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Teleperformance Forays into Interpretation Business with $1.5bn Acquisition

On 22nd August, Teleperformance announced the acquisition of interpretation services provider LanguageLine Solutions (LLS) for $1.52bn.

LanguageLine was founded in 1982 and is headquartered in Monterey, California. In 2015 it had revenues of $388m and adjusted EBITDA of $147m, and the company is expected have revenues of between $400m and $450m in 2016. It has ~8k interpreters, 92% of whom work from home, and supports 240+ languages with over 25k clients.

The majority of LanguageLine’s revenues come from the U.S. and Canada (94%) and the rest from the U.K. Its revenue by vertical for 2015 was:

  • Healthcare (payer and provider): 46%
  • BFSI: 21%
  • Public sector: 16%, particularly police departments
  • Others: 17%.

Over-the-phone channel brings the largest share of revenues (2015 numbers):

  • Over-the-phone: 86%
  • Video remote interpreting: 3%
  • On-site interpreting: 5%
  • Other: 7%.

The company has developed its own ERP system called Olympus and in February 2016 launched a mobile app for video interpreting.

The acquisition from the minority shareholders and private equity ABRY Partners, who purchased the company in 2004 for an estimated $720m, is expected to close by the end of the year.

What is the pull of the interpretation market?

The $35bn global market is divided between translation of written texts and interpretation of voice (in person or remotely), the latter making up well below 10% of the market. According to Teleperformance, the U.S. over-the-phone market is expected to grow by 9% per annum, driven by increased outsourcing in the space, more regulations requiring multi-language support, and increased non-English speaking communities.

LanguageLine is the largest interpretation provider in the U.S. market, and claims to be four times larger in terms of revenue than its nearest interpretation services competitor, and that it exceeds the combined revenues of the next eight direct competitors. Its own growth estimate is between 8% and 10% CAAGR, with an EBITDA margin of ~30% for 2016-2020.

The global interpretation, translation and localization market is highly fragmented, with several vendors with hundred million dollar revenues, including:

  • U.S. public company Lionbridge Technologies with revenues of $560m in 2015
  • U.S. private company TransPerfect with estimated 2015 revenues of $505m
  • Public U.K. company SDL with 2015 revenues of £267m
  • Private U.S. company CyraCom International with estimated 2014 revenues of $91m
  • Hewlett Packard’s Application and Content Globalization group in France.

Other outsourcing vendors who have their own interpretation or translation business include Capita, Transcom, and transcosmos. Japanese vendor transcosmos launched its own interpretation contact center last year in order to capitalize on the Tokyo 2020 Olympic Games.

LanguageLine itself grew through acquisition, buying Pacific Interpreters in January 2013, one of the top 10 American providers with nearly $50m revenues.

Benefits from global market presence

While there is some client overlap, LanguageLine’s exclusively North American focus allows Teleperformance to expand its services to what it considers both an underserved and underdeveloped European market. It also looks to the Chinese market to provide local interpretation services from the main European languages to Mandarin and Cantonese. Still, Teleperformance plans to keep LanguageLine separate from its main business, similar to the operating model of its Face-to-Face visa processing business – the company acquired TLScontact in 2010, growing its revenues from ~€10m to an expected €130m in 2016.

The challenge and opportunity of automation

As with other customer facing services, automation has begun to take over some of the lower end interactions. Services such as Google, Twitter and Skype have given all users free auto-translate and interpretation services, but automation has been primarily used by translators to build dictionaries and full sentence databases to speed up and improve the quality of their work. Most of the current developments in AI and NLP are focused on English, with the expectation that the technological improvements in the field can be relatively easily propagated to other languages eventually. As Teleperformance points out, machine-translation is not an immediate threat, with 76% of the current total business volumes at LanguageLine generated by complex calls lasting over 10 minutes.

€5bn company by 2020

The acquisition is accretive to Teleperformance’s earnings per share of around 10% on a pro forma basis for 2016, but more importantly it adds more weight to the company’s growth plans to reach revenues of €5bn by 2020, from its 2015 level of €3.4bn.

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