GALA Report: SDL-TRADOS Merger Survey Results
Don DePalma, Common Sense Advisory, Inc.
When SDL's shareholders approved the purchase of TRADOS Inc. last month, SDL became by far the largest supplier of translation memory, terminology management, and translation workflow management products. SDL is also one of the world's three largest language services providers (LSP). This article reports on the results of a GALA survey of language service providers about the impact of this acquisition. Its goal is not to comment on the business sense, wisdom, or moral propriety of this deal, but rather to convey the feelings of the industry about the deal.
The Background: SDL Buys TRADOS
In a deal with far-reaching implications, publicly-traded SDL International (SDL) announced on 20 June 2005 that it would buy privately-held TRADOS Inc. for US$60 million.  When its shareholders approved the purchase in early July, SDL became by far the largest supplier of translation memory, terminology management, and translation workflow management products. SDL is also one of the world's three largest language services providers (LSP). SDL's purchase of TRADOS creates a larger company that will be more visible to a broader range of buyers dealing with global or multilingual application and content development.
Hearing Concerns, GALA Polls Its Membership
Because SDL both sells software to optimize translation and localization and provides such language services itself, acquiring its leading competitor fundamentally changed the market landscape. GALA immediately began receiving questions and comments from its members, wondering what effect the acquisition would have on the language industry.
The GALA Board of Directors developed an online survey for its membership. Seventy-five translation and localization vendors – mostly GALA members – shared their thoughts about, reactions to, and opinions on the acquisition. When Lionbridge Technologies (LIOX) announced its acquisition of Bowne Global Solutions (BGS) on 28 June 2005,  the GALA Board discussed whether it would make sense to conduct a similar poll about the impact of that deal. The Board concluded that the Lionbridge purchase was a quantitative change for the industry, while SDL's plans qualitatively changed the industry. Thus, it chose only poll its membership on SDL's landscape-changing acquisition.
Language Industry Background
This purchase by SDL continues a recently begun round of consolidation in the language services and tools industry, including Lionbridge's proposed purchase of BGS. That deal will create the world's largest LSP with annual revenue exceeding US$400 million. Other 2005 deals of note include Irish LSP Transware 's purchase of globalization management system supplier GlobalSight and Merrill acquisition of P.H. Brink, both acquiring translation workflow management tools in the transactions. The SDL and Lionbridge deals, though, captured most attention due to their size.
- SDL buys TRADOS. SDL bought TRADOS for US$60 million (2.5 times TRADOS' revenue), becoming the largest supplier of translation memory, terminology management, and translation workflow management products. SDL's combined language service and tool revenue for 2004 was $114 million (£62.7 million), while TRADOS earned over $25 million selling tools and related services. Combined, the two companies account for the lion's share of translation memory and translation workflow management software sale.
Executives highlighted SDL's mission to meet the “global information
management” needs of large enterprises in both technology and language
services.  Its now bigger
technology portfolio, more best practices and methodologies, increased
economies of scale, and amplified marketing energy will give it a more
strategic role in the entire information life cycle from authoring to
localization to publishing.
- Lionbridge buys Bowne Global Solutions. Lionbridge will pay US$180 million for BGS, becoming the world's largest LSP with this deal. Last year BGS booked $223 million in revenue to Lionbridge's $154.1 million. The purchase price works out to 80 percent of BGS's 2004 revenue, in the range that we look for in acquisitions of service companies. 
Executives emphasized scale, noting the increased ability to provide
services across the entire application and content development life
cycle, the cost-effectiveness of farming out labor to low-wage countries
like India , and the increased geographic footprint that BGS brings to
Why Who Owns the Tools Is Important
Nearly nine out of ten companies outsource their translation and localization work to language service providers.  Buyers can choose from a wide variety of LSPs around the world, all falling into one of three categories when it comes to the technology they use to translate, localize, and manage customer projects. 
- The LSP buys most of its technology. These companies purchase translation memory workbenches, perhaps preferring one supplier but realistically using whatever the client wants. Many layer project management and workflow applications on commercial off-the-shelf (COTS) products such as Microsoft Access or Project . Earlier this year BGS had announced that it would join this camp, standardizing core elements of its production process on TRADOS-supplied software. However, the company did not execute on this plan as TRADOS sold itself off to SDL.
- The LSP builds some tools, but keeps them to itself. Some firms like Connect Global , EQHO Communications , and Merrill Brink International build software infrastructure and tools that meet their specific needs better than any COTS product would. Lionbridge is the most visible example of such a company, assembling its infrastructure from commercially available and proprietary components. Earlier this year it purchased Logoport , a small software firm selling a web-based translation memory tool.  A side-benefit of controlling its TM fate is that Lionbridge avoids having to buy licenses from SDL or TRADOS for the clients who don't care which TM it uses.
- The LSP builds technology and sells it to all comers. A few providers sell software, tools they developed (or acquired) to meet their internal needs for project management and technology needs. They hope to recoup their investment by selling them on the open market. SDL, STAR , Translations.com , and Transware exemplify this model. This approach pleases shareholders by turning a cost of doing business into an asset, but it does limit the marketability of the tools because many LSPs feel uncomfortable buying core technology from a rival. This last point is at the heart of the concerns expressed by GALA members and inspired the survey.
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Don DePalma is an industry analyst, author, and corporate strategist with expertise in business- and marketing-focused application of technology. He lectures and writes frequently on the topics of online marketing technologies, content management, high-end application development, knowledge management, and globalization. His book, "Business Without Borders:™ A Strategic Guide to Global Marketing" was published in 2002 by John Wiley & Sons and is available at online booksellers and at select fine book stores. He is a member emeritus of the Board of Directors of GALA, co-chairs the Internationalization and Unicode Conference (IUC) Review Committee, is on the jury for the American Society of Competitiveness Journal of Global Competitiveness, and served as a judge for the SIIA’s 2005 CODIE Awards. Don is president of Common Sense Advisory, a research and consulting firm committed to improving the quality of international business and the efficiency of the online and offline operations that support it. You can reach him at firstname.lastname@example.org.