Our Analysts' Insights

Four noteworthy announcements over the last two weeks provide several object lessons in how the language services and technology industry works and is evolving: Smartling and Lokalise both received substantial infusions of venture capital (VC), while Summa Linguae Technologies and Unbabel each revealed an acquisition (M&A). Although each announcement was individually interesting, in aggregate they are instructive. In this post we focus on global content management and full-service LSPs, tying them to themes we have been exploring since our 2016 report on a “Pragmatic Global Content Strategy.”
 

Language Industry M&A and Investments in December
 

The month isn’t over but there’s been enough deal-making activity to take note. A few more transactions might close before the end of the year, but they may also slide into 2022. For each of the four announcements made so far, we provide the basic detail and a link to the company’s positioning or press release. We also include their mission statements, all of which, not surprisingly, translate into “we help our customers achieve their global content goals” (“Global Digital Transformation: The Customer Journey”). That unique selling proposition (USP) matters to prospects as they seek solutions but tends to be less important to investors than a steady track record of success and solid technology.

What will they do with the money or their acquisitions? In the first two cases, the recipients will use the VC funds first to increase their visibility and outreach in new business segments, accelerate and broaden development of translation management and machine learning technologies, and acquire complementary technology and services. For the other two announcements, expanding into more markets and offering more services to existing and new clients are at the top of their to-do lists with their bright new purchases.

• Smartling received a US$160 million Series E investment) from Battery Ventures, the largest VC infusion in translation software – that brings the total Smartling has received in this, its fifth round, and in earlier funding rounds to US$223.1 million. The company’s mission is to “power our customers’ global growth with our industry leading translation management platform and AI-driven language services.” 
   
• Lokalise logged a US$50 million Series B (that is, second-round) investment from CRV, Creandum, and Dawn Capital, bringing its total VC funding to US$56 million. Its mission is to “eliminate the hassle of localization by providing tools to automate, integrate, and better manage your translations. Lokalise is a better way for growth-minded businesses to expand their mobile apps, games, software, or digital content into multiple languages.” 
   
• Summa Linguae Technologies acquired data services company Datamundi for a combination of shares and cash totaling US$5.5 million. Publicly-traded on the Warsaw Exchange as SUL, Summa Linguae is #46 on CSA Research’s 2021 list of 100 largest language service and technology firms. Its mission is to “help global, content-rich companies with every multilingual data challenge.” The acquisition will provide training data for natural language processing and other optimizations. 
   
• Unbabel purchased Lingo24 (#78 on our 2021 list) but did not release transaction details. With VC investment totaling US$91.2 million in three rounds, the company’s mission is to “eliminate"  language barriers so that businesses can thrive across cultures and geographies. We enable customer service teams at enterprises to deliver consistent multilingual support at scale and build customer trust in every corner of the world.” Unbabel will use tech-enabled Lingo24 to expand its reach beyond customer support to marketing and other business functions – and the disparate datatypes they require. 
   

Lessons in Language Technology

What can we learn from these events? First, we identified two lessons in language technology:

•  A technological step-change. Machine learning complements more than a decade of Big Data and cloud development in the language sector. These in turn have combined with growing expectations for global content management that meets non-negotiable enterprise IT requirements for reliability, availability, scalability, and security (RAS2) – what we call “enterprise-ification.” This takes the form of AI-driven end-to-end translation management (Smartling), LangOps (à la DevOps at Unbabel), a platform for agile teams (Lokalise), and multilingual data management solutions and managed services (Summa Linguae).
   
• Hybrid service/technology solutions. The complexity of global content – volume, diversity of datatypes, continuous development, multiple languages, to name a few major attributes – raises a challenge that simple LSPs or langtech providers are hard-pressed to meet. Even initially pureplay software vendors such as Smartling and Lilt were pushed by market demand to offer language services. Unbabel bought Lingo24, an LSP, to increase its ability to understand and meet customer requirements. Summa Linguae added “Technologies” to its name in recognition of the fact that the only scalable, successful LSPs are tech-enabled providers (“Insights on LSP Maturity”).  
     

Lessons in Funding Langtech and Language Services
 

Now let’s take a look at the funding models behind these companies. Entrepreneurs at language service and technology companies often finance the creation of their business and initial growth with their own resources or with seed capital from friends, family, debt, and small investors. They then turn to other sources for operating and expansion capital. 

These funds might include more of their personal and executive-team money, investment or loans from friends and family, business loans (debt), cash flow (revenue), private equity (PE), venture capital (VC), special-purpose acquisition companies (SPAC), and government funding. Consider VC, private equity, and government funding – all of which have been part of the history of the four companies: 

• Venture capital or private equity? This isn’t a simple question, but let’s look at top-level issues. VC funds typically attract wealthy individuals willing to take on risk, while private equity appeals to more risk-averse institutional investors like pension funds. What that means is that PE funds are more likely to take a majority stake in mature companies (think Lionbridge, MotionPoint, and thebigword) or roll-ups (for example, Acolad, BIG, and United Language). Besides growing revenue organically and by acquisition, they focus on optimizations such as reducing expenses, eliminating redundancies, and other efficiencies. On the other hand, VC funds target technology companies, take smaller stakes at earlier stages of development, and tend to be less concerned with near-term revenue than with the long-term payout.
  
  However, nothing is absolute – the distinction between the VC and PE models has blurred over time. For example, over the last year we’ve seen PE firms invest in technology vendors such as XTM and XTRF, and in tech-enabled LSPs such as Translated.net. In some cases like XTM and XTRF, there’s the possibility of rolling up the solutions into a broader solution – and eliminating redundancies in the process.
  
  Note that venture capitalists are investing broadly, beyond just the global content management and full-service LSP focus of this post. This year VC funds invested in other sectors, including KUDO (Series A) for multilingual conferencing, and in AI-driven specialists like Synesthesia (Series A) for multilingual video, and Verbit (Series E) for transcription and captioning. They are outside the scope of this post, so we’ll discuss them in future posts along with other natural language processing and understanding solutions.
  
  

• Government funding? Funding by political entities like countries, states, provinces, and regional organizations like the European Union is less common but does happen, especially in Europe. For example, Unbabel in its early days benefited from European Commission CORDIS research funding – other EC initiatives offer grants or competitions like its Seventh Framework Programme (FP7). Interestingly, UK-RWS (UK) and Straker Translations (NZ) acquired software companies – Language Weaver via SDL and Lingotek, respectively – that had been funded by In-Q-Tel, a VC firm that invests in technology to support U.S. intelligence operations such as the CIA. 
   

Lessons in M&A and Global Business 
 

At some point companies evaluate an exit strategy – for example, a liquidity event in the form of an initial public offering (IPO) or acquisition – or in the worst-case scenario, shutting down.

• The M&A mambo. Very few LSPs or langtech ISVs get to an IPO – the CSA Research global and regional lists of 186 companies include just nine publicly-traded companies. Acquisition is far more frequent than a public offering. Why do companies acquire others? In the case of the December purchases, we see that they gain economies of scale, open up services or platforms to broader markets, bring in new staff and ideas, and gain new customers. How do they pay? In this current round, Summa Linguae used shares and cash to pay for Datamundi. Unbabel likely paid out a combination of cash and equity to buy Lingo24. For comparison, last year RWS acquired SDL in an all-share deal, something a company closing on one billion dollars in revenue could do. Speaking of lofty turnover, TransPerfect has taken a different path to reach its first billion – funding its growth with profitable revenue, debt where needed, and acquisitions around the globe.
   
• Growing consolidation (C11n). Private equity financing has been especially visible in funding LSPs that are aggregating suppliers, both within their home region and beyond: 1) North America: Big Language Solutions, United Language Group, and Welocalize; 2) Europe: Acolad Group, Argos Multilingual, T’Works, and Ubiqus – minus Semantix, which was acquired by TransPerfect; 3) Asia: a nascent consolidator in the form of newly minted Toppan Digital Language; and 4) Middle East and Africa: Tarjama. We expect more activity among and between these companies in the coming year. By contrast, Chinese LSPs have taken a much more conservative, wait-and-see approach during the pandemic, with no major M&A during this period.
   
• An international business. The issuing location for these four announcements underscores the global nature of the business: Smartling in New York (US), Lokalise in Riga (LV), Summa Linguae in Warsaw (PL) with Datamundi in Linter (BE-VWV), and Unbabel in Lisbon (PT) with Lingo24 in Edinburgh (GB-SCT). For those not fluent in ISO 3166-2, Datamundi is in Flanders, Belgium and Lingo24 is in Scotland. Among other examples in 2021 Memsource in Praha (CZ) acquired Phrase (DE) and Argos Multilingual in Krakow (PL) bought Venga Global in San Francisco (US). Headquartered in Central Europe, Argos and Summa Linguae have bulked up into Polish powerhouses through acquisitions. On the Benelux front, Flanders Valley is back in the news with a €655 million judgment against Lernout & Hauspie’s former directors, a shout-out to heady times in the industry 20 years ago.
   

A Look Ahead at 2022
 

Coming out of 2021, we look to several major forces driving the market for global content: growing demand for information in the local language, across a wide range of written and spoken access points; the absolute requirement of enterprise-class solutions to manage multilingual content scalably and securely; and the breadth of required services and datatypes of required services and datatypes (“20 Trends Driving Global Expansion Initiatives”).

In the coming year we expect to see more LSPs transition to the roles of knowledge process outsourcing (KPO) or global content processing provider (GCSP) as we forecast in our 2017 report on the market. They will leverage the full array of data-driven services and supporting technology we describe in our report on responsive machine translation. The successful move to enterprise-ification will give KPOs and GCSPs a window to disrupt the status quo where the 10 largest players represent only 8.1% of the US$49.28 billion language services and technology sector.