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TELUS International announced that it would buy Lionbridge’s artificial intelligence business unit in a deal worth US$935 million that is expected to close by December 31st. Let’s first explain what Lionbridge AI does, review the deal, analyze what it means to the language services and technology sector, and show what it represents to investors. Here’s a quick synopsis: Lionbridge’s private equity investor will sell a non-core business unit for a sizeable return on its 2017 purchase price, thus allowing it to position the core language service business as a pureplay LSP - and maximize the value of its remaining asset in one of several ways.
Lionbridge AI is a business unit of Lionbridge Technologies (#2 in CSA Research’s 2020 global list of leading LSPs) that processes multilingual data used in training artificial intelligence algorithms – that is, human-annotated data for text (for example, semantic, sentiment, intent, named entities like places, company names, and phone numbers), images (captions, keywords), audio (transcription and time stamps), videos (outlining objects – think of the incessant reCAPTCHA challenges to prove you’re not a robot). “Processing” takes a variety of forms. For example, Lionbridge AI collects or receives client data, organizes it, and enriches it. In other cases, it tests AI algorithms and give scores for relevance and accuracy. In the course of delivering any of these services, the company creates, transforms, and tests data – with humans in the loop. Lionbridge AI does this for 200+ languages and dialects, using a proprietary data annotation platform. Its main competitor is Appen (#6 on our 2020 Top 10 list). Smaller hyper-specialized LSPs such as e2f and Pangeanic also collect, transform, and annotate high-quality multilingual data, but on a smaller scale.
Besides the buyer and seller, three other entities are involved – a publicly-traded company and two private equity groups (PEGs):
This transaction will take another step in reshaping CSA Research’s annual “Who’s Who in the Language Services and Technology Market”:
With the non-core data annotation unit divested, H.I.G. Capital can position Lionbridge as a pureplay language service provider ready for another run at LSP consolidation using some of the proceeds from the TELUS sale – or selling it or going public with a simpler story about what the company does. Lionbridge management can focus on optimizing its language business while it accelerates its work on next-generation global content services – on its journey to being more competitive, sellable, or IPO-able (“The Future of Language Services”). We’ll discuss below the various approaches that H.I.G. and Lionbridge can take.
The biggest immediate impact will be on H.I.G. Capital’s investment portfolio. It acquired Lionbridge Technologies in early 2017 in a transaction valued at US$360 million – and now has a deal to sell a non-core business unit for 2.6 times what it paid for the whole. Lionbridge’s core LSP business remains with about a half-billion dollars in revenue (based on 2019) – but as a pureplay LSP with a clean title, ready for a roll-up, sale, or IPO. What H.I.G. Capital did was instructive and illustrates three ways that private equity groups can profit from language services and technology:
No matter which approach they take, this deal highlights the importance and valuation of anything tagged as AI. Data annotation isn’t for every LSP, but the language and linguistic enhancement enabled by machine learning is (“Augmented Translation: Are We There Yet?”).
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