The Analysis of the Acquisition of Lionbridge by Private Equity
Lionbridge Technologies, Inc. announced that it has signed a definitive agreement to be acquired by private equity firm H.I.G. Capital in a deal valued at $360 million. Based on the agreement, Lionbridge stockholders will receive $5.75 per share in cash for each share of Lionbridge common stock.
Although Lionbridge will have a 45-day "go-shop" period in which it can solicit other buyout bids, Rory Cowan, Chairman and CEO of Lionbridge said: “The acquisition will allow Lionbridge to continue to focus on providing the most innovative language and technology solutions to more than 800 world-leading brands, while accelerating our proven leadership in global content and communications. Our Board of Directors believes this transaction is in the best interest of our stockholders and affirms Lionbridge’s tremendous value and market leadership.” The Company does not expect to disclose developments with respect to the solicitation process unless and until the Board has made a decision with respect to any potential superior proposal. However, many analysts believe that a buyer from the language translation industry can unlikely top H.I.G Capital’s offer.
H.I.G. Capital is a global private equity investment firm with $21 billion of equity capital under management and has been moving aggressively into language services over the past few years. Major language service providers like Moravia, Welocalize, Semantix as well as smaller players like AAC Global, are majority-owned by the Miami-based private equity group. Nevertheless, the acquisition of Lionbridge marks the biggest deal by the company in terms of language services to date. The firm invests in companies throughout the U.S., Europe, and Latin America and aligns itself with committed management teams to help build businesses of significant value. The H.I.G. team of over 250 investment professionals enables the firm to contribute to its portfolio companies to help them achieve their operating and financial objectives.
Lionbridge is a Waltham, Mass.-based provider of global content management, online marketing, translation, and application testing products. With more than 6,000 employees worldwide, it has been helping global organizations, such as Microsoft, Google, Rolls-Royce, The Gap, HTC and John Deere, deliver consistent messaging in different languages across their specific markets. The growing company has been ranked as the top-grossing language service provider in the $40.27 billion global market for outsourced language services and technology by Common Sense Advisory (CSA Research). In 2015, Lionbridge generated a revenue of approximately $559.98 million, while the number was $490.61 million in 2014. In the first quarter of 2016, it announced record revenue of $144.2 million, an increase of $7.7 million, or 6%, compared to the first quarter of 2016 and a year-on-year increase of $428,000 as compared to the second quarter of 2015. According to the sentiments of 4 analysts, the company is expected to report revenues of $135.66M for the current quarter. Today, Lionbridge Technologies, Inc. has a market capitalization of $369.95M, and its stock has rallied 17% year to date.
Last August, CMS-Connected covered the news that Lionbridge has received a patent for its GeoFluent real-time translation solution that allows contact centers to provide consistent multilingual communications across all channels. So today, the question is; will privatization generate additional resources to continue to invest in technology innovations? In the statement to employees, Cowan cited: “We have a strong technology plan in place, and my goal now and our Board’s goal was to ensure that we had a strong financial or capital plan in place. We’ve spent many months evaluating these opportunities and we drew the conclusion that partnering with H.I.G. would be the best way to implement our needs.” He also ensured the employees that there will be no impact on the day-to-day operations.
Is the Proposed Acquisition Best for Lionbridge and Its Shareholders?
This question has been raised by Robbins Arroyo LLP, the law firm specialized in securities litigation and shareholder rights law, and the firm has launched an investigation focusing on whether the board of directors at Lionbridge is undertaking a fair process to obtain maximum value and adequately compensate its shareholders. Robbins Arroyo LLP’s claim published on its website is “the $5.75 merger consideration represents a premium of only 3.20% based on Lionbridge’s closing price on December 9, 2016. This premium is significantly below the average one day premium of nearly 38.96% for comparable transactions within the past three years. Further, the $5.75 merger consideration is significantly below the target price of $7.00 set by an analyst at Barrington Research on May 9, 2016, the target price of $6.50 set by an analyst at Craig-Hallum Capital Group LLC on November 8, 2016, and the target price of $6.35 set by an analyst at Nobel Financial Group on May 6, 2016.”
In terms of market analysis and trading signals, 4 analysts predict, the mean estimates of short term price target for the company’s stock is marked at $6.28. The most optimistic analyst sees the stock reaching $7 while the most conventional predict the target price at $5.75.
In terms of the market, today, consumers expect brands to communicate with them in their native language. As a bilingual and a non-native English speaker, I definitely agree that interacting with your customers in their native language has a huge impact on decision making and, more importantly, brand loyalty. In fact, a recent study from Common Sense Advisory showed that 84 percent of consumers are more inclined to purchase products online when related information was presented in their own language. In addition, Gartner estimates that $77 billion of revenue will be created by more than 268 billion global downloads by 2017. Yet more than half of the countries on the top 10 list of application downloads and revenue are those in non-English-speaking nations in Europe and East Asia. All it means, is that the distinction between domestic and global market is shrinking. Accordingly, an independent market research firm, Common Sense Advisory (CSA Research), which has published market size estimates and global rankings, found that the demand for language services continues, and is growing at an annual rate of 5.52%. The study also confirms that as the market continues to expand, however, the current growth rate of 5.52% represents a slight decrease over last year’s rate of 6.46%. Lastly, the firm predicts that the language services industry will continue to grow and that the market will increase to $45 billion by 2020.
As global markets are becoming increasingly diverse and connected, the demand for technology innovation in this space does not seem to be impaired anytime soon. As one of the leading technology providers in the market, Lionbridge needed additional resources and a strategic partnership to keep its growth going. Therefore, to me, the acquisition is timely and smart. Considering H.I.G understands business services and technology companies, I do not think Lionbridge will turn into a cash cow after the acquisition. As Cowen stated in the memo to employees, H.I.G. does not operate companies, instead, they partner with management to achieve their goals. Not to mention going private will diminish the regularity costs of being a public company. Therefore, it’ll be exciting to see how Lionbridge will enhance its platform when the deal is finalized shortly after the first quarter of 2017.