Appen speaks the language of success

Anacacia Capital’s investment in the linguistics and technology company generated a return of 12.6x over seven years.

In 2009, Sydney-based Anacacia Capital was looking for a company that tapped into the strengths of Australia’s multiculturalism. After conducting top-down industry research, the firm discovered language services and technology company Appen.

Founded in 1996 by linguist and academic Julie Vonwiller and husband Chris, a senior executive at Telstra, Appen supplies the intelligence and speech recognition for search engines and social media. The company operates two business units: language resources, which provides data sets to drive speech recognition in applications; and content relevance, which enables search engines and social media platforms to offer more relevant content to its users.

“When we approached Appen's founders back in 2009 they weren’t looking to sell but were starting to think about succession and staging a retirement. They wanted to ensure the business had longevity beyond their management and ownership,” Jeremy Samuel, founder and managing partner of Anacacia, tells Private Equity International.

The Appen founders engaged Deloitte and Thomson Geer to advise on the sale process and Anacacia started exclusive discussions with the Vonwillers. The entire due diligence process lasted several months. As part of this, Anacacia mapped out a 100-day plan in conjunction with management, outlining the short-term priorities.

Anacacia initially acquired a 51 percent stake using capital from its 2007-vintage vehicle, A$52.8 million ($41 million; €36 million) Anacacia Fund I. The founders retained the remaining 49 percent stake and key management invested alongside the firm to align interests. Over the next 18 months, Anacacia increased its holdings to 70 percent for a total investment of A$5.5 million.

1- Stronger management

Anacacia hired senior management that would take over day-to-day operations from the Vonwillers, who wanted to step back to non-executive director roles and were seeking additional guidance on the board of directors.

Post-acquisition, Samuel and Jon Shein, former chief executive of Dimension Data Australia, joined the board as non-executive directors alongside the founders.

The Anacacia team kept the existing managing team and worked with the founders to appoint Bill Pulver, former chief executive of global research firm NetRatings, as CEO.

During this time, Anacacia also introduced a short-term incentive plan for management to compensate them for achieving business objectives. New systems – including enterprise resource planning (ERP) software solutions – were also introduced, streamlining the company’s crowdsourcing platform, which was instrumental in building its global network of translators and search evaluators.

2- Boosting product offerings

Appen completed three acquisitions under Anacacia’s ownership. The first, US-based content relevance business Butler Hill, was completed in mid-2011. This helped diversify the company’s product and service offerings, increase customer touch points and expand its geographic footprint.

The second, social media business Wikman Remer, allowed Appen’s commercial clients to tune and localise their search engines and improve internal website search functions. In September 2016, the company acquired Mendip Media Group, a UK-based provider of secure transcription services. This enhanced Appen’s security language service solutions to reach government services and to expand further into the UK and Europe.

3- Growing sales and supply chains

From traditional search engine clients, Appen’s customer base expanded to government agencies in the US and UK, social media companies and e-commerce businesses. By broadening its service offerings through bolt-on acquisitions, the company now serves eight of the top 10 technology companies globally, which are said to include Apple, Google, Facebook, eBay and Amazon.

Anacacia also played a role in hiring a data provider in the Philippines, which helped to streamline the company’s supply chain processes, increase scalability and reduce costs. The integration included two rounds of comprehensive ERP implementations. Today, while the company’s largest office remains in Sydney, the majority of Appen’s staff are located outside Australia, and more than 99 percent of its revenue comes from overseas.

Anacacia reconfigured the company’s team composition through a crowdsourced platform, hiring independent contractors, including translators covering 125 languages, social media evaluators and data entry clerks. The result was additional cost savings for Appen.

“From 34 employees, the company now employs 280 with over 400,000 contractors who are native speakers and in-country cultural experts in Australia, Asia and the US,” Samuel says. “Appen is doing really interesting work in artificial intelligence and machine learning and social media, very much impacting everyday lives of consumers globally.”

4- Levelling up ESG

During Anacacia’s ownership, Samuel and Shein also worked to improve governance in the company, provide strategic advice, and mentor the team. The board appointed KPMG as auditors and, as the company prepared to list in 2015, helped hire experienced non-executive members to the board.

Appen adopted a corporate social responsibility programme that supports international causes and employees in need, including contractors in the Philippines and elsewhere. The company also relocated to new premises with automatic shutdown on its lights, computers and air-conditioning.

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Anacacia initiated the exit process in 2015 and considered a trade sale as well as an initial public offering. “The board and Appen decided on an IPO route as it provided optionality and maximum value for shareholders, as well as independence for staff and stakeholders,” Samuel says.

Anacacia made a partial exit in February 2015, selling 30 percent of its interest through a listing on Australia’s ASX stock market at A$0.50 per share. Shares as of mid-July 2017 were at A$4.20, 50 times what the private equity firm paid in 2009.

Over the next two years, Anacacia continued to offload its stake in the company and in November 2016 sold its last holding of its private equity vehicle. However, the firm still owns just under 5 percent through its Wattle Fund, a vehicle that invests in publicly listed SMEs.

In May, Appen announced it expects between 40-50 percent growth in the next year.

“The best days of Appen should still be ahead of it,” Samuel says. “There's huge demand from large multinational tech companies embedding speech in their applications and ensuring relevant content for consumer searches and social media, the two big themes that Appen plays to.”