David James speaks with Managing Director of Capita TI, Kevin Gordon, about ways to boost the strategic value of your language company, and what large buyers like Capita are seeking in an acquisition.
It’s been another busy period in the global language industry M&A scene.
New buyers are beginning their acquisition target searches around the globe, while both large and small LSPs continuing to make purchases across North America, Europe and the APAC region.
For many entrepreneurs, an eventual exit from their agency is the goal. It may be a strategic exit in accordance with a detailed plan, or it may be a vague understanding that at one stage or another it’s going to make sense to capitalize on the hard work of growing a business, and pass the torch to a new owner who can take it on to bigger and better things.
The big question is – how to maximize the value of an LSP.
For owners, it’s often their life’s work.
So how are potential buyers evaluating companies, and how can current business managers adapt and direct growth to ensure the highest possible valuation at sale time?
To get an expert perspective, Adaptive spoke with Kevin Gordon – Managing Director of Capita TI. Capita have made multiple acquisitions in the LSP community and continue to actively scout the market for strategic opportunities as they pursue their strong corporate growth.
First Kevin walked us through the major motivations why one LSP may wish to acquire another. With the main driver being to acquire additional capability or capacity to both improve market position or broaden market reach, reasons include:
- Linguistic resources in target language(s)
- Expertise in a specific domain or sector
- Tools and technology
- Increasing customer base in order to leverage services
- Geographical presence
What are buyers seeking?
With regard to Capita’s own approach, some of the core attributes the company looks for (in addition to healthy financials) when evaluating potential acquisitions include:
- Reputation and client base longevity
- Level of expertise in either services and/or verticals
- Niche markets serviced
- Maturity of the business model, both from a human and technology perspective
- Geography (either local cost-saving synergy or new market penetration and customer support)
What can block a sale?
When asked about some of the obstacles an LSP owner may face in seeking to sell their business, several topics surfaced.
The main issue highlighted by Kevin was distraction. Selling is a lengthy and complex process. It requires time away from daily business operations. It involves the preparation of detailed information, financial data and customer records.
If engaging with a potential buyer who is not familiar with acquisition protocol and process, dialogue can be unfocused and slow-paced. Working with a buyer who is experienced and has a standard process can create a lot of helpful efficiency.
Case in point – as part of a £5bn corporation, Capita TI is an experienced acquirer and typically looks to complete its due diligence and close a transaction within 4-6 weeks of agreeing a deal.
Kevin also pointed out that many LSPs may be interested in exploring sale opportunities, but not truly ready to sell.
Either their owners have not given due consideration to the emotional and lifestyle disruption of parting with their business, or they are not financially optimized and will not be satisfied with a resulting valuation.
Both of these are key questions an LSP owner must ask of themselves before engaging in earnest in M&A discussions. Lastly, owners should have a clear idea of their goals not only in deal or valuation size, but also structure. Those looking to cash out and retire won’t want to enter into a lengthy earn-out period, and should adjust their valuation expectations accordingly if they are seeking a cash-heavy deal without the need to remain involved in operations post sale.
Those looking to sell but then stay on long term and be part of the growth strategy of the larger combined entity will have a different outlook. Either way, choosing the right partner to take over your business needs careful consideration for the future of staff and customers and continued success.
In the services industry, EBITA valuation multiples are still the norm. But aside from profits other components which can weight a valuation include:
- Linguist strategy and recruitment
- Customer satisfaction
- Staff satisfaction and tenure of key senior employees
- Length of customer relationships
- Specialist vs. generalist
- Size of clients
- Exposure to large % of revenue/profit in largest 1 or 2 clients
- Track record of continued growth and demonstrable further growth potential
A sellers’ market?
With so many high-profile transactions completed in the past 24 months and multiple smaller deals popping up around the map, it’s an interesting time to be a profitable mid-sized LSP considering sale. The market continues to consolidate, and with the right strategy and contacts an attractive LSP should have some good options when considering exit scenarios.
With that in mind, we asked: “what’s next for Capita TI?”
Kevin had this to say:
“Capita was acknowledged by Forbes as one of the world’s most innovative companies. Capita TI wants to lead innovation in the language industry and truly stand up to its credentials of being the language partner of choice for our customers.
We are continuously evolving and developing solutions for our customers, which allows us to both keep growing organically and also identify key acquisitions that will enhance our capability and capacity for the benefit of our customers.”
David James is Managing Director of Adaptive Business Group and focuses on M&A, assisting LSPs of all sizes in connecting with qualified buyers and sellers around the globe.
Kevin Gordon is Managing Director of Capita TI, one of the fastest-growing LSPs in the world and headquartered in the UK.
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