RWS is using the clout of its all-time-high market cap for a transformative acquisition. The boards of Super Agencies RWS and SDL announced on August 27, 2020 that they “have reached agreement on the terms of a recommended all-share merger of RWS and SDL,” in a deal that sees RWS buy SDL outright.
The transaction values SDL shares at 907p (i.e., GBP 854m; USD 1.128bn) — a whopping 52% premium over SDL’s most recent share price.
SDL shareholders (most of which are institutional investors) will own approximately 29.5% of the combined group, with RWS shareholders owning 70.5%. The SDL brand will disappear, and all SDL units rebranded as RWS over time. The combined company will remain listed on London’s AIM market and keep its HQ in Chalfont St Peter (UK).
The transaction is not a completely done deal as yet. Prior to final completion, there will be a series of shareholder votes and other regulatory steps that need to be taken. However, all-share mergers are a well-established technique, the deal already has the approval of roughly a third of both RWS and SDL shareholders, and the 52% premium is compelling.
The deal is expected to be completed in Q4 2020, and RWS said they expect the transaction to result in double-digit earnings per share accretion. With pro forma FY2019 revenues of GBP 732m (USD 967m) and adjusted operating profit of GBP 116m, the combined organization will become the largest language service provider by revenue, by a wide margin — and will likely take the top spot from TransPerfect in the 2021 Slator Language Service Provider Index.
RWS emphasized the two businesses’ highly complementary nature as well as combining its services business with SDL’s proprietary technology and translation workflow software as key drivers of the deal. Cost savings, of course, is another. And RWS said that after consulting with SDL management they expect at least GBP 15m in annualized cost savings from the deal.
The leadership of the combined group will be firmly in RWS’ hands. Andrew Brode, Chairman of RWS, will become Chairman of the Board of the Combined Group. Richard Thompson, CEO of RWS, will become CEO of the Combined Group. Desmond Glass, CFO of RWS, will become CFO of the Combined Group.
From SDL, Azad Ootam, CTO of SDL, will become CTO of the Combined Group.
Current SDL CEO Adolfo Hernandez and SDL CFO Xenia Walters will leave the company, but RWS said they “will enter into a new service or consultancy agreement with RWS.” So RWS wants to keep them close, for now.
A combination of RWS and SDL is the transformative acquisition the language industry has awaited for years. After Lionbridge’s failed attempt to buy TransPerfect in 2017, language industry M&A continued at a rapid clip, but was mostly focused on smaller targets in buy-and-build strategies or select technology acquisitions.
A combination of RWS and SDL changes the landscape as it creates a Super Agency present in many of the most lucrative, fastest-growing language industry verticals.
RWS shares were down 4% on the news as of press time. Predictably, SDL shares rallied and were up over 40%.
Slator will provide in-depth coverage on the transaction over the coming days.