Localization M&A, Quo Vadis?

Max Morkovkin 00:00 I think we're all Wehrlein Fantasea seems like that. So, Rodrigo Christina group localization customer experience champion, it works. And I'm giving mic to you to introduce other panelists. Enjoy your time. And we're looking forward to a very nice discussion. Rodrigo Cristina 00:24 I'm sure. Thank you very much, Max. I'm sure we'll have a lot of fun here. So good morning. Well, warm, we warm greetings from from the south of the UK. I never, I never expect to see something like this. Because it's actually quite warm over here in close to new market. So good evening, good afternoon, or good morning, wherever you are. Hope you are having a fantastic time. And that you're making the best out of the, let's say Autumn Winter edition of luck from home. Well, not really winter, if you're tuning in from Thailand or the Dominican Republic, or Cape Verde, one of those exotic locations. Before we started this panel and customer introductions, let me congratulate SmartCAT steam for once again, putting together a high quality event. I think the topics the panelists, the presenters make this event A must not miss for localization industry aficionados. So a big shout out to Kate Max, the marketing team. And once again, I'm super glad to be here. It's all it's absolutely fantastic to be hosting again and to be part of the lock from home community. I think for me, it's more than just another localization event. It's it's an opportunity to share experiences, trends, knowledge within this closely knitted localization community, that lock from home brings together and I think what really makes it different from other events is how diverse it is. I think, lock from home brings together localization stakeholders from many different quadrants from linguists to clients, to language service providers to language technology providers, and we all come together in in harmony during 12 hours. Now without further ado, let me quickly introduce myself. For those who don't know me the panelists and the topic. My name is Rodrigo, Rodrigo, Kristina, and I help to connect people, products and services to the global marketplace. I work for T works, a global multilingual localization vendor with an extensive team of in house linguists, a singular value proposition and a very, very clear focus on localization outcome, not just on, on delivery, but you know, enough about about me, let me now introduce the true stars of the show our incredible panelists. I'll start by by Florian Florian phase, who in our industry hasn't heard or seen Florian in a panel or craftily interviewing glocalization leaders on Slater's podcast. So Florian is the managing director of Slater and host of the Slater pod podcast. Based in Zurich. He has spent almost two decades in Asia before launching Slagter in 2015. Slater is pretty much the most up to date source of news and analysis covering language services and language technology. Now, with such a busy schedule, he doesn't have a lot of time to practice one of his favorite activities, which means that he's still trying to do an ollie air with a skateboard in the mini ramp. Welcome, Florian. Great to have you today. And now Now for the sillies Vassilis homily, this director at alpha CRC. Before joining the globalization industry in 2005. Facilities worked in a number of international companies, including Procter and Gamble and lived in a multiple in multiple countries. Wassily is holds an MBA from Stanford University and is fluent in German, French, Italian, Greek and English was very well done bacillus at alpha facilities has managed its European offices and successfully completed several m&a projects for the company. A highly competitive table tennis player, but not as fast as he used to be. Facilities experience is a great addition to this panel. Welcome Vasilis and thank you very much for being here today. Pleasure to be here. Last but not least, Benedict creme. Benedict is is a colleague of mine and is T works corporate development and finance manager. Having worked for KPMG and Optus, who owns T works. He brings a wealth of experience in m&a transactions. Coming from a private equities, firm perspective, has been involved in some of the world's most notorious acquisitions. And I'm happy to say that is open minded approach has allowed him to blend in the language services industry and understand what makes us what makes us all tick. So welcome Benedictine, we are all looking forward to hearing your thoughts and exchanging some ideas that need to be. Thank you. So you probably thought that you would get rid of me by now. But no, I am now briefly introducing this session topic. So I'll start by sharing a few slides about private equity and a few concepts. But I promise I won't be boring. So let me just see if I can share my screen. So hopefully, do you see a black screen or a? Yeah, let me just see. Do you see a black screen? Okay. I think this is the right one. Yeah, I'm assuming you can all see everything that right. Yeah. Cool. Cool. Cool. Cool. So let me just put the slides up very quickly. Oops. Let me just see where I can change. The. So you're seeing the black screen, right. That was in the notes. Okay. Yeah. So there's no notes just trying to find okay. Florian Faes 06:57 Maybe I hide Presenter View? Yeah. Rodrigo Cristina 07:00 I don't know if can you see this now? Right. Well, Kate Vostokova 07:04 if you it's below, you need to go down. On the right. Yeah, here here. Yeah, correct. I think it's this one. No, it's not sorry. No, no, no. It's somewhere somewhere there. Rodrigo Cristina 07:19 I think it's hiding behind this. Let me just see. Click on these Kate Vostokova 07:29 places escape escape will be the best option to go out of here. Rodrigo Cristina 07:35 Yeah, you know what? Let's give it a go. Florian Faes 07:40 I think the book image, it's the presentation mode. Now it's reading somewhere that are Rodrigo Cristina 07:51 just trying to find out where display settings? Nope, this is not it? Not not? This is not it? Let me just give it a go. Because I can normally see it here. You know, I can normally see it here. But the problem is that this is if I can hide this panel. Well, doesn't matter. Anyway, it's I think we'll have to do it. You can see the presentation, right? Can you see at least the the Kate Vostokova 08:24 presentation mode, but we can say yeah, Rodrigo Cristina 08:26 that's fine, we'll have to do it, we'll have to do it. So I think the idea behind private equity or behind this particular set of slides, which is are just too is to, you know, for people that are listening and seeing us to understand what private equities so private equity is a relatively simple business, where a fund buys a stake or shares in a company typically, in our industry, typically majority, but it can be a minority share. And the difference between minority and majority is related to the control that the private equity fund exerts on the company that they buy. So the idea behind it is very, very simple. It's almost like refurbishing your house and selling it for a higher price than you acquired it initially. So the difference is that there is a limited period of time typically associated to this sort of transactions. One thing that's quite important to mention is that private equity funds typically require investors to commit their their funds or their capital for a relatively long period of time. And that means that private equities, investment policy or strategy is typically the medium to long run or long term one. There are a few characteristics that I think define private equity investments quite Well, typically, private equity goes for private companies rather than publicly traded companies. There is a high degree of unpredictability in terms of the cash flows generated from their investments in a nutshell, nobody knows how well will the companies perform throughout the period, while they're owned by a private equity fund. And typically, the private equity firms control the management of the companies in which they invest. And in some cases, they often bring new management teams in our industry to be very honest, that's not typically the case, we tend to keep for a relatively long period of time existing management teams that have been managing that language service provider for for a number of years. I think it's also important to understand what type of strategy private equity firms adopt whenever they get into localization industry. So typically a development or buying build, like the name itself, transpires The idea is to develop certain areas of the company that are might not be optimized, and therefore maximizing the value of the company at a posterior sale at the ulterior sale or subsequent sale. So typically, the private equity companies that are in present in our localization industry are aiming to target companies, which are already mature, that have stability in their growth rates. Some may argue that they're stagnant, they're growing, but they're stagnant. So they have they're not an on a on a incredibly fast growing rate. As in the first bullet point, that these are established companies with typically strong cash flow, which means strong financials and a decent local market share. And I think this is not necessarily something that private equity is looking for. But it's a consequence of the type of company fabric or company profile that we have in our industry. Typically, the target companies are usually family owned businesses that require a improvement in some weak corporate areas, or, you know, some strategic areas. So in a nutshell, this is what private equity looks like in our industry. I am going to stop sharing. And let me just see if now. Yeah, okay, cool. Cool. Cool. Cool. Cool. I think we're ready to start the panel. I hope you found the introductory slides, quite useful. And I think it's a good starting point to understand the big data behind all of this recent merger and acquisition transaction. So over the last year, we've seen all sorts of operations in small medium sized large, I mean, large Argos and Vanguard global is the most recent example, an extra large part of the left NSDL and lately at transperfect, and semantics. So I guess the question is, what got us here. I will pass now, the ball to to Florian, because I'm sure that everybody is a bit curious to understand what the Slater's data show about frequency transactions deal size over the last few years. So the floor is yours. Floor. Yeah. Thanks for your thanks. Florian Faes 14:04 Yeah. So maybe for context, also, why are we talking about private equity in the industry? Because if you look at the ranking, I mean, you got to get our rankings are listed, but NIMS is you got CSAs, if you look at all of the top companies that are there, you know, top 20, top 30 You probably have 50% of them being actually owned by private equity. Right. I mean, just to give you some of the top companies here that are owned by private equity is Lionbridge. Right is sometimes you forget, we localize is also still owned by private equity. From the media space, you have a you know, a, you know, the big media localization company and the more recently is language wire, right, that could go on. So that's why we're, you know, wanted to introduce the concept of private equity here because they are actually one of the driving forces behind a lot of these mergers and acquisitions. You know, m&a in short And I mean, they're doing this because it's, it's hard to grow organically, of course in this industry, right? I mean, you you want to grow and you have to grow. But in order for you to do that, you know, double your size, you can't do overnight, because it's quite a mature industry. So that's where I think private equity fits in here. And they've, you know, they've done well, I mean, personally, my previous role, and before I started, Slater was part of a company called CLS, and we were owned by private equity, they came in in 2009, helped a lot went to the board, you know, brought in a lot of outside expertise helped us buy companies, typically, maybe if, if you're looking for the outside, some people have like, expect, kind of the perception that private equity may not be good, but actually, for most of the firms in this industry, they've been quite quite good. I gotta say. So that's just a quick aside data. Okay, you asked about data. So we went digging. And we do publish an m&a m&a report every every year, that's largely based on the coverage of these acquisitions, and also startup funding that we do throughout the year. So the data I'm going to kind of mention now is based on acquisitions recovered, not every single acquisition, that's, that's out there, because there's a lot of also small transactions, that actually kind of hard to know, sometimes, if the owners don't want to disclose we will come across them. So we started tracking this in 2017. And there we had 38 acquisitions that we covered. We didn't count funding rounds at the time. So that's more kind of venture funding 2018, we had 48 and 10, funding rounds, funding, again, being kind of startup environment 2019, we went up to 60, individual ones 2020 dropped to 39 and 13 funding rounds, and then the year today, we already have 54, probably 56 by now. So we're probably going to end the year at an all time high, at least in terms of transactions that Slater covered, right. And I think the slight dip in 2020 was mostly through to that just one quarter that was just like everybody's staring at screen blank. And you know, like March, April, May like okay, what's gonna go on here in the future? Are we still going to do anything in the industry at all. So that's probably why there was a slight drop, but very, very active this year, incredibly active. In terms of that you also asked about the size of the deals, very hard to average this out, because you have a transaction like the one you mentioned before, on AWS buying STL, right? If you kind of average this out, and that deal happens in one year, then of course, all your average is going to be it's going to be toast. So but you know, typically you have a lot of activity in the mid market, you know, the five to $50 million market, that's where a lot of the individual transaction happens. And maybe if I may, Rodrigo can just tell a bit more about the top deals this year if we have time. So you mentioned the Argos buying venga that was very recent. Bangor global, you had transperfect Buying semantics, all of a sudden, they're becoming like the biggest player in the Nordics. Getting a top in entering the language industry, maybe some people don't know top end, but they're a huge printing provider printing conglomerate in Japan. And they've decided they're going to enter the language industry. And they bought a company in the UK called Global lexicon. But that's just the first of many investments they're going to do that in language wire got a huge investment from a private equity firm. And I use the media became the largest media localizer by buying SDI. That's also been outset the core localization space as we understand it, but in dubbing and subtitling this was a huge or is still a huge deal. So now by far the dominant player, separate tech, the Spanish company got in private equity owner and motion point that the web proxy tech and services provider in Florida they got investment from a PE firm called LiveView. And then, one thing that's maybe relevant for this call on zum zum bot, the German machine translation startup called tights. So that's more the Tech Buys tech, but still still relevant here. So yeah, I mean, a lot of activity, a lot of also consolidation. Again, even though if you count all these transactions, and we've had 200 transactions now since we started, which later even more now, and I mean, the the industry is still somewhat similar fragment, but still it's slowly slowly getting consolidated. And and yeah, I don't know if you want me to talk about a lot of that kms deals as well. I don't know how we are in time, but maybe one other thing you know, you got STM, you got memstore spine phrase, you got a cross being acquired by a private equity fund ex TRF. Now having the same owner as STM, and then of course in 2020. He also had SmartCAT getting some funding. So So yeah, I mean, that's One thing we didn't see before, so in 2020, and 2021, especially the TMS part, the capital, the TMS space was super active. A lot of investors going in there. So we never saw that before. And, and yeah, I think we're gonna hit an all time high in 2021 in terms of transaction count. So that's the quick summary. Without slides. That's great. Rodrigo Cristina 20:23 Yeah, thank you. Thank you. And I'll remind myself not to bring ever again, PowerPoint slides to, to a lot on panel. One quick, or let's say, let's, let's, let's pass on the ball now to facilities and Benedict, I would absolutely love to hear their opinion about what's behind this surge in m&a transactions that, according to what you just depicted, has been rapidly growing or steadily growing, I would say year on year on, is it just that our industry's growth stability? is a factor plays a decisive factor? Or are there any other attractiveness factors, pulling investors into, into localization facilities, I can start, I can start by you. Vassilis Chamalidis 21:20 Well, there are a number of factors, I believe. It's a fragmented industry, even a highly fragmented industry, there are 1000s and 1000s, of localization and translation firms and media firms around the world, the average size of these firms is rather small. And yet, there are big buyers of localization products and services. And they expect their suppliers to be not equally big, but to be of a certain size to be reliable to financial stability, etc. So, you know, for anyone in this industry, it is important to reach a certain size. And as you pointed out earlier, just by organic growth takes an awful long time, if you ever make it. So a rather a quick way of achieving that critical size is by buying other companies. So the the fact that it's so fragmented is very important. And also, it's a growing market, it has been growing for many years. And as an investor looking for growing markets, while there are not that many growing industries around, and it's been stable and growing, and therefore it's of particular interest to investors. It's also now a time when private equity in has been investing in this market. And more and more PE firms have observed this, and so are drawn to this, I believe, we localize had been investment a long time ago. But now it's, you know, there are many PE firms who invest in the localization space. And finally, I also think that the presence of technology is the driving factor. The fact that technology plays a major role in our services, and an ever increasing role. Well, technology companies tend to be valued a lot. And the fact that there is technology will drive interest in this industry. So it's not just one one reason I think that there are several reasons for for disinterest in this industry. Rodrigo Cristina 23:39 How about yourself Benedict, you share the same views or Benedikt Grimm 23:43 you guys? Exactly, especially I think that technology aspect is very important. We talk about Mt for, for example, or other technology in use, the business is getting more scalable, or with the use of technology. And the bigger you are doesn't necessarily require more investments in people or infrastructure, but just with the right tools in place, or technology infrastructure, the business gets more attractive, so to speak, in my sentence. Rodrigo Cristina 24:25 Okay, thank you, Florian, your take on this because you have access to quite a lot of data and you can potentially identify also some trends that we might not be aware of. Florian Faes 24:43 I mean, there's Okay, let me let me just mention, well, not that you're not aware of, I mean, one trend or a kind of macro factor is that maybe only kind of 12 months old, it's like a lot of money out there, printed by the central banks, right. So and that flows into, you know, Get into various vehicles and find a nice home, it's a home where returns can be made. And as as silly said, you know, we were in a growth industry not like hyper growth, but you know, it's it's been it's been good steady growth. We also measured that which later over the past, you know, few years and and that that's where you know you want to put your money that's number one and kind of more the macro level with Benedict said in terms of technology is true too. I think maybe four or five years ago investors were more critical, or more maybe skeptical about the longevity of the language industry right there would tell me like, hey, you know, it's the usual like, doesn't Google kind of do this in four or five years from now and you know, this whole thing is gonna get replaced? I don't hear these questions that much anymore. Right now, I think a lot of people start to realize that we're in this what used to be called kind of AI agency model, we had an investor VC at our San Francisco conference, Tom tomboyish. And he coined that term called AI agency where, you know, you take some of these AI advances, but you're still requiring that expert in the loop to kind of put that final touch on top of it. Because everything that can be automated, I mean, largely, not everything. But there's been a lot of automation already over the past five years, right. So what we're doing right now is really putting that finish on top. And that's an attractive model it the language industry is really far ahead. When it comes to adopting AI at large scale. I think sometimes we don't really realize this, I mean, which other industry, you know, uses AI eight hours a day as translators do. I mean, if you do post editing, are you interacting with a smart kettle, right? So I think people are starting to realize, well, we're kind of ahead of the curve here. A lot of the other industries would need to catch up to get to us. And that's a good place to be. So we're kind of past that first disruption scare. And that attracts investment. Rodrigo Cristina 26:59 Now we are new. Yeah. Well, at least not presenting PowerPoint anymore. So we're happy for that. Very well. Next question, I think, to get to different perspectives. And this is more, you know, for Vassilis and Benedict, I think you've been involved in acquisitions from slightly different perspectives, one representing a privately owned LSP office CRC and the other Benedict representing two works, a private equity owned Language Services Group. I would love to hear what does a the ideal profile of an acquisition look like? And the size matter when you're looking at a company valuation? We can start by Benedict design. Benedikt Grimm 28:01 Actually, totally take your second question first. So as Florian and also you mentioned that there have been many large deals or mega deals, so to speak. And from my point of view, some of the potential sellers would like to have to this kind of valuation for their significantly smaller businesses, which sometimes make it hard from a negotiation point of view. So, yes, size does matter. The same goes for technology and infrastructure. So those are the two key components when it comes to valuation. And the other thing is going to your first question, so why we are a private equity backed, we still act as a strategic buyer, so to speak. We have our portfolio with our affiliate companies with their specific specialities and verticals. And we look at our portfolio and think what would could help our portfolio and where some synergies we, we might use, and this is the first question really like strategical or operational one. And the second one, still very important is the financials, obviously. And this in, I would like, love to see Facilis take on this, if there are any differences. Yeah, but this is how we approach a deal so to speak. Vassilis Chamalidis 29:38 Yeah, I think the number one trigger of interest for us is if there is a possibility to add something to our service and capabilities range, something that the market is screaming for, or something that would make us put us in a pool decision of competing in the new market or in the new vertical, or when we can see that clients are clearly asking for it. So 10 years ago, we acquired a functional testing company, because one of our large clients made it clear that, that there was something they really wanted. We have just acquired this year a recording studio, because we, we just have seen a tremendous rise in media localization, even outside of the very big firms. And so rather than having to look for yet another supplier of, of audio and video services, we went and found a studio that that we acquired, it's really either a an extension of our service range, or in some cases, it can be also a geographical question. There might be some key markets, where we feel that we need to be present with more just our offices that are outside of the country. And in order to penetrate that market more quickly and better, we might be tempted to go into by a company in that territory. And the another element that's really important is the the management team in the target company. While sometimes you can function without an existing management team, a lot of times there is a need for transition and stability. So you need that management team for for some time. But even more crucial, any, any organization needs to constantly attract talents, and you, you will find talent in those management teams that can be become part of your own organization, eventually, I mean, myself, I joined alpha, when the company I was mentioning at that time, which was called Lincoln, it was acquired by alpha. And so it's a typical example of how you can use leverage management to drive a bigger company. So I think all of these things are are important. But the compatibility to work with the management team is a key criterion when it comes to deciding whether you want to make an offer for a company and then then acquire it. That is a Rodrigo Cristina 32:37 very good point. And a really good segue for my next question. We talk about corporate culture. Every time we talk about m&a, and, you know, localization industries is you know, not not not we don't we shouldn't be talking about anything else. But corporate culture. When it comes to potentially pairing two companies together, would you ever dismiss a fantastically beautiful acquisition on paper? Because of corporate culture? Benedicts or facilities? And then I'll have Florian Benedikt Grimm 33:20 it's a difficult question, I'd say because during the process, you usually have a contract with the management team or the sellers, select shareholders, for example, and maybe one or two leads or team leads. So it's hard to find out how their culture really is. Having said that, it is a key factor when thinking about integration and integration doesn't necessarily mean yeah, just or it means working together as a group for how we do it. And during our screening process, we identify areas of collaboration where it would make sense to have a more integrated view on things. But the still is, it's hard to judge a no bacillus, maybe you can give us some pointers there. But the outside view makes it really hard, but it is an important factor. Vassilis Chamalidis 34:20 But it is really tough to predict how easy it will be to integrate another organization or to live alongside because sometimes you might choose not to proceed with integration, just because just because you acquire a company, you don't necessarily need to integrate it or at least not right away. So you can live let the company live for a while if they have a very different model that's very successful. I mean, just take an example from another industry company like L'Oreal, which has competing shampoo brands, but they're allowed to do whatever they If you listen to this, right, so it's value creation through competition, internal competition. But I can give you an example of, to respond to a griegos question of a deal that didn't happen because of corporate culture, and then did happen, despite corporate culture. We, we looked at the company many years ago, and decided not to acquire it, because we didn't feel that it was the optimal acquisition target because of corporate culture, then that company didn't, didn't get sold, and it came back on the market. And we decided to make an offer at a much reduced value, because of that corporate culture issue. And, you know, by by chance, maybe we ended up buying that company. So, as always in business, there is, I think there is a value at which you can make a deal. Taking into account this counts for, for multiple reasons. And corporate culture can be one of those reasons. Or it can be that there is a part of that organization, that's of no interest to you, although it's very, it seems very valuable to the current owner, owners. So, but there comes a time when the price is right for everyone, and then you make a deal. Rodrigo Cristina 36:25 So every transaction has its optimal price. That's basically the good old Marshall cross where supply meets demand. That's it. At the right price. Florian, how about yourself? What's your take, in terms of corporate culture, given the amount of data that you possess? Have you encountered any or heard any whisper of something that hasn't moved ahead because of incompatibility? Florian Faes 36:54 Well, that's the proving a negative, right, that's hard. But definitely a lot of deals. I mean, most deals, don't go ahead, because it doesn't work, basically, right, the ones that you see happening, hopefully, at least at the time of like signing, that the stars did align for one way, one way or the other. Right, I think, you know, in the, in the language industry, it's hard. There's so many different models, you got like tech driven companies that are really proud of their system, that they want everybody to use this system, because, you know, they've developed it for 10 years. And then there's other companies, they're like, Well, you know, I'll take 20 TMS is I'll work with whatever the client wants me to work with. Or then you have, you know, very kind of product focused companies, and then companies that just take on or LSPs to take on any kind of project, you know, no matter what the salesperson brings in and get a little bit distracted. So you have all of these different cultures, and it's hard, it is really hard to merge, I think I really would recommend everybody to very carefully look at this type of fit. Also, notice that the financials because, you know, I think I'm not it's not a secret here, but we CLS was, was acquired by Lyon bridge. And when we spoke to the, their, their CEO at the time of purchase, he also told me, you know, it took them about 10 years to integrate bound maybe for some of the veterans in the industry, they still remember bound, bound and Lionbridge. That was basically two parallel companies for almost a decade. Right. So it's hard, it's hard to do that. Rodrigo Cristina 38:19 Thank you. Thank you. Thank you for your, for your three very wise opinions about it. I think we've talked about past and present trends in our industry when it comes to mergers and acquisitions. But I think the future still seems bright for investing in our industry. But I would like to ask the three of you if you feel that we are more on the stage of an industry consolidation, or if you feel that acquisitions will be happening at the same rhythm, are we don't we have any more to acquire? That's probably the question. I can start by by bacillus this time. And then I'll pass it to Benedict, because I know that we're super super, super keen on sharing some takes on on the strategy behind the merger and acquisitions from from each of the companies. Vassilis Chamalidis 39:24 While it's quite obvious that there are still 1000s and 1000s of companies that remain to be acquired, if the wish to be acquired, and we have done quite a bit of work on the UK market of translation localization firms on the lower end of the scale spectrum, and it has proven to be far more difficult to attract interest from current owners than you might imagine. Not only it's a question of interest, but um but it's also the case that sometimes the expectations of these owners are disjointed with market realities. As Benedict's mentioned earlier, you hear you read about these valuations of these larger deals, and then everyone thinks that they will apply the same sort of multiple to their earnings or to their revenue. And surprise, surprise, well, that's not quite it, because let's not forget that if you want to add, you know, $10 million, or whatever to your revenue, well, you either acquire one $10 million company, or 10 times 1 million, but to do 10 deals takes an awful lot longer and more energy than to do just one deal. So there is a reason why larger deals carry higher valuations. Not only for that reason, but that's an example. So I think that on the lower end of the spectrum, there's still a lot of potential for, for acquisitions. And consolidation happens through acquisition, basically. And I'm sure that this will continue on on the other on the top end. Now, the this, this dozens and dozens, dozens of fields, in recent years at Florin mentioned, have also led to a situation where the the middle of the market has been sort of emptied. to certain extent, there are far fewer companies in let's say, the 10 to $15 million range than a few years ago. So we might have to wait for a little while before that market segment gets replenished. So but I still expect investors who right now have plenty of money to invest to pour into the market. I don't think that's over. And the very large companies will try to get even bigger. Florian Faes 42:07 Thank you facilities, Benedict. Benedikt Grimm 42:09 Yeah. So I mean, personally touched on this. When you look at the Slater report, or the rankings, you find the top agencies, which have been very active in m&a acquiring same sized or smaller ones. But as a result, the segment between like 50 and 10 or $15 million in revenues, is shrinking, it might be interesting for the slide up bigger wants to invest in those at a moment or in the next couple of years. Goes to the smaller ones are, it's it's a lot of work. Because they're obviously usually your owner driven, and you have a lot more to do for the transition, as was established, well, well run organization that you can somewhat leave alone for a bit. Because the there are some processes in place that still will be running, even though the shareholder has changed while the owner driven model so to speak, who's the motivator, salesperson, finance guy? It's tough to motivate them after a deal. So I think that the middle market is interesting. But as you said, there are plenty of smaller ones to be acquired. Rodrigo Cristina 43:47 About Yourself, Florian, what does data show? Florian Faes 43:51 Well, I can't do the data in the future, though. That's that's projections. But yeah, I concur. I don't see. I wouldn't, I wouldn't. I wouldn't be surprised if we saw more transactions in 2022 than we saw this year. So if we let's say we saw 120 that we cover like a doubling. I doubt we're going to see that. But I don't see a big slowdown either. I mean, there's so much activity going on. Right now. There's some bigger kind of fund exits, somehow happening, hopefully, or not, hopefully, but I guess in 2022. Now, when citizen was right, in terms of like it's still fragmented, but let me also put a counterpoint to that, that if you actually look at the particular niches or geographies there is you're starting to see some consolidation, like if you're looking for, like a specialist in a particular vertical on a particular in a particular region. There's not 500 vendors that are there and you can just choose from a menu of 500. So if you look at on an on an individual, vertical or niche level, actually we're starting to see a bit of consolidation And already, and that was maybe a little bit different five years ago, so, so yeah, I concur. It's getting harder to buy that 25 million, 5 million EBIT, like revenue and 5 million EBIT, up hurl. That's probably going to be harder and harder. But yeah, if you go to the very tough guys are the lower market, there's, you know, a lot of choice the left. Rodrigo Cristina 45:23 Thank you. Thank you very, very much, Florian, for your input. Before we start the q&a. I have a final question. For Benedict and facilities. You know, one question that keeps on popping, in my mind is, how do you guys deal with the emotional aspect of the acquisition? How do you align the expectations of a translation business owner that in many cases, has owned the business for 20 years, 30 years 2515 10. With the hard facts that transpire from analyzing a company's numbers and financials in the fundamentals? How do you deal with that? You walk out, you try? Benedikt Grimm 46:12 not specific to the LSP. Sector. Rather, it's it's common with every business, so to speak. But But yeah, sometimes it's hard. But still part of the job? I'd say, actually, I think you would agree. Because we manage or the the money of the fund or the investors and we're not willing to overpay, even the sellers is nice. So tough, but tough enough? I think it's the right approach. Rodrigo Cristina 46:58 About Yourself facilities, what do you do in this case, when your expectation doesn't meet? Or is really really far, because one thing is to be close? And, you know, everybody can get closer, but I'm sure that you've walked away with some Vassilis Chamalidis 47:14 was most definitely and over the years, I've come to the realization that the earlier you ask the question of of expected expected value, the easier it gets to avoid spending too much time on both sides, talking about the beautiful deal, it will never be made. So I think it's really important to clarify that right from the beginning, what the expectation is on both sides, and whether those two values are close enough that they can be bridged. Sometimes it's a matter of, of understanding as well, you know, it's, you need to invest some time to explain things and figures, to to the owner, and make them see why it might be of interest for them to continue to envision a deal. But, you know, the last year there was someone with a 1 million pound business, who told me that they expected to sell the business for 2 million. And well said, Okay, fair enough, but it will be someone else to buy it. And we walked away from that. And I'm sure there's someone who might be interested in that business, the price, but if you can't make that work for your own organization, then of course, you walk away, but emotion is extremely present. And actually, the smaller the target company, the higher the probability that there will be emotion and emotional reactions, because let's not forget that a lot of people who set up a business, develop the business and for them, it's their life, basically, that they put on the table. And we have to respect them for that and treat them fairly and with the due respect. But at the end of the day, we can only offer what we believe is the right value for us. So I think that at the end, they understand that and the deals get done because there is a bridge that gets built between the two parties and they they get to a satisfactory outcome. Rodrigo Cristina 49:43 Thank you. Really, really useful, Florian. Florian Faes 49:50 Yeah, I think I'll defer to my co panelists here on that metric, right. So yeah. Cool. Let me Maybe there's some some q&a. Rodrigo Cristina 50:02 Yeah, there is there. Yeah. Yeah. There is. So we have a question by Katherine by Katherine bossman Hello Catherine how is the valuation of LSPs being established beyond the current profitability and the fundamentals of the company these days, overall brand equity is also determined by things like employer brand value environmental, social, government, governance targets, etc. are these are we looking at these I mean, we by we I mean, Benedict and and facilities, are you looking at this whenever you are establishing the valuation for a company? But the list Vassilis Chamalidis 51:03 went on? Yeah, no, I will be honest that those things are more of a encouragement. Good to know. And, you know, we will take that, but they do not represent the core value of the business. The core value is the presence with clients, the history of the business and the quality of the management. You can have any ISO certification you want, you can have any environmental credentials you want. If you can't demonstrate that you work successfully with clients, and they buy your services, they might buy your services, because you're ISO certified or for any other reason. So, you know, the, it's not at the core of the valuation, I think we're still at the stage where valuations are largely done on multiples of EBITDA, sometimes revenue, and there are some businesses that are not profitable. So you have to find other metrics. But I would say that that's not at least not yet. Part of the valuation model. Nothing to achieve. Florian Faes 52:29 Maybe I can say a few words here as well. I mean, yeah, I would totally agree with Suez. I mean, I think multiple of EBITA is really the the standard, as far as I see in the industry, and as a facility said, If there isn't a way better and gets really hard, very quick. And also, when you look at sometimes this account composition, like client mix, right? I mean, if you have two accounts that make up 80% of your revenue, it gets risky quite quickly. So you discount that proprietary technology, it's kind of can be, can be a blessing can also be a curse. I mean, if you're looking at a buyer that says, well, we got our own technology, we don't really like you know, care about your 12 years of development into your own platform, which, you know, the, the sellers thinks it's the greatest thing on earth, but then for a buyer, they're like, Well, we're kind of want you to move to our platform now. So you know, there, it can be great if you find the right buyer, but it can be almost a deal killer if you have the wrong buyer. And then you also can look at the nature of the revenue, right? Sometimes it's how recurring is if you have a high cost of sales, you keep having to acquire these accounts, or is it kind of almost an autopilot? Big kind of master services agreement? So but yeah, kind of the more softer side, like like certain certifications, or kind of like team dynamics, things like that, that maybe goes back to the culture discussion we had, right? Would it be a fit? If you have a hard driving sales org and this kind of more softer or that kind of likes to go and no do like monthly team meetings or something, then it might not be a cultural fit. Thank you. Rodrigo Cristina 54:09 Thanks very much. The three of the three of you I have one more question on the q&a. I think we've we've sort of touched that particular point just now. Yan enrich from the Luger asks, What is your preferred model to calculate the value of the company? The C discounted cash flow, it'd be the multiples I think we've all pretty much answered that. I think it's the it'd be multiples. And back in the days when I studied this, I used to do free cash flow for the firm, free cash flow for equity multiples, etc. But I don't see that used in localization industry. Why? Benedict Vasilis Florian, Benedikt Grimm 54:57 do you need a lot of information or I'm gonna drift into a finance lecture here. So if it's multiple is, it's fairly easy to compute, it's one figure multiplied by another one, and another one is market driven. And the other one is given from the company you want to acquire. And that's more or less the easy rule of thumb. Vassilis Chamalidis 55:28 Yeah. And discounted cash flow has to be computed over quite a few years. And the contracts in this industry are typically not very long. And so it's more difficult to make such as assumptions. And so I think in now, it's in everyone's interest to find a, a formula that that's transparent and works. I have seen in the chat room, there was a question about whether it's a good idea to have a go to advisor to facilitate a transaction. And I just wanted to quickly comment on that, because I think that's an extremely helpful mechanism, because an advisor will take out some of the emotional aspects that we talked about, and will advise the client in you know, from from a market perspective if they have done deals in this industry before. So I think that's a pretty good idea if one can get to that point. Very cool. Rodrigo Cristina 56:41 I don't think we have any more questions. I am we are on top of the hour, I think. Right, Max? Yeah. Max Morkovkin 56:49 Very good timing. Thank you very much. Perfect, perfect. Next Rodrigo Cristina 56:53 time you need to put the Oscars music you know. Max Morkovkin 57:01 Okay, for now, you have me, Rodrigo, thank you very much for moderating this panel discussion. Florian Vasilis. Benedict, thank you for joining it and sharing your insightful thoughts.