How did RWS go about the acquisition? RWS announced to investors in June 2015 that it would increase its investment in the United States. A week later, "coincidentally," according to Brode, Connecticut-based CTi invited RWS to sign a non-disclosure agreement, in its search for an acquirer. CTi reached out to RWS due to its prior acquisition of life-sciences players Communicare (2009) and PharmaQuest (2013).

  • What were the terms of the deal? The acquisition followed what was reportedly a hotly contested auction with at least 10 bidders. That's not surprising given 2015 activity such as euroscript's purchase of life-sciences-focused Foreign Exchange Translations and private equity group (PEG) buyouts of Moravia, SDI Media, Semantix, and Welocalize, and continuing M&A activity within the industry. Brode said that RWS will pay a maximum of US$70 million, which is expected to be a multiple of close to 10 times EBITDA.

  • Why CTi? RWS is buying market share in the U.S. and an established provider to beef up its life sciences business. Brode characterized Corporate Translations as a well-run firm with a great reputation and an impressive array of life science customers in the U.S. CTi will also benefit by leveraging RWS's strong presence in Europe to develop its own less mature operations in that region.

  • How will CTi operate under RWS? It will be a standalone business into which RWS might merge some European activities. RWS will build its U.S. operations around CTi, which is based in the northeastern U.S. corridor between New York and Boston. It's well situated given greater New York's financial and business centers and the region's strength in life sciences such as biotech and pharmaceuticals.

  • Why life sciences? RWS has acquired other companies in this industry, a strong sector driven by factors such as rising expectations in developing markets and increasing investments in healthcare and life sciences for aging populations around the world. Like RWS's legal and patent translation business, life sciences requires specialists and additional levels of process and quality control.

  • What will happen with RWS's patent business? This is still RWS's strong suit, and the company will continue investing in this market. Brode wants to capture a good chunk of the U.S. patent market among Fortune 500 and 1000 companies, as well as from big players in R&D that require strong patent protection around the world. That was one of its reasons for buying Inovia last year. However, strengthening its life sciences story -- as well as that of other verticals -- will be helpful as RWS and competitors deal with smaller invoices resulting from the European Unitary Patent.

How will this deal affect the market?

  • It accelerates the pace of M&A. Earlier this year we predicted that once one or two LSPs in the US$50 to $100 million range are acquired, there will be a scramble as the pool of attractive acquisition targets shrinks. With VC and PEG firms scrutinizing the opportunities, acquisitive LSPs will have better access to cash than they would have on their own. We also wrote that this readiness to buy plus the availability of funding from such sources would lead to bidding wars such as we saw with CLS and now with CTi. We expect more auctions and acquisitions of these mid-tier LSPs, especially from European LSPs looking to expand in the U.S. and benefit from its stronger economy.

  • It emphasizes life sciences as a must-have offering for larger LSPs. CTi strengthens RWS's life sciences credibility and pressures other top 20 companies to undertake their own merger and acquisition in this sector. That pressure in turn shortens the list of eligible takeover candidates. With RWS's acquisition of CTi this month and euroscript's of Foreign Exchange in May, the pool of LSPs specializing in life sciences available for purchase is shrinking. Acquisition prospects improve for smaller LSPs in the sector such as Dora Wirth, Global Language Solutions, Idem, Luz, and OmniLingua.

  • It shuffles the deck of the largest suppliers. CSA Research estimates that the deal will add approximately $30 million to RWS's revenue. Based on financial details that it provided for our 2015 language services market report, that means that RWS will jump from 2014's US$145.69 million to around $180 million, likely overtaking STAR Group (#6 on our list) for 2015. Of course, there's still more than 50 days left in 2015, so we won't close the book on M&A and other moves quite yet. 

 

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