Language Services: Investment opportunities in a highly fragmented market
We are seeing lots of interest from private equity in language service providers (LSPs); potential investors are clearly attracted by growing demand, an abundance of buy-and-build opportunities, potential for service line expansion and a global supply of linguists that is largely underutilised.
Here are some questions we have helped investors answer in recent deals…
What is driving growth in translation and interpretation markets?
Globalisation is a key driver for LSPs; the world is increasingly connected through digitisation and internet access; more consumers around the globe have access to products and services from international markets and translation requirements are growing alongside this trend.
Although there are many similarities, there are clear differences between the interpretation and the translation markets in the UK, because 80% of interpreting revenue is generated from the public sector. A trend towards outsourcing by government agencies is driving growth for interpretation focussed LSPs, with the market being continually professionalised.
What threats and opportunities are posed by technology?
The threats posed by technology in replacing humans is considered very low. Many additional technological steps would be required for machine translation algorithms to surpass humans (particularly for complex languages). However, machine translation can be used as a helpful productivity tool, allowing translation businesses to deliver higher volumes of work.
Interpretation players are also seeing the benefits of a switch to remote delivery (which accelerated following the pandemic). Increased efficiency of resources, ease of booking and reduced travel costs are attractive when compared to face-to-face interpretation. Businesses that already had telephone and video capabilities in place before COVID were able to adapt quickly and had a competitive advantage during the crisis.
How can businesses accelerate organic growth?
It can be difficult for translation businesses to differentiate from the outside in – strong search engine optimisation (SEO) and customer relationship management (CRM) strategies are therefore vital for maximising organic growth. SEO is very important for brand awareness and onboarding customers, but LSPs can lose out by failing to capitalise on the total opportunity (including winning additional projects and cross-selling); sharing newsletters and regular communication with customers can help to maximise revenue.
Given the fragmented market, what considerations should be made when it comes to M&A?
M&A can be used to enter new markets, gain market share in existing markets, or acquire new capabilities. Opportunities are plentiful given the highly fragmented market and recent surveys suggest many management teams would be open to investment. Whilst there are many reasons players wish to acquire other LSPs; entry into new markets, unlocking technology and quickly increasing headcount appears to be the key motivation.
Please get in touch to discuss opportunities in the language services sector.
Jack HibbsEmail Jack