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SDL Buys Idiom
Posted by Donald A. DePalma on February 11, 2008  in the following blogs: Translation and Localization, Web Globalization, Business Globalization, Technology, Interpreting, Market Data, Global Marketing, Best Practices, Supplier Business Issues
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Pick your your favorite sport and its premier rivalry. Real Madrid and Barcelona, the Yankees and the Red Sox, Ferrari and McLaren. In the globalization software arena, SDL and Idiom have been the principal antagonists in selling translation automation. Today SDL announced that it acquired Idiom for US$21.7 million in a deal that has far-reaching implications for the market. Yesterday executives from both companies briefed us on the deal.

First, the numbers. SDL paid US$21.7 million plus assumed debt and working capital of US$4.9 million. It will draw down about US$19 million from a recently established line of credit and pay the balance from its cash reserves. The deal values Idiom at just about 1.8 times our estimate of Idiom's 2007 revenue, short of the 2.5x multiplier that SDL has been paying for its software acquisitions. Adding Idiom's revenue will bring SDL's software earnings up to about a quarter of the company's total revenue. Since its inception in 1998, Idiom has consumed about US$60 million in investment from traditional venture capitalist firms such as Sigma and Northbridge and from the VC arms of Oracle and Eastman.

Idiom's CEO Mike Iacobucci will remain CEO of a largely autonomous business unit focusing on selling its WorldServer translation management solution and SDL TMS. Iacobucci told us that "the world will still be driven by freedom of choice and we’ll continue to sell that message. But we don’t fool ourselves by thinking that customers don’t use multiple vendors for translation services and Idiom will continue to support that approach."

How does SDL benefit? SDL immediately adds Idiom's consultants, development team, and sales representatives to its own offering. For the longer term, SDL's marketing vice president Paul Hampton told us that SDL will continue developing its TMS and TeamWorks translation management products, with the goal of unifying them by 2010. Meanwhile, Idiom will proceed with its own work on WorldServer. SDL's ultimate goal is to leverage Idiom's development work into a unified product offering with its own TMS product.

What does Idiom get out of the deal? Idiom has been one of the the most innovative TMS providers, pushing its products through successive versions to become one of the strongest commercially available solutions. It has pioneered features like real-time task monitoring, browser-based side-by-side views for any content type in translation, and automated content preparation that lets a workflow run without human interaction; offered both SaaS and behind-the-firewall versions of its products; and signed up a marquee list of customers including Adobe, Autodesk, Cisco, Continental Airlines, eBay, GM, the U.S. Internal Revenue Service, Symantec, and Sun. One of its biggest coups was changing the software discussion at translation agencies from "should we build our own?" to "when should we bring in Idiom?" with its LSP Advantage program. Platinum partners include top 20 LSPs such as Moravia and Welocalize.

With its revenue growing solidly from 8 to 10 to 12 million dollars over the last few years, why did Idiom choose to sell out now? According to Iacobucci, the competition with SDL was a good thing for Idiom in galvanizing its efforts to pull the company out of the doldrums following the 2001-2004 market downturn. However, "in the long run, I'm not so sure that this rivalry was good for the industry or for Idiom. It didn’t help expand the market and caused unnecessary friction. There were areas where we should have been working together."

Who is affected by this acquisition? The list is endless, beginning with the enterprises that chose Idiom for its independence and forthright refusal to "take a dime for translation services." Then there's the LSPs who decided to cast their lot with Idiom rather than build their own or rely on SDL; executive teams at these companies are gathering in war rooms as we speak to figure out their strategy. On the more positive side of the ledger, this acquisition could open the floodgates of innovation just as SDL's purchase of Trados in 2005 brought a host of new products into the then stodgy world of globalization software. For a more detailed analysis of the implications on these and other constituencies, see our members-only Quick Take on the acquisition later today.

 

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