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Last week we received the following email from a potential customer. This is what he wrote: I hope that all is well. My name is Anthony and I lead our regulatory/compliance efforts at XYZ Parfums. We’re developing some new aftershave products, and need to have “aftershave” translated into a few different languages for packaging for …
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The Mergers and Acquisition (M&A) space in the translation industry is hot. It seems like every other day, a large LSP (Language Service Provider) is buying another translation or localization company. Here is an interesting page from Slator, a translation industry website, which lists M&A activity in the translation industry. Indeed, from perusing this page one can see that there is a merger nearly every week.
Why does M&A happen in the translation industry?
Profit margins are high in the translation industry. Which means that some LSPs have cash on hand which they can use to fuel purchases of other companies. And even if they don’t have cash, they can get funding from equity firms who are attracted by high fees for the M&A transaction. Buying an LSP makes sense as it serves as a quick path to growth and increasing market share. Vertical leaps can also be made if an LSP does not have a presence in a certain vertical, for example in the space of patent translation. So instead of creating a new department, hiring personnel, establishing accounts and and learning about the business, the LSP simply buys a suitable company for an instant foothold. M&A in the translation industry is by no means limited to acquisition of a translation company. LSPs have been known to buy technology companies (like machine translation companies or CAT tool developers) or digital marketing companies as a way of diversifying their business.
How much is your translation company worth?
PrepareACompanyForSale.com has created a tool to give translation business owners an idea if their business would attract significant interest or if they need to make some adjustments before selling. Click here to get your score and start the process of estimating the worth of your business.
Of course, M&A is a long process with lots of due diligence required before the merger is made. But a price of 5 to 6 times the EBITDA seem to be the range in which translation companies are valued. Here is a web page that lists EBITDA multiples by industry.
Can you get rich by selling your translation business?
The short answer is: yes. If you are already rich to start with. The exits in the translation business are nowhere near the crazy levels that can be seen in the world of hi-tech. In the tech sector, a startup company valuation can be independent of the revenues or EBITDA. Anything goes and that’s why people like Mark Zuckerberg and Jeff Bezos are filthy rich. For example, Amazon was losing money for years before it started making a profit. But that didn’t stop if from having huge valuations on Wall Street-the market saw the potential and priced that into the stock.
But there is no translation industry “Facebook” that has the promise of changing the future. If you have an LSP that is not turning a handsome profit. forget about selling it. Buying a translation business has no dream factored into the price; it is a cut-and-dry business valuation which is handled by M&A professionals.
So. If you have a translation business that is selling a lot and making a lot of money, you can get a great price for selling your business. But then the question should be asked: if you are already making a bunch of money, then why sell your business?
How to sell your translation business?
If your business has been around for a number of years and is maintaining a reasonably high industry profile, you don’t have to do anything. You will get frequent emails or phone calls asking you if you are interested in selling your business. Or you will be approached at an industry conference. Here is an example of one such email:
I am trying to contact the ownership on behalf of our well-capitalized client who would be interested in talking with you on a confidential basis about the possible acquisition of your company. They are keenly interested in acquiring companies that would complement their existing strategy and from the public information we could find, we think that this is a good fit. They are ideally looking for opportunities between 2MM and 15MM in EBITDA but can go higher than this range depending on the opportunity.
So the answer to how to sell your translation business? is this: do nothing and wait for someone to contact you. That will give you better leverage and posturing for your potential sale.
Why do people sell their translation business?
Well we have already established that you can’t make a fortune by selling an translation business unless your business is a cash cow already (unlike in the tech startup sector). So what are other motivations? Retirement is one. If you have a translation business and your children are not involved, why not cash in and retire. Not everybody loves working and sometimes there are health issues involved. Or maybe you just want to stop working for whatever reason.
Another reason to consider selling a business is hitting the wall. Your business may have plateaued out and teaming up with another, larger company will move your business onward and upward. True you won’t be the owner anymore but you will enjoy seeing your company advance and may enjoy your job more. You may make more money if the company that acquired your company does very well and you become part of the senior management team. And you may enjoy a shared vision with the new ownership which will give you purpose in your new position.
What happens to the employees of an acquired LSP?
The rank-and-file usually just keep their job and continue working as usual. Company owners of the acquired firm either retire (after transitioning with the new ownership) or get a new position in the merged company.
What is a boutique translation company?
Here is an answer I found on Quora.
Boutique translation agencies are generally distinguished by their small size, specialised focus and flexibility. They work to a totally different business model than large multinational translation agencies, aiming to provide a superlative level of quality rather than endless quantity, and because of this they are highly focused on doing a great job and building their reputation by word-of-mouth.
Boutique translation agencies are usually the targets of translation industry M&A.
The bottom line
Selling your translation business can be a good option if it fits your career goals or retirement plans. If you like your business and are making good money, perhaps check this option again when you are ready to call it a day.