In the latest example of a longtime owner/operator of a language service provider yielding to inexorable market forces, 27-year old M2 (pronounced “em-squared”) joined Welocalize. As with a similar liaison announced in recent weeks, the 2 LSPs characterized the deal as a merger. Welocalize CEO Smith Yewell will remain CEO of the bigger firm, André Pellet will become a vice president, and Maryland-based M2 staff will move down the road to Welocalize’s Virginia headquarters. The combined firms will employ 125 people worldwide and will book in excess of US$25 million this year. Closely-held and profitable M2 preferred not to disclose any financial details, including the multiplier over trailing revenue that Welocalize paid (note: the industry average is between 0.75 and 1.2 times the last 12 months of revenue).

M2 faced a dilemma common to every small LSP — it’s too profitable a business to walk away from but too small to compete with the big guys in the top 20. By joining Welocalize Pellet gains a position of influence in a larger company, some financial return (cash, earn-out, or stock, plus a management contract), and tranquility (somebody else will have to worry about meeting payroll). As with some small LSPs, M2 has a rich tradition and long history, so Pellet was concerned with how Welocalize would treat his customers and what would happen to the core of his company. After a year-long courtship by Welocalize, Pellet told us he felt comfortable handing over the reins to a relative arriviste in the language industry, especially since he adds his long experience to the company’s management team.

What does Welocalize gain from bringing M2 onboard? Yewell and Pellet emphasized the merger of management teams, extending process models, strengthening their positions in vertical markets, and solidifying technology infrastructure. Specifically, Welocalize will broaden three practice areas in the company:

• Desktop publishing will be expanded on the base of M2’s expertise. However, providers in lower-wage countries will challenge this effort, so we expect increased offshoring by Welocalize.
• More work on M2’s methodology that includes “Language Coordinators” who assess source, quality, and translation output. Pellet told us that M2’s approach grew out of work with life sciences companies that needed very well-defined and managed content processes
• Work in the life sciences and multimedia. M2’s life science experience will double Welocalize’s revenue in that area.

When Welocalize merged with Connect Global in December 2005, we asked aboutthe latter’s language-focused tool development on IBM’s WebSphere. Yewell said that since then Welocalize has been migrating clients using that software over to his Microsoft platform. We asked Pellet about his experience with SDL’s (née Trados) TeamWorks. He told that TeamWorks is still an important part of M2’s operation, especially for higher volume jobs, in simpler file formats like Word or PowerPoint, with large translation teams. We expect TeamWorks will follow the path of WebSphere in the Welocalize technology stack.

What’s next? We expect that more owner/operators will dust off and review their business plans, paying particular attention to the post-merger fate of entrepreneurs such as André Pellet and Hans Fenstermacher. Meanwhile, the mid-range suppliers (the crowd below Lionbridge, L-3, and SDL) will determine that acquisition is a much more reliable strategy than organic, internal growth.