Corporate Development Pro Patrick Prokesch Shares Key M&A Insights for LSPs

Patrick Prokesch of i5Invest at SlatorCon Amsterdam 2019

Language service providers (LSPs) come in different shapes and sizes. It makes sense, then, that there is also a range of potential partners and investors that can help companies take the next evolutionary step.

At SlatorCon Amsterdam 2019, Patrick Prokesch discussed the benefits of taking on a partner, using several prominent LSPs as examples, and walked the audience through a typical M&A process.

A corporate development specialist himself, Prokesch is now Senior Director at i5invest, a company that specializes in international corporate development for tech companies, with offices in Vienna, Berlin, San Francisco, and Palo Alto.

According to Prokesch, the goal of taking on a partner is to identify and unlock opportunities that would otherwise be unavailable. Those opportunities might include access to new markets, new products, or the ability to build products faster.

The ABCs of Investors

Businesses might not know initially which investors they will want to court, but it can help to distinguish between financial investors and strategic investors. 

“They all differentiate themselves [in terms of] the goal that they have, but also the companies that they’re looking at, so you need to place yourself on the radar,” Prokesch said of appealing to potential investors.

Financial investors can be broadly divided into venture capitalists (VCs), which support startups; private equity investors (PE), which prefer more established companies; and growth equity investors, which can be described as a hybrid of VC and PE. Growth equity investors are often excited by the opportunities presented by expansion into new markets. Prokesch said this model often works with tech and software companies that have come into their own. By contrast, he noted that the translation industry is currently seeing a lot of PE “as the consolidation starts maturing and growing.”

When a company pursues strategic investors, the rationale for investment is often a need-based, make-or-buy decision that will either help the company work faster or enrich the current team’s capabilities.

Andrew Smart, Slator (left) and Patrick Prokesch, i5invest (right)

Large companies might follow, and acquisition strategy is “a great way to bring in new blood, to bring in a new team, to also rejuvenate some of their business lines, create new revenue streams, tap into new opportunities in new markets and geographies,” Prokesch said. At the same time, work with strategic investors can also enable the new, combined business to move into the future and unlock further opportunities.

Different Recipes for Success

Moving on to real-life case studies, Prokesch named a few language- and translation-focused companies that have successfully monetized by applying new methods or business models in their respective industries.

The founders of Linguee, the widely used online dictionary / translation database, launched DeepL, an online machine translation engine, in 2017. DeepL marked an evolution from Linguee’s B2C roots — and a recognition of its B2B value.

“Essentially, they were sitting on a lot of very valuable data that nobody else had, and they put it to work,” Prokesch explained. “They saw that it was something very valuable and they could apply their knowledge and technology to the corporate world.”

Solidly in the B2C sphere is iTranslate, an app with over 100 million downloads worldwide. The company baked a lot of tech and learnings from a very large user base into their market-leading applications. This focus on both users and on cutting-edge technology allowed iTranslate to build products superior to those of competitors, especially those offered free of charge. The app’s quality helped iTranslate build a loyal following of consumers eager to pay for subscriptions.

“Enterprise language solutions” is what Prokesch calls his prediction for a potential new, translation-adjacent industry.

Companies operating in this industry would include, for example, Grammarly, which is more focused on language correction than translation. Armed with cash and very IPO-driven investors, Prokesch expects Grammarly to enter more corporate settings and sell into larger companies.

Prokesch also highlighted VC and PE interest in product suites, which could include speech recognition, workflow products, and productivity tools, among other items. The product suite model is particularly attractive because it produces higher margins by eliminating additional client acquisition costs.

“You have multiple products that can be used by that customer, maybe even in different departments, but your label is on top so you can monetize more. You basically start upselling and cross-selling,” Prokesch said.

The Customer Is King

Looking ahead, Prokesch said investors will be most interested in the businesses that best leverage data, automation, technology, and software to help people and companies work faster and perform better. Tech and IT budgets for the biggest and even mid-level companies are constantly growing, and companies see spending in these areas as an investment.

That prioritization on speed and improved workflow processes has trickled down from the C-suite to department heads to individual users.

Grammarly, iTranslate, and DeepL share this focus on the customer, as do a number of large, recently IPO’d industry incumbents. The message these companies are sending to investors: Individual end-users are at the center of our sales model.

An Insider’s View of M&A

Although a company can kick off an M&A process at any stage, the timeline will lead with research. After that, Prokesch recommends capitalizing on an ideal moment or inflection point: Perhaps a company has proven itself in a certain vertical or locale, and is ready to branch out or to build new products. This “equity story” should be informed by data, financials, and user metrics to explain to potential investors what makes the company unique.

Next, the company spends time building relationships and finding the best partner possible. A letter of intent is then issued detailing the initial evaluation of the company, followed by possibly multiple negotiations, which Prokesch described as a “very fun time” with many parties involved in the process.

Prokesch endorsed simplicity in explaining one’s company and rationale to potential investors, so that someone can understand the business model without being an industry professional. He emphasized that developing relationships is key to going out into the market.

“You might be surprised how open people get when you also show some openness yourself,” Prokesch said. “It’s very interesting what can be learned from being a ‘foreign minister’ for your company and going out there a little more, while of course not losing focus on building your company.”