During 2006 we were surrounded by corporate visions, some of which came to fruition for the people who created them and others that await 2007. Too often, companies feel the need to have a mission statement, and put it on the wall, and then hope that good stuff happens all by itself.

I have long been impressed by companies that not only announce a vision, but then execute on it. Veritas Capital is one of these. It was formed in 1992 and invests primarily in companies specializing in outsourcing to the U.S. government. It invested in DynCorp, which is a security firm that, among other things, provides bodyguards in Iraq and is a “defense integrator.” It also invested in McNeil Technologies, which provides a wide range of hi-tech services, including translation and localization.

You can’t land U.S. government contracts on PowerPoints and competence alone.

In an earlier column, I said that it is fruitless to try to land a big U.S. government contract based on PowerPoint presentations and competence alone. You have to go out and hire an ex-General and have him lobby on your behalf. McNeil Technologies did that and hired U.S. Army Major General (Ret.) James “Spider” Marks. Both DynCorp and McNeil now have Veritas Capital as an investor, went out and bid on a translation and interpretation contract for the U.S. Army’s Intelligence and Security Command (INSCOM). So, beginning in March 2007, something called Global Linguistic Solutions LLC (GLS) will become the largest language services firm on earth. The contract is for five years and has a maximum value of US $4.6454 billion dollars or US $900 million a year – twice where Lionbridge is right now in annual sales. DynCorp’s stock went up 18% on the news to US $16.53 a share. L3 Communications, which held the old contract that now expires on March 9, averaged some US $600 million a year with an operating margin of 6%.

The U.S. involvement in Iraq is an embarrassment on a number of levels, including the fact that of the 1,000 employees of the U.S. Embassy in Iraq, only six are fluent Arabic speakers. Maybe Global Linguistic Solutions can help the U.S. government with all of its communications problems. So, if you are still determined to go after this market, make sure your representative has more oak leaf clusters (i.e., U.S. military medals) listed on his resume than languages.

In addition, the U.S. Defense Department is investing in translation and localization R&D efforts in a number of different companies. How successful these will be is unknown, but as we can see from Systran and Language Weaver, the U.S. government does sponsor some technologies that are useful in the commercial sector. To wit, a headline on the front page of a leading U.S. daily newspaper, USA Today, on December 20, 2006 read: ”U.S. turns to Tech for Translators.” Lots of money is being handed out:

• US $9.5 million to BBN Solutions
• US $8.3 million to IBM
• US $8.7 million to SRI International

A lot of the R&D centers on portable speech recognition translators (we have a shortage of human translators) to allow soldiers to carry on conversations with Iraqis without interpreters. In one impossible comment, a U.S. Army Project Manager stated that the machines are having a hard time sorting out the background noise like the sounds of “gunfire” from voices that are to be translated! Hopefully some of this will eventually find a practical use and mission.

The larger firms in our business have long been driven by mission statements and visions. So it was interesting to have a chance to visit with Smith Yewell of Welocalize to learn his vision for the next couple of years: Top 3 in 3. The full interview appears at the end of this column.

Microsoft is now budgeting US $500 million a year for localization

2006 was notable for other things. Microsoft launched VISTA. One of its people told me at the Unicode conference that the company spent US $100 million to localize it into a number of languages and is spending US $500 million a year on localization in total. Lionbridge, which reportedly has U.S. $80 million in sales to Microsoft, SDL and the European consortium led by Jonckers were the chief beneficiaries.

Elsewhere, two of the remaining in-house localization firms in the communications arena are in flux due to the merger of Alcatel/Lucent and parts of Siemens and Nokia. And in what seems to be a growing trend to throw a big bash somewhere on earth to attract potential clients. TRADOS did this a few years ago in the south of France, while Idiom did it recently with its World Summit Europe 2006 held in Dublin in December.

China figures into everyone’s expansion plans these days. thebigword opened two offices in China, and added its own "Chinese Encyclopedia" to its web site. And Chinese firms are increasingly writing to U.S. firms, offering low translation rates, which sort of works against the equity that the localization industry has been trying to establish.

Who is Chet Obieleski?

More mergers are on the way; and we must remember that the average age of a company is only 12 years. Most companies cease to exist – either because there is no succession plan, or they merge or are acquired or go bankrupt. Not long ago, I ran into a fellow named Chet Obieleski of the COGroup. Mr. Obieleski is making a living being business intermediary in the localization field. He helped engineer the acquisition of M2 Enterprises and Welocalize. I asked him if he would stay in the localization field? He responded, “Yes. It’s a growth industry in an expanding global economy, with great margins and few significant competitors and an expansive pool of buyers...”

Public Companies

Lionbridge Technologies is driven by a constant vision to reach a “critical mass.” Its third quarter delivered record sales of US $108 million, but profitability remains an issue. Nonetheless, it was able to secure new credit to reduce interest expense. In the corporate version of credit card consolidation, Lionbridge replaced its Secured term B debt and secured a new revolving credit facility to reduce interest expense.

In looking at what the analysts say, Lionbridge’s stock, which trades at around US $6 a share, should outperform the market during the year. One enthusiast on its message board said the stock would reach US $22 per share by the end of 2007! To its credit, Lionbridge lists the names and phone numbers of analysts who follow its stock, so you can contact them for their opinions.

And I asked Kevin Bolen his opinion of where the business would go in 2007.

"2006 saw the industry start to move in a new direction, one fueled by several new web-based technologies and the global collaboration they enable. 2007 will see this model quickly become the default approach as companies seek to shorten their time to market and dramatically expand their global reach by engaging hundreds of translators simultaneously to increase their language coverage. We will also see these tools empower new resources to participate in the localization effort. Client relationships will migrate to India and China, as the customer's own development and innovation centers move to these locations. Engineering, testing and DTP will also migrate to regions like China and Eastern Europe where skills are plentiful and response times are faster. Localization will no longer be a craftsman model with all aspects of a job controlled in one small shop. Instead, we will see virtual teams of task specialists located around the globe, assembling on-demand to meet a client's need. This is the power of the internet. In 2006, we saw just the tip of its potential emerging for our industry. In 2007, we will start to understand its true depth."

SDL will release its final figures for 2006 on February 20, but recently gave a preliminary view that profits will be in the range of ₤10.5 to 11.5 (₤7.2 in 2005) and sales in the order of ₤ 93.75 (2005 ₤78.5). SDL’s share price as we go to press (late December) is 235 pence a share.

I asked Chris Boorman, SDL’s Chief Marketing Officer, the same question I asked Kevin Bolen, and this was his response:

"2007 is going to be a year when companies will differentiate themselves through how they manage information for their global audiences. Language has become the competitive differentiator, and the way in which companies manage this will decide who wins and who loses on the world stage. The winners will be those who centralize their multilingual assets and aspire to writing once, translating once and re-using content across their enterprises.”

RWS, which lost a “bundle,” as we say in American English, trying to enter the localization market (it reports capital losses of ₤20 million) is doing very well now with its vision to be the premier patent translation firm in the world. It has even acquired a number of translation and localization firms in Europe. It floated its stock in 2003 and has made money for three straight years. Sales rose by 13.7% in 2005-2006 to a record ₤40.8 million (14% of which came form technical translation and localization). Profits were ₤ 5.8 million, compared to ₤4.5 million the previous year.

Of this technical translation activity, the Chairman of RWS, Andrew Brode, comments, ” We seek to distance this business from the cheap commoditized end of the market, preferring to position ourselves as a high quality service provider for large, more difficult assignments. And where possible, we will seek preferred supplier status.”

Private Firms

A U.K. firm, thebigword, has invested in a new headquarters in Leeds in the U.K., which thebigword’s CEO, Larry Gould, claims is now “the centre of the world.” Gould says that 2006 was the best year ever for the company. It has opened a telephone interpreting center to compete with the U.S.-based Language Line, among others, and has expanded into China through the ₤2 million acquisition of Rainbow Network, one of its suppliers. It plans to invest a further ₤10-15 million. According to Gould, “Because we are involved in joint ventures with various Chinese partners, we are already in discussion with the necessary authorities about providing translation services for the 2008 Beijing Olympics and the World Trade Fair in Shanghai in 2010.”

Another European firm on the move is Jonckers, which reported 30% sales growth during 2006, reaching double digits in U.S. sales. It has expended into China and Taiwan, and states that it will enter the U.S. market in a “big way” during 2007. It is part of a unique partnership: LCJ EEIG, which was formed in 1999 to handle software localization with Locatech, Cross Gap and Jonckers (Logoscript was added in 2000). This combination of forces led to their being selected by Microsoft as a Preferred Supplier.

Back in the U.S., Idiom Technologies foresees a good 2007. It is hopeful, given that its European Users Conference in December attracted 106 people (not counting Idiom types) to Dublin. An optimistic Dave Rosenlund told me, “New deployments of GMS (Global Content Management Systems) during 2007 by small- to medium-sized businesses and departmental users, as well as the total aggregate of dollars spent, may for the first time exceed the total for larger global enterprises.”

A gorging lion does not a better animal make.

We have been doing Money Talks for over 10 years and have interviewed many leaders in the industry. I thought it appropriate to start this issue with an interview with Smith Yewell, CEO of Welocalize. Why? Welocalize is the only language services company, to my knowledge, that has made the Inc. 500 List of the fastest growing companies, and they have made it two years in a row now. They have also, for six years running, been on Deloitte and Touche's fastest growing firms list. There has to be some reason as to why, so I recently sat down with Smith and asked:

Where do you want to be in 5 years?

Yewell: I have a vision. It is called Top 3 in 3. What this means is that Welocalize will rank as one of the top three firms in our industry within the next three years.

Why grow? Life is short – why not just go home in the evening and enjoy your family and not keep getting into airplanes to go visit clients and acquisition candidates?

Yewell: We want to grow and become a larger firm, but we also want to become a better firm. We are not growing for growth’s sake alone. Our growth plan is calculated to support becoming a stronger, more capable and better company.

Why grow? Because we have the capability – and we need to. We have talented people who want a challenge, and we have excellent clients who are looking for us to do more in order to meet their changing needs. And I believe a company that sits still – that becomes complacent, that loses the drive to become something better – will eventually wither, lose value, lose jobs, lose clients and fade away.

Why would a client be interested in this growth? This is a service business, and the usual criticism of growth within this sector is "how big can you get before you get bad?"

Yewell: Again, growth only for the sake of becoming bigger is not something clients or we as a company want to see. This has happened before in our industry, and we are learning from other companies’ mistakes. A gorging lion does not a better animal make.

Growth in terms of our ability to service customers in all major markets, to offer a deeper bench of talent, a broader scope of skills, more robust infrastructure and more innovation – this is the practical way we plan to continue to grow, and this is the benefit to our clients.

We have just launched what we call our Hybrid Delivery Model. It is an example of a key innovation that Welocalize, as a growth company, can subsequently offer in the way of tangible cost savings through a near-shore/offshore model, on-demand scalability and faster time to market.

And the more cynical observers of your growth would say that you are just gearing up for a big IPO and not really interested in anything else.

Yewell: Quite honestly, we have not even thought about an IPO. We are focused on the realization of our Top 3 in 3 vision. Personally, I am not looking to “cash-out.” I want to build a great company, and I plan to see my vision come to fruition.

How do you spot a potential acquisition? Do you look at a minimum given size, geographical location, technical expertise, particular industry segments or the personal chemistry of the people involved?

Yewell: Our acquisitions need to make us a better company. Thus, we look for companies that can add value in four key areas: people, clients, geography and competency.

Foremost is the quality of the people and the chemistry you talk about. If this is not there, we walk away from the deal. The clients that are involved are also critical – if we cannot make it worth it for them, we re-think it. Geographically, we are building a global platform in order to service clients from in-country offices in all major markets. And very importantly, we are looking to add more competency and skills in order to continue our drive to be an ever-better company.

Yewell’s advice if you’re looking to merge or acquire someone?

Attend a LISA Event!

What has been your best venue for meeting people? You can't just say, "I'll go to Dublin or Beijing and pick up a couple of companies."

Yewell: To date, nearly all of our acquisitions started from introductions at LISA events. These events, and other industry events such as CSN and Localization World, have been our best venues for meeting new people in the industry and starting an M&A dialog.

Acquisitions usually chase away the people in the acquired companies. How have you done in keeping people?

Yewell: This is something I am very proud of – we acquired three companies this year, and all three owners and their management teams are still with us. We have lost no key staff or clients in the process. This accomplishment is rare in mergers and demonstrates our ability and reputation for doing it right.

Do you use any established metrics to judge the value of an acquisition; perhaps a certain earnings or sales multiple?

Yewell: Yes, we use an earnings multiple, and it varies widely depending on the strategic value, profile and track record of the potential acquisition.

Industry rumor says you are just buying companies to sell out to SDL or Lionbridge. How do you respond to this?

Yewell: We just acquired three companies in nine months, so I think it is clear that we are a buyer and not a seller. Again, we have a vision, and it is Top 3 in 3.

Many mergers in this industry have not been seen as successes. Why do you think Welocalize can succeed where others have failed?

Yewell: We are building a reputation of having the most successful M&A track record in our industry. We have very happy clients and former owners to testify to this fact. We have succeeded through treating people well and being careful to remember the basics: earned trust, fairness, respect and the best customer service possible.

Many people in the industry have heard of you, but question your motives regarding growth. What do you say to other potential acquisitions?

Yewell: Join us, and together we can become something much greater than we ever dreamed of separately. Together, we can achieve the vision of Top 3 in 3.

Your acquisitions have all changed their names to Welocalize, while other industry mergers have kept the company names. Wouldn't it be better to keep the different company names?

Yewell: We have one vision; we have one team globally; we have one name. This is critical – we have over 250 people in our company all striving for the same thing under the same banner. We plan to get to the top together as one team.

Why would any business owner want to merge with Welocalize?

Yewell: The owners of the five companies we have acquired can answer this question better than I. Two of these owners, Andre Pellet and Eugene McGinty, are actually leading our M&A campaign and would be happy to discuss this with any company that may be interested in joining us in achieving our Top 3 in 3 vision.

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John Freivalds is Managing Director of JFA Marketing and publisher of The Periodic Tables (Languages, Money, First Class and Toasts). He can be reached at jfa@hughes.net.