07. 05. 2023
What strategic steps can localization and translation agency owners take to increase valuation at exit?If you are the owner of a language services business, you likely follow industry M&A news with a keen eye: tracking deals, monitoring buyer and seller motivations, and – crucially – observing valuation trends.In a buoyant international market there continues to be a steady flow of both small and large deals featuring trade, private equity and strategic buyers, all competing to create and capture value across a fragmented commercial landscape.Although transaction details are not always published, a substantial amount of data is available to LSP owners who have not yet set their exit plans in stone and who wish to gauge the market temperature. At the lower end of the valuation spectrum, some agencies change hands for 2-3x EBITDA, while buyers have paid as much as 10-20x in instances where a high level of strategic synergy between buyer and seller was identified.Although not ‘on the market’, and often pursuing short-term goals of growth and profitability, most agency owners have one eye on the future, and are always interested to know what decisions they can be making today to increase their agency’s valuation upon exit.Based on Adaptive’s work representing both buyers and sellers in a wide variety of M&A scenarios within the language services sector, here are some actionable tactics that all LSPs can adopt to raise their exit multiple. Focus on ‘sticky’ marketsTypically among the major drivers of buyer motivation, building a customer base in a sector with high barriers to entry from competition is a proven method for developing a high-value agency.The industry has seen plenty of high-profile M&A deals done in major verticals such as Life Sciences, IP, legal and financial, but there are plenty of other niche areas available for agencies still looking to define a specialism.Of central importance to buyers is not only that an agency have a customer concentration in a particular vertical, but that this focus be supported by a unique combination of expertise, resources and workflows - making it tough for non-specialist agencies to steal market share.Penetrate accountsDeep and durable client relationships are another significant point in favour of an agency looking to sell. From a buyer perspective, having impressive client names on your customer list is markedly less impressive if those relationships show signs of being vulnerable to attack from cheaper or higher-quality competitors.Agency owners looking to drive shareholder value over a multi-year time-frame are well advised to build strategic penetration and consolidation plans for their highest-spend customers, ensuring that they do everything possible to retain their business. This typically means establishing multiple points of contact, working across multiple client business sectors and prioritizing customer service experience at every opportunity.Build unique workflow solutionsAn additional step to cementing key client partnerships involves anchoring the relationship in the service delivery itself.Many LSPs which sell for market-beating multiples have embedded themselves as an indispensable supplier to top customers via customised solutions, client portals, technology configurations or other bespoke offerings.While enterprise-grade workflow integrations can require significant financial investments to be made by the LSP, smaller gestures nonetheless contribute to solidifying partnerships.Wherever agency owners see opportunity to deepen their engagement with their customers’ tools and teams, it’s usually worth pursuing.Lock in key staffThe stability and commitment of management teams is another item which sits high on a buyer’s priority list.As well as looking for a capable and well-organised team, potential investors will be assessing the degree to which they can depend on that team post integration.Involving upper-tier sales, technology and operational managers in equity plans which are tied to the success of M&A outcomes is a standard method of aligning incentives at this critical time, and owners who identify key personnel within their organisation should waste no time in ensuring they are incentivised to remain with the company through exit and help make that transition as successful as possible. Keep the books cleanThough neat and tidy bookkeeping seldom adds to the value of a company directly, much of the M&A process is about establishing trust and confidence between buyer and seller. First impressions are extremely important and set the tone throughout the rest of the information-sharing and negotiation processes.A company whose accounts are accurate, up-to-date and require minimal explanation is on the front foot when it comes to discussing its overall value as an acquisition target.Conversely, an agency whose finances are inconsistent, unnecessarily complex or poorly presented may be at a disadvantage in other areas of the negotiation process, simply owing to the impression created. Find the right buyerWhile it may seem common sense, it’s a critical factor very often overlooked by business owners in any sector.The single biggest value driver in any transaction is the synergy between buyer and seller. The value of any business is only what a particular seller is prepared to pay to acquire it, and that valuation is largely subjective – based on the additional value that any given buyer believes they can unlock through pursuing the acquisition.With this in mind, it’s vital that agency owners commit as much time as possible (and as early as possible) in forming a comprehensive understanding of where their ideal buyers may come from in the market. Whilst the temptation may be for owners to focus energy on ‘polishing’ their businesses ready for a sale to a generic buyer, that time could be better rewarded in working with a specialist partner to review and engage the market in depth.The ‘right’ buyer will pay more than a less synergistic acquiror, no matter what steps an owner may take internally to tweak business processes.***Adaptive M&A works with the owners of translation and localization agencies to maximize shareholder value at exit by identifying the right strategic match from a diverse network of buyers and investors.You can learn more about our services here.
09. 11. 2022
Many language agencies are turning to ready PE capital to support growth – what impact will it have on your business?Private equity funding continues to make steady advances into the language services domain, with an increasing number of LSPs leveraging investor capital and expertise to springboard their agencies to the next level of growth (Frontier Capital’s exit of IP translation specialist MultiLing is the latest public success story).Unlike sale to a trade buyer, however, selling to a PE firm rarely involves an immediate exit from the business and is likely to be a two-stage process that calls for significant ongoing involvement from the owner.PE companies typically look to acquire a controlling or majority share of the business they are investing in, and work to provide resources that enable the company to pursue market opportunity that was previously out of reach.When things go positively, PE investment can mean phenomenal results for business owners – but it’s a special type of partnership that has to be carefully constructed.As an LSP owner considering growth options, what should you expect if you partner with a private equity group?1. More money to growThe primary asset that PE groups bring to the table is deep pockets that let business owners accelerate their growth trajectory and increase shareholder value. This may take the form of investment in sales, marketing or technology, or may – as is the case with LanguageWire’s recent acquisition of Xplanation – include expansion through M&A.Be ready, however, to justify every penny. PE partners aren’t spending out of their own personal piggybanks, but are beholden to investors in a fund which provides the capital used for their projects. So while a PE partner may offer access to big sums for investment in growth, the ROI of each decision will be carefully scrutinized to calculate the anticipated return.2. No place to hideJust as investment decisions will be analyzed in detail, so will every aspect of business operations. Costs, personnel, customer base – even the performance of the incumbent CEO.Some business owners thrive on this new pressure to deliver results, as privately-owned companies often lack a driving force to spur on aggressive growth beyond the personal ambition of the founder.A new group of motivated shareholders certainly provides this impetus, but business owners need to enter the deal with their eyes open and understand that the PE group’s primary objective is to deliver the best possible return on their investment. When faced with obstacles or indicators that they are falling short of forecasts, they won’t hesitate to act. In worst-case scenarios, this can mean layoffs, office closures or other big changes which can impact and potentially damage company culture.3. A new business partnerOften among the biggest adjustments business owners have to make in selling to PE groups is no longer being in full control of their organization. For founders who have run companies for ten or twenty years, to be bumped down to a minority partner can feel strange, even if the upside potential this creates is greater than anything they could have achieved independently (as is often the case).In real terms, accessing that upside means no more solo decision-making and needing to get along well with a new group of senior business partners. This doesn’t mean, however, that PE firms will be getting under the wheels of management on a daily basis – they are investors, not operators, and though they add experience, financial expertise and ideas, they will not be involved in daily functions and will leave management to do its job.4. An easier sale process‘Easy’ is a relative term in all cases, but there’s truth in the idea that selling to private equity groups can be a more straightforward process than selling to a trade or strategic buyer. PE groups have a mandate to acquire companies, often within a fixed time period (the expiration lifetime of the fund), and need to buy, grow and exit companies within that span in order to provide investor returns.As funds are spread across a portfolio of investments, PE groups accept a certain degree of risk in their work, also.With other buyer categories (for example private sale), it’s likely that a large percentage of the buyer’s personal net worth may be invested in the deal, or that they have a realistic option to simply pull out of the idea of making an acquisition altogether. This can lead to a slower, more ponderous process (often less well structured), which can be draining for the seller and a distraction for the business, especially if it doesn’t result in a deal.5. A new perspectiveAs mentioned, PE groups are not ‘operators’ who will be working actively inside the companies they acquire. In fact, many PE partners have never done anything even resembling the type of work which founders (or 99% of their employees) do on a day-to-day basis.Instead, they bring a different set of skills. Often armed with MBAs and the holders of multiple advanced business and financial certifications, PE professionals are seldom entrepreneurs and perhaps more accurately labelled professional investors.While they may not join you in putting their shoulders to the wheel, they will be highly adept at studying business data, finances and performance reports, spotting opportunities for efficiencies, expansion and guiding where investment capital should best be deployed.In the best partnerships, the analytical skills of the PE team coupled with the market knowledge of management creates a powerful team.6. A fixed exit timelineA significant degree of control that founders give up when selling to PE firms is the ability to dictate time-frames when it comes to exiting the company fully.Although a business owner already takes some chips off the table when selling their initial share to the PE firm to begin with, they are usually then locked in to executing on a growth and exit strategy which will enable the PE to deliver returns to fund investors.With most funds having a life-cycle of 5 to 7 years, this arrangement strips founders of the flexibility to run their companies for a long (or as little) as they wish, as the PE firm will look to sell their investment on for a profit during that window.7. A new set of stakeholdersOn an emotional level, some founders take some time to get used to the idea that their company - often built up with sweat, grit, late nights and plenty of risky moments – has become a vehicle for investment in a larger series of business partnerships. PE groups create their funds with money from wealthy individuals, pension plans, insurance companies and other investors looking to generate a return on their capital, and knowing that these unknown parties are ultimately the ones driving the decision-making within a business can be hard to process.With that said, many founders are able to retain significant degrees of both cultural and creative control of their companies after selling to PE partners, and think of outside investor involvement as simply fuel to power their growth of their company. While they may no longer own a controlling share, they remain the de facto business leader and can achieve personal wealth by leveraging investor funds that far exceeds anything attainable on their own.***Adaptive M&A works with the owners of translation and localization agencies to maximize shareholder value at exit by identifying the right strategic match from a diverse network of buyers and investors.You can learn more about our services here.
21. 06. 2022
An injection of outside capital is a pivotal moment for business growth – but how do you know when the time is right?For self-funded LSPs who have developed step by step as cashflow allows, investment can unlock the potential to scale rapidly and push the organization to the next level.It can also bring on board valuable strategic experience from investment partners, and position the founder for an eventual exit at a significantly higher valuation than would be possible without this boost.We look at how business owners can know when the time is right to take this step.Preparing a business for outside investment isn’t just a necessary step for actually securing the funding, it’s a highly valuable exercise in its own right. It’s not unusual for language services agency owners to uncover things during the process that help them understand the work that is necessary before the company will be ready to accept outside capital.Whether you are actively considering funding or benchmarking how your business is currently running, here are some important checklist items to help you gauge how you rank:1) Do you have a defined strategy?A business strategy should help potential investors to understand the precise problem your business is solving and for which customers. In the LSP space, this is as much about what your company isn’t as it is about what it is. One the global issue of communication has been presented (i.e. helping end clients overcome language barriers in business), investors will need to know exactly where your company fits into the spectrum of technology and service offerings available to buyers of language solutions. A strategy should give investors detailed insight into topics such as brand identity, product/service differentiators, pricing, target vertical markets, workflow and technology integration, together with an awareness of competition and general market conditions. Critically, your strategy should illustrate how value will be created and realised for all shareholders.2) Do you have detailed growth forecasts?Growth forecasts show investors exactly how their money is put to work. Not only are investors interested in how fast and how far you believe you can grow with their input, they’re anxious to see how your company’s past performance data links into future growth models to substantiate projections. This means you need to lead potential investors carefully through the rationale for arriving at the numbers you do when building your model, and help them achieve a sense of confidence that your forecasts are founded on a steady base of supporting data – not cheerful optimism alone.3) Is your team ready?This can be easily overlooked as the number-crunching takes priority, but high on any investor’s own qualifying checklist is the leadership team of the company they’re reviewing. A hard-working and charismatic founder is a definite plus, but everybody runs out of bandwidth at some stage, and investors will be wary of a business that depends on the current manager making all of the major decisions or pulling all the strings. Not only should the company’s core competency areas such as sales, marketing, production and IT be covered by a capable team, investors should have confidence that the team is committed to the company’s long-term growth and success.4) Does your plan have gaps?At its most basic level, an investor’s appraisal of whether to commit capital to a new enterprise will rest on how clearly the business plan illustrates every step of the growth journey. This means showing investors that there is nothing (or at least very little) in your plan that is based on supposition or speculation. Business plans which depend heavily on growth from creation of new services or penetration of new markets can be less compelling than those which offer a clear and progressive path to scale through expansion of existing strategy.* * *Adaptive M&A works with both passive and active sellers in the translation and localization industry, helping them explore market opportunities and connect with well-matched buyers for their language agencies.You can learn more about Adaptive M&A’s services for sellers here.
09. 04. 2021
Business owners sell their companies for a multitude of reasons, both personal and professional.Selling a company can be a tough process, and the steps involved can be both expensive and a distraction from daily operations. The process can also be an emotional one, as many entrepreneurs in the SME bracket will only sell a couple of companies during their careers, perhaps only one.With so much at stake, the question this article poses is when is the right time to sell?For most business owners, timing is the hardest part of the sale process to analyze.In terms of valuation, for many services industries the governing factors are relatively straightforward – typically based on profitability, location, revenue growth, balanced customer base, vertical market specialism and any relevant technology or branding differentiators.For those who know their markets and have strong visibility across the commercial landscape, identifying a potential buyer is likely not the most challenging aspect of the sale process either. Smart sellers seek a strategic match where the acquisition adds value to the buyer through diversification, technology, niche-market expertise or regional presence.What is often less clear to owners of small and medium businesses is timing – when to sell their business to achieve maximum valuation, secure the right strategic fit and avoid downtime on a false start.The balancing act performed by entrepreneurs involves acknowledging that the optimal moment to sell all or part of their company can be the very same moment when it appears there is every reason to retain full ownership – when wind is in the sales, revenues are climbing, new customers are rolling in month on month and the business has ample potential to move into new markets.Owners without a clear exit strategy risk falling into the trap of waiting for an undefined “right moment in the future” to sell their business, and may focus their energies on building towards this goal.For many this can mean a vision of a company with stable, consistent EBITDA which has acted on every easily visible market opportunity for expansion and diversification.In the eyes of a buyer, however, these elements do not always signal a great deal. If a seller is over cautious in waiting for the stars to align, this can portray a company that has lost its dynamism and future potential to an investor. A business can shift from an exciting asset to a bolt-on acquisition appealing to a limited pool of buyers, with forecasted ROI based on maintaining performance rather than continuing to innovate and grow at a fast pace.According to Crispin Pike, who sold his IT security business, Sysec, to Herjavec Group, “your business should be on the up when you offer it for sale, with growing profits, reinvestment, employment opportunities and new markets, geographies or product lines” (Telegraph). Ironically this may seem like the ideal moment to remain at the helm of the company, but for others it can be the ideal moment to sell. A surge of forward momentum and readily accessible future opportunity can excite investors more than a tried-and-tested balance sheet with no evident signs of a future uptick in performance.The right timing and sale scenario is always going to be a complicated decision for any seller, but some things that help give a better chance of capitalizing on the golden moment include: defining exit goals, listening to the market & talking to advisors.An exit strategy with goals is key - running a company knowing that the owner will want to sell it “one day” can mean that lucrative scenarios pass by them continuously and they are unaware. If a business owner’s goal is retiring with funds to finance a lifestyle, then this helps quantify the goal and identify when this might be achievable. Younger owners may wish to sell a portion of their equity to a larger buyer or a PE group and join an executive management team with a view to a second exit. Being aware of what an owner wants, be it liquidity or future upside, is invaluable in helping them run their company and shape it towards an ideal acquisition scenario.Business owners are also well advised to continually listen to the market and evaluate if M&A activity in their space is gathering pace or cooling off, and to track valuation multiples where publicized. These indicators can signal to an entrepreneur that it might be a good moment to re-evaluate their current exit time-frame. Many SME owners ignore obvious signals that buyers are active in their space because they are working towards their balance-sheet-driven future moment when they will be “ready” for sale. In some cases the market dictates the driving force behind acquisitions more than owner plans. Entrepreneurs can miss the boat by waiting too long, with buyer’s appetites and PE investment slowing down.Keeping open channels of dialogue is also essential for the process, as third parties and consultants can help provide some guidance and expertise within fragmented markets where public M&A data is less available. As long as conversations with prospective buyers, advisers and investors are always managed on clear terms, business owners can build valuable networks and relationships and position themselves to stand strong chances of achieving their goals.
26. 11. 2018
This year saw some landmark acquisitions in the digital commerce and communications industry – we review the highlights (so far). With the month of December still left to play out, 2018 has witnessed some big moves in the merger and acquisition arena across the digital marketing and ecommerce sectors.Despite competition for investment dollars from emerging peripheral markets (notably AI and blockchain), e-retail platforms, digital marketing services and payment solutions all attracted major attention from both trade and strategic buyers.With 7 acquisitions at $1bn+ closed in H1 2018 alone, several of the alliances struck throughout the year are set to alter the commercial landscape for some time to come.Here’s our pick of the standout deals of the year so far:Walmart buys FlipkartUS retail giant Walmart splashed out $16bn to acquire a 77 percent stake in Flipkart, India’s largest online retailer.Seen by analysts as a strategic move to keep pace with other e-retail heavyweights (chiefly Amazon, who moved onto Walmart’s home turf of in-store grocery shopping with their purchase of Whole Foods), the deal included $2bn of new equity funding for growth and left the door open for Flipkart to go public at a later date.Adobe buys MarketoAfter being delisted from the NASDAQ in 2016 by Vista Equity Partners for $1.8bn, Marketo found a new home for a hefty $4.75bn as Adobe looked to fortify their digital marketing offering (Experience Cloud) to keep pace with competitors Salesforce, HubSpot, Oracle and SAP. Beginning life as recently as 2006, Marketo added marketing automation to the Adobe product suite as part of a rapidly-expanding digital experience portfolio.Twilio buys SendGrid Variously described as an ‘engagement’ or ‘communications’ platform, Twilio offered developer-focused capabilities in channels covering voice, video, chat, SMS, social media and connected devices – with the addition of email marketing specialist SendGrid for $2bn in stock, a key gap was plugged (albeit for a price that stunned many onlookers). With the acquisition slated to close in the first half of 2019, combined revenues could be north of $700m by that point. Silver Lake buys ZooplaCarrying property listings for nearly 15,000 estate agency branches, Zoopla has been a dominant force in the UK residential property market and the ‘PropTech’ sector. US PE heavyweight Silver Lake, impressed by the growth of the online platform and its 50 million monthly visits, forked out £2.2bn for the ZPG group of companies – a nice deal for founder Alex Chesterman, who was also behind the LoveFilm movie subscription service acquired by Amazon.WPP & Dentsu splurgeLeading marketing conglomerates WPP and Dentsu Aegis both added to their sprawling portfolios throughout the year. While no single deal made the big news, the two giants got their checkbooks out on a number of occasions.WPP added Hirshron-Zukerman Design Group, Gorilla Group, 2Sale and Emark, creating additional capabilities in fields covering design, marketing technology, Amazon retail services and more, before announcing the merger of JWT and Wunderman to create a new advertising superpower.Dentsu hoovered up Whitespace, Amicus Digital and Global Mind, diversifying service offering whilst also adding headcount in Scotland, Australia and Argentina.PayPal buys iZettleIn May payment superpower PayPal spent $2.2bn to purchase Swedish fintech firm iZettle, adding point-of-sale hardware to its suite of commerce solutions. Timing was tight on the deal, as iZettle had filed for IPO only days before PayPal announced the news.Targeting the small business sector, iZettle uses a mobile-based card reader to allow digital payments, similar to rival Square.The purchase is part of a series of diversification moves by PayPal, who also own P2P payment platform Venmo and business loan provider Swift Financial.Adobe buys MagentoThe only acquiror to appear twice on our list, Adobe showed their ambition with a double-headline year, not only buying Marketo but also scooping up e-commerce platform provider Magento from European PE firm Permira for $2.68bn, a revenue multiple of over 11x.Once again up against Salesforce and Oracle (among others), Adobe saw Magento as a key gap in its ability to provide e-retailers with a comprehensive infrastructure and marketing solution, adding the capability to build, run and market web stores through a single platform provider.***Adaptive Digital recruits across Europe and the USA for digital marketing and ecommerce professionals, filling roles with brands & agencies in more than 20 countries. To view Adaptive Digital’s full range of open jobs, click here.
07. 05. 2023
21. 06. 2022
26. 11. 2018