Before working in the Language Services industry, I spent most of my career in investment banking, specifically equity analysis. This experience gave me particular insight into how long-term value is created, including through organic strategies and Mergers and Acquisitions (M&A).
M&A is an ongoing feature of the language services industry, owing to its fragmentation as well as the relatively low barriers to starting up but medium-high barriers to scaling significantly.
The core drivers for M&A are customer acquisition (also expressed as geographic expansion and sector-specific expertise) and operational capability and productivity (economies of scale). As annual surveys of LSPs demonstrate, most LSPs use M&A as their primary growth strategy, whilst organic growth tends to remain weaker.
In fact, the Slator 2024 Language Industry M&A and Funding Report indicated 43 trade sales in 2024, reflecting the industry’s focus on growth through acquisitions.
Common challenges in M&A for language services
The LSP landscape includes several relatively aggressive ‘buy and build’ models. However, there are reasons to be sceptical of this model.
Size and scale are not the same thing
Firstly, acquiring many LSPs is not necessarily the same as having scale, particularly if the client type remains small-medium-sized companies and departments.
There is a significant difference between LSPs who can service enterprise-level accounts and those who typically serve small departments or companies in terms of their operational footprint, processes, technology, solutions, and compliance capabilities.
The numeric reality is that to grow significantly organically (and relatively quickly), it is a shift towards serving enterprise clients that will make the difference.
Synergizing is challenging and sometimes damaging
Secondly, while we often see M&A with an overt focus on operational (cost) synergies, these are hard to come by and often contradict a revenue growth strategy.
This is because of the very particular processes and systems used by LSPs. These consolidation programs may often come with significant risk, absorbing the company’s energy and resources that could be better spent on growth.
Operational synergizing should be recognized as a major risk and cost that can distract the business when it should be attracting new customers and reassuring old ones, potentially degrading the customer experience.
How we did it right
I believe successful M&A strategies for language service providers should first and foremost focus on customer needs and revenue growth.
M&A must complement a very strong organic growth strategy; it is no replacement for one. A key factor in designing this type of growth plan is taking a long enough time horizon (5-10 years) in the strategic plan rather than a 3-5 year returns model.
At TOPPAN Digital Language, backed by TOPPAN NEXT and TOPPAN Holdings Inc., we carefully select acquisitions that align with our long-term growth strategy. This included:
- Targeting the right companies for acquisition by identifying LSPs with complementary strengths
- Align M&A with long-term growth plans by focusing on leveraging combined strengths rather than short-term cost synergies
- Integrate smartly to retain customers to minimize disruptions and ensure a seamless customer experience
- Invest in post-merger growth initiatives to scale, not just consolidate
Furthermore, we complemented our M&A activities with material additional investments into our technology platform, always keeping a firm eye on our customers’ needs. This included:
- Strategic hires in technology
- Strategic hires in service delivery
- Development of AI capabilities and Managed AI solutions
This has enabled us to grow over 30 percent organically in each of the last two years and build a stable and strong business.
Written by Alexandra Jarvis
