ALS’s Gavin Wheeldon: A Case Study in Cheap Translation

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Bialystock: Step 1: We find the worst play ever written. Step2: We hire the worst director in town. Step3: We raise two million dollars. ... One for me, one for you. There'sa lot of little old ladies out there! Step4: We hire the worst actors in NewYork and open on Broadway and before you can say Step5: We close on Broadway, take our two million, and go to Rio.—The Producers (2005)
The tribulations of Applied LanguageSolutions (ALS) are everywhere in the blogosphere these days. It remains to beseen whether the company will hold on to its monopoly of court interpretingservices in England and Wales despite its dismal performance to date (the catastrophe is discussed hereat length). 
However, allow me to take a step back, because ALS CEO GavinWheeldon’s overexposure to the British media provides a cornucopia of materialto conduct a brief case study of cheap translation in flagrante delicto, as it were. Watching Wheeldon’s TVperformances on Dragons' Den and The Secret Millionaire, you literally seethe yucky pig lips being inserted into the paste processed by the sausagemachines. Wheeldon as a businessman (and a moral specimen) is truly riveting, albeitin sort of the same way that Hannibal Lecter is fascinating as a gourmet.
1.- Thereis no Revenue from Free Translation (!)
The following exchange is from his appearance in the BBC’s Dragons' Den. The format isas follows: five independent and separate private equity investors hear pitchesfrom entrepreneurs and decide in front of the camera whether they will investin the businesses. The ten-minute clip is a fascinating snapshot of the cheaptranslation sector in the early twenty-first century. Among many other issues,it is indicative of how machine translation currently has a grip on investors’minds, as well as the way in which savvy shysters exploit it to the hilt forhype value (bubble, bubble, toil and trouble),despite the absence of any real substance.




Watch how the Wizard of Oz instantlyturns into the shabby man behind the curtain (in three, two, one...):

Dragon 1 (Richard Farleigh): You do two things. One onthe Web and the other one is actually live translation…
Wheeldon (interrupting): It’s human. The one on theWeb, it’s machine translation. It does it instantly. It does it on the fly. Theone on the Web, it’s about 70% accurate. It’s just a gimmick. It’s a good tool.People use it. It attracts visitors. But, obviously, that’s just a driver…
Farleigh: Okay. How is your revenue split between these twoactivities?
Wheeldon: There is no revenue from free translation. It’s allprofessional translation.
Farleigh: So all your 3.2 [million]…
Wheeldon: It’s all human translation. Professional translation.

Did you catch that? It is so pristine andsimple that you almost expect it to come from the mouth of a Zen master. “Thereis no revenue from free translation.” What!? Listen to that, world: NO REVENUEFROM FREE TRANSLATION!
So there it is: Free translation does notprovide revenue. The simplicity of this tautology is so beautiful, soabsolutely beautiful, it brings the slightest little tear to the eye, like atwelve-year-old watching the closing scenes of E.T.
Can you imagine that? It’s hard to make money from free stuff! We shouldframe this phrase and hang it above the desk of every Cheap Translation CEOacross the world.
I can imagine Henry Ford going: “Youknow, we’ve noticed that giving away Model-Ts tends to hurt our bottom line.”Or Warren Buffett writing to Berkshire Hathaway shareholders to say: “Well, itturns out that Project Free Hamburger was not the money machine we hoped.”
2.-There is No Profit from Cheap Translation
Wheeldon cites £3.2 million in revenue.When prompted for a profit figure, he vaguely estimates £400,000 for the year. Headds that his request of £250,000 for 4% of the shares is based on a P/E (price/earnings)ratio of 15. However, the second Dragon, Theo Paphitis, finds some clash betweenthis figure and his own due diligence. He calls Wheeldon on it. The buddingl10n entrepreneur replies that the 15 P/E for a £6.25 million valuation is basedon “net profit.” Now, I am not an accountant, but net profit could (and usuallydoes) mean almost anything. And, inthis case, it means even less than that. After some prompting, it turns out thatthe slippery Mr. Wheeldon means “profit including [i.e., before] tax,” which,if anything, should actually be called “gross profit.” Listen to the investorschooling the weasely presenter like a stern schoolmaster:

Paphitis (Dragon 2): P/Es are calculated after thededuction of tax.
Wheeldon: Okay, well, I’ve learned something…

You have to hand it to Wheeldon. Caught red-handedin a transparent bit of obfuscation, he doesn’t even flinch. At most, he only seemsslightly deflated. Paphitis, smelling weakness, presses on: the real P/E for a4% equity stake costing £250,000 based on profits of £300,000 is not 15, but awhopping 21 to 22 times earnings (which in technical financial terms is “super-duperhigh” for a company outside the tech sector). Wheeldon accepts the analysismeekly, but offers an explanation for his creative accounting (viz. ignorance):

Paphitis: Do you expect me to feel a little bit uncomfortable?
Wheeldon (smiling): Once again, I’m learning here, Theo. In terms of a…
Paphitis (irritated): This not for learning!This is not a lesson!
Wheeldon (sheepishly): It certainly seems thatway…
Paphitis: You come and ask me to invest £250,000?! And you askme to teach you at the same time?!

The investor’s rebuke is harsh enough thatit wipes the smile from Wheeldon’s face. The narrator sums it up: The valuationcited by Wheeldon is based on projected earnings (i.e., not actually in the bagyet) and it included taxes (i.e., money investors will never see).
Now, none of this is outrageous, but notethat Wheeldon has been caught in the space of three minutes in several worrisomefabrications. You might argue that the professional investors pictured on Dragons' Den do this for a living, but isit at all possible that Mr. Wheeldon’s creativity with the truth played a rolein securing the contract from the Ministry of Justice? I have my own opinion. Ileave it to you to draw your own.
To lay this out as simply as possible,imagine that you have £250,000 in the bank. You can either place it in UK governmentgilts at 5% interest or, alternatively, you can invest it in the buddingbusiness of McTranslations Inc. in exchange for a 4% equity stake.
If you invest the quarter-million pounds inthe British government bonds (the risk-free rate), within one year, you will haveearned 12,500 pounds as interest.
If however, you take that chunk of changeand sink it into the H.M.S. McLocalization Titanic AppliedLanguage Solutions, at the end of the year you have a claim on 4% of theprofits, which the chief executive officer “estimates” at £300,000.
Do the math. That is £12,000. That is 500pounds less than the laziest, safest,most unimaginative thing you can do with your money, aside from leaving it torot in a savings account at a negative real interest rate. The British Governmenthas never defaulted on a loan since it started asking for money centuries ago. Howdoes that compare to a company founded nine years ago in some dude’s bedroom inManchester? Is it more or less dependable as an investment? Once again, I leaveit to you to arrive at the answer.
The thing is that private equity guys suchas the Dragons only become interested in businesses that make sexier returns—onthe order of at least 10% a year or more.
Translation, sadly, does not fit that bill(at least the way it is done by shady entrepreneurs). Sure, cheap translationis enough for sleazy characters to make some moolah and fund a lavish lifestyle,but at the expense of generating a lot more revenue than you would need to ifyou provided quality at heftier margins. Wheeldon raises the long-term idea offloating on the stock market within five years for £60 million. Another Dragonshoots this down out of hand and cites again the company’s dismal balance sheet.Cheap low-quality translation has not passed the smell test. “As a risk/rewardratio for me, it doesn’t stack up,” says one.
Nonetheless, Wheeldon does get a tentativeoffer from Dragon Duncan Bannatyne, of halfthe money (£125,000) for more than doublethe equity stake (9%) he sought. Which is one way of saying: “You, sir, are a finepurveyor of bollocks, but reality is far less rosy.”
In conclusion, the Dragons liked him as asalesman, but they were turned off both by the sector and the valuation, sothey turned him down. Cheap translation strikes out.
3.-A New Hope: Capita Steps In
Okay, so that is that. The thing is that, onlythree months ago, the FinancialTimes reportedthat a private equity fund called Capita stepped in to buy the whole of ALS for£7.5 million. So the Cheap Translation Theorist might say: “Aha! Six and aquarter million pounds for ALS’s paltry revenue was not so crazy after all!Gavin Wheeldon secured one and a quarter million pounds more than he asked the Dragonsfor!”
However, two things have to be taken intoaccount. First of all, the Dragons' Denclip was filmed several years ago, so you have to discount the erosive impactof inflation. Secondly, the private equity fund jumped in only after ALS secured the mega-juicy Ministryof Justice contract that has raised all the Sturmund Drang. This MoJ contract is reportedly worth £300 million over several (undisclosed)years, or £42 million a year, depending upon the source. So the details of howthat breaks down revenue- and profit-wise totally skew the assessment of Wheeldon’spie-in-the-sky valuation. The Capita buyout was a bet that ALS would executesuccessfully on a recurrent contract with a good government client, pure andsimple. Moreover, the MoJ would represent more than 90% of the company’srevenue for many years to come. It would be like shooting fish in a barrel.Of course, that was if and when ALS executed efficiently on the contract,which is currently in doubt.
4.-Epilogue: What Is the Deal With the Cheap Translation/Sleazy SalesmanshipCorrelation?
The alpha and omega of the entire ALSdebacle is the man himself, Gavin Wheeldon. His personality comes across forcefullyin the Dragons' Den clip: smarmilycharming, slightly sleazy, quick on his feet, evasive, and not overly analytical.It is easy to imagine him courting civil servants and cabinet ministersdesperate to make budget cuts with ridiculous, pie-in-the-sky promises about60% efficiencies. Sadly, these exchanges were not filmed. However, a simpleGoogle check might have given the ministry's staff some pause.
Last week I visited Wheeldon’s Wikipedia page. After reading it, I assumed it had been vandalized, given the nationwidefirestorm in the UK. But after checking the footnotes and hyperlinks, Irealized that, OMG, those were actually things he said to journalists! Thoseare actual quotes from his mother!
The first pearl is from a Times profile entitled “How I Made It”.Wheeldon tells the newspaper how he secured his first fat contract:

I wasringing up and pretending I was this huge translation company when really itwas just me in the back bedroom with a phone and PC. I won the contract andthen thought: oh my God, how on earth do I deliver this?

Is there any chance that this is the modusoperandi used to secure the mega-million-pound contract from the Britishgovernment? Who knows? For me, in the mouth of the chief of a tiny company thatis awarded responsibility for providing thousands of interpreters to the entirelegal system of a large country, this sounds a lot like someone saying: “Mr.Excrement, may I introduce you to Mr. Fan?”
Sound harsh? Listen to his mother’sdescription of him as a child during an interview for hisappearance in The Secret Millionaire:“My nickname for Gavin was our small Arthur Daley, my dad always said if hedidn’t end up behind bars he’d end up making a fortune!”
Who was Arthur Daley, you ask? CheckWikipedia. He was a character in a 1970s British TV show who is described as follows:

ArthurDaley, a socially ambitious but highly unscrupulous importer-exporter,wholesaler, used-car salesman, and anything else from which there was money tobe made whether inside the law or not.

The entry goes on to note that “the nameArthur Daley has become synonymous with a dishonest salesman or small timecrook.”
Jesus Christ…


Miguel Llorens is a freelance financial translator based in Madrid who works from Spanish into English. He is specialized in equity research, economics, accounting, and investment strategy. To contact him, visit his website and write to the address listed there. You can also join his LinkedIn network by visiting the profile or follow him on Twitter.