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Merrill Brink International Purchased by Former Owners and Private Equity Group
Posted by Donald A. DePalma on April 19, 2016  in the following blogs: Translation and Localization, Market Data, Supplier Business Issues
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United Language Group (ULG) will acquire Merrill Brink International, the language services division of Merrill Corporation. Two members of ULG's management team, Jeff Brink (CEO) and Hans Fenstermacher (COO), called to brief us on the acquisition which had been widely discussed in the industry prior to last week's disclosure of an internal Merrill Corp. memo.

  • What did they pay? As is the case with the various acquisitions over the last two years backed by private equity groups, they would not disclose the amount. What we do know is that Merrill Brink had revenue of US$42 million in 2014, ranked 23rd on CSA Research's 2015 list of the 100 largest language service companies, and has 450 employees in 14 offices in the U.S., Hong Kong, Ireland, and the U.K.

  • When will the deal close? It wasn't a simultaneous signing and closing. Instead, ULG signed a purchase agreement with Merrill Corp. to close on May 31st. Why the delay? Labor laws in the United Kingdom require a 30-day employee notification process. 

  • Who's who? Jeff Brink and Greg Brink (EVP of ULG) were the founders of P.H. Brink, which they sold to Merrill in 2005. They subsequently started up Brink Global Solutions in 2011, which they folded into a joint venture with Amplexor (né euroscript). Fenstermacher founded ArchiText, which he sold to TransPerfect in 2006, where he remained as a member of the executive team until 2012. Also on the call was Peter Offenhauser of Northern Pacific Group, a Minnesota-based PEG that bankrolled the deal along with the ULG management team. NPG has been working with the principals for the last eight months to put together the ULG strategy. 

  • Why did ULG buy it? CEO Brink said that, "We are very excited to extract the Merrill Brink language services business from a large corporate environment. We believe this business has tremendous upside in ULG's entrepreneurial environment, within an organization dedicated 100% to language." As long-time veterans of the fragmented US$38 billion language sector, the principals set a five-year goal of becoming one of the 10 largest LSPs in the world in CSA Research's global ranking. On our 2015 list, the 10th-ranked firm had revenue of US$100.5 million. Brink said ULG will reach its target by acquiring companies – it currently has a couple of purchases in the pipeline – and by growing organically. To meet that internal growth goal, Fenstermacher said ULG will invest in infrastructure, people, marketing, and support. 

  • Where will ULG be in a year? The first thing ULG executives will do is sign the deal and complete the purchase. Then, as they extract Merrill Brink from the bigger company, they'll have to deal with IT, facilities, and other issues. Once the carve-out is complete, they can undertake the two or three acquisitions that CEO Brink says he'd like to complete, while Fenstermacher said he'd focus on hiring key personnel. 

  • Why did Merrill Corp. sell its LSP business? Merrill Brink has been absent from CSA Research's list of the fastest- growing companies in the business. Brink said that slow growth is due to the "inattention and lack of investment" typical of a business unit that is not the primary focus of the parent firm, Merrill Corp., which is a financial printer and publisher.
This deal confirms our May 2015 research on market consolidation and December 2015 analysis of the composition of the services and technology sector including a mix of public, private, PEG-backed firms, and units of larger companies. As ULG looks out five years to earning a top slot, it will face competition from the biggest players in those four sectors:

  • The largest public companies have had mixed performance. RWS has performed very well with organic growth and acquisition. Lionbridge has resumed its previous strategy of growth by acquisition. SDL has struggled, reorganized, and plans to divest non-core assets. Nonetheless, these companies are much larger and have access to capital and equity markets that they can use to grow. Further down the list of players, Keywords is using its liquidity to grow by acquisition.

  • The privately-held companies range from a content-focused firm (Amplexor), a hybrid service-technology LSPs (STAR), an interpreting-centric provider on the block (LanguageLine Solutions), and TransPerfect, the fastest-growing of the larger companies and the definite wild card in the equation as it awaits what the Delaware court decides in the next round of hearings starting later this month.

  • Private-equity backed LSPs first popped up a decade ago, but have become more common in the last two years. ULG joins other PEG-backed LSPs like Moravia, Semantix, and Welocalize in the quest to become market leaders. Each is backed by investment funds and a representative of their backer on their board of directors. ULG is currently the smallest of these, and none of the others has yet to roll up the market as planned. 

  • Business units of larger companies like Capita, HP, RR Donnelley, and Xerox have access to bigger markets, technology, and funding. However, in last year's research on market consolidation, we questioned how long LSPs that operate as subsidiaries or business units of much larger companies like Donnelley, would survive or be divested. They remain wild cards in the equation, especially as Merrill Corp. divests its translation business. Among these, Donnelley – a financial printer like Merrill Corp. – has the scale, financial means, and content-centric mindset to upset the market if it chose to do so. It recently split into three separate business units to maximize shareholder value. It's in the best position to buy a larger LSP and leapfrog its way onto the top of the list. 
In this battle for the top spots in the market, cash-rich PEG-backed companies like United Language Group and deep-pocketed public corporations like Donnelley will be the LSPs to watch in 2017 and beyond.

Note: The 2016 Global Market Survey is still open. You can take the survey here: http://tinyurl.com./job8agl.

 

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