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Market Disruption Drives Business Consolidation in Language Services

Several years ago, businesses began embracing an idea that traditionally signaled a problem or nuisance: disruption. Specifically, market or industry disruption. Depending on which side of the disruption companies are on—causing it or watching their competitors cause it—disruption either helps CEOs sleep peacefully at night or it haunts their nightmares.

The desire to become an industry disruptor is often a catalyst for business consolidation. If a company can add strategic customers or partners, new regions, or cutting-edge products to their portfolios, then it has the opportunity to gain market share, expand brand awareness, and diversify its business.

Yet the language services industry remains fragmented and continues to evolve. The result of its evolution will inevitably affect the services that enable companies to operate internationally.
The Firm has seen businesses in nearly every industry seek out consolidation in nearly every industry. One industry in particular stands out in our portfolio, though: language services. Since March 2017, we’ve helped four language services businesses transition to new owners, and we currently have two such companies in our portfolio. And, in most cases, we’ve seen market disruption driving business consolidation in the language services industry.

Business Consolidation in Today’s Economy
Globalization in business has driven the need for language services, such as translation, interpretation, and localization. Worldwide, language services is a $46.5 billion industry, but, even after two decades of steady consolidation, the industry remains fragmented.

Businesses have consolidated for hundreds of years, and the ebb and flow of consolidation follows economic booms and busts. A significant number of the world’s largest companies grew through mergers, acquisitions, and divestitures (MA&Ds). We’ve seen consolidation in every industry, from financial institutions and transportation companies to hospitals and tech companies. In the language services industry, we typically see the following drivers for consolidation:

• Improvement of market efficiency

• Acquirement or development of better technology

• Expansion of service offerings

• Extension of global footprint

Yet the language services industry remains fragmented and continues to evolve. The result of its evolution will inevitably affect the services that enable companies to operate internationally.

Since 2015, we’ve seen the merger and acquisition of many smaller companies into a few much larger ones, and this has been true in the language services industry. Furthermore, the market is primed for business consolidation to continue throughout 2019. In fact, according to a June 2018 survey conducted by Chief Executive magazine and Tata Consultancy Services, 72 percent of U.S.-based CEOs said they were considering MA&D within the next three years.

Last year, U.S. companies took 44 percent of the total MA&D deal dollar value. According to Dealogic, which provides data to the financial industry, nine of the $10 billion-plus deals announced last year involved U.S. companies, and the United Kingdom and China won their strongest share of the deal market since 2008.


What Can Your Business Gain From Consolidation?
Is consolidation right for your company? Chief Executive magazine’s June 2018 survey also revealed the following drivers for CEOs considering business consolidation:

1. Acquirement of new products, services, or capabilities

2. Expansion of the company’s footprint by entering new markets or industries

3. Creation of new business models

When consolidation works, companies can expand their reach and leverage existing customer bases to grow new business. If a language services or other type of company acquires or merges with a smaller competitor, the resulting entity can eliminate a competitor, inherit the competitor’s portfolio of clients and industry partners, and diversify its offerings.

A caveat to consolidation, however, is that business owners must consider differences between their corporate culture and that of the companies they acquire. A dramatic difference in corporate cultures can make consolidation more complex.

Still, the advantages of consolidation are compelling, and businesses in every industry are using it to disrupt and dominate their markets in three strategic ways:

1. Consolidated business can obtain lower interest rates if the consolidated entity is more stable and profitable with additional assets.

2. Larger businesses can buy more units from suppliers, so they can negotiate better costs and terms.

3. Business consolidation can increase market share, expand the product lineup, extend geographical reach. All of these results work together to create new revenue streams.


The following are secondary reasons for businesses to embrace consolidation:

• Strengthening the brand’s position in the marketplace

• Adding new or strategic clients to the company’s portfolio

• Attracting new partnerships with industry suppliers and vendors

• Acquiring industry knowledge and business intelligence

• Gaining access to new technologies

• Tapping into a new talent pool and attract new skilled talent

• Reducing competition

• Stimulating organic growth

• Taking advantage of high stock prices and low interest rates

• Improving operating efficiency and reduce costs (synergy)

As the demand for language services increases year over year, The Firm expects buyer needs to drive further consolidation. And as industry technology improves and becomes faster and more efficient, it will have enormous bearing on which companies come out on top to dominate the market.

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The Firm makes no warranties or representation in consideration to the information provided above. All communication regarding this business must occur directly with The Firm Advisors, LLC. The Firm is not a real estate brokerage and does not sell real estate. The Firm solely advises on exit strategy.