The world’s most valuable language service provider RWS, on June 9, 2020, announced final results for the six months ended March 31, 2020. Revenue fell slightly to GBP 169.7m from GBP 172.3 (-1.6%). Adjusted pre-tax profits decreased to GBP 33.1m from GBP 35.6m (-7.1%).
There were no surprises on the top line; the company had already guided the markets in an April 8, 2020 trading update (SlatorPro).
The slight decline in profits should not be a major concern given the challenging macro environment toward the end of the reporting period.
The company said that, of its three distinct business divisions, Life Sciences was the best performer, followed by Moravia and IP Services.
While the financials came in as expected, the half-year update contained two major pieces of M&A news. RWS announced the acquisition of Dublin-based machine translation provider Iconic Translation Machines as well as that of India-based language service provider Webdunia.com. Both acquisitions were financed from existing financial resources.
Tech vs. Service Valuations
Iconic, which posted revenues of USD 1.2m (up 100% from the year before) and break-even EBITDA of USD 0.023m, sold for up to USD 20m, a valuation typical for pure tech businesses. RWS will pay USD 10m in cash at completion and an earn-out of up to USD 10m in RWS shares after 28 months.
Iconic’s valuation (in terms of revenue multiple), therefore, is more than double that of Ireland-based rival KantanMT, which was acquired by game localizer Keywords Studios in December 2019.
At a price tag of USD 21m, Webdunia, which employs over 600 employees, commanded a much more modest multiple of 6.7x adjusted EBITDA, broadly in line with historic valuations paid for language service providers of comparable size. Webdunia generated revenues of USD 13.8m for the year ended March 31, 2020 (up 12% from the prior year) and adjusted EBITDA of USD 3.1m (up 33% versus 2019).
RWS had been collaborating with both companies prior to acquisition. Iconic, which specializes in building custom neural machine translation (NMT) engines, had been working with RWS Life Sciences; while Webdunia had been a partner of the RWS Moravia division for several years before the deal.
RWS said, “Iconic will form a new vertical language technology business within RWS and will be led by Iconic co-founders Dr John Tinsley and Dr Páraic Sheridan.”
Webdunia will be integrated into the Moravia division. Webdunia provides translation, localization, multimedia, and technology services and is located in India, Thailand, and the US. RWS said the acquisition “will therefore allow the Group to better support our technology customers in the Indian and Asian Pacific regions.”
Covid-19 Impact and Outlook
Given its strong footprint among technology clients as well as the traditionally defensive Life Sciences industry, RWS said it is “currently seeing limited impact on customer demand from Covid-19.”
The company noted “increased activity from Moravia’s large technology clients and Life Sciences’ clients, who are working on vaccines and antibody testing, offset by some impact on IP services, including slower onboarding of new clients.”
The company also remained upbeat on its outlook, stating that “trading performance since the period end has been good, with a very strong result in April, and strong sales in May.”
RWS refrained from providing financial guidance for the full financial year because it “remains difficult to predict with accuracy the likely financial impact of Covid-19 on the operations.”
Investors like what they see. RWS shares rebounded strongly from their March 2020 lows, reaching an all-time high in early June 2020. Currently, RWS weighs in at a market capitalization of GBP 1.756bn (USD 2.23bn).
Slator will provide more in-depth coverage of the Iconic and Webdunia acquisitions in the coming days.