90% decrease in revenues from 2018 to 2019, and $1.6 billion generated in revenues throughout its existence; that’s the type of ride investors will be on if they decide to act on Acacia Research Corporation.
A very interesting organization that focuses on investing in businesses with unique technological products, Acacia Research Corp proves to be an organization with strong assets (over $400 MM), knowledgeable management, and unique investing strategies. The company tries to identify the best patents to act as a middleman and take charge of operations to license the products to other businesses. Every year the process repeats itself, and the team is responsible for identifying the patents that are going to be in demand in order for them to take action and correctly distribute the rights and processes on behalf of investors while making a profit on the way.
Niche Business Model
Acacia Research Corporation was founded in 1993 in the U.S and currently operates out of Irvine, California. The company was profitable in previous years and even had a regular dividend payment schedule up until 2015.
The business model focuses on owning the rights of certain patents and intellectual properties to then grant those rights for the right price to third parties. It’s a brilliant model to operate in as technology continues to evolve year after year and will continue to do so over time. Business practices change and leave Acacia Research Corp to correctly identify the appropriate technologies to invest in. At some point, the business’s profitability can be solely dependent on a few key management and their visualization of the world and current market trends. This was seen with the recent drastic drop in the company’s revenues with a major change of over 90% and a difference of over $100 MM.
The dramatic loss of revenue was due to a “decrease in the number of … new agreements executed during the year.” The company isn’t necessarily bad because it had such a change; it simply shows the reality of the business model with which they operate. It would not be a surprise if they find a product that disrupts a market and becomes a multi-billion dollar company in the following years. Nothing is certain with Acacia Research Corporation, which inevitably reminds the old saying “buyer beware.”
As far as competitors go, Acacia Research Corporation has to compete with a wide variety of organizations. From universities developing tech to venture capital firms focused on tech, they all provide a challenge to the market. The main variables between these companies are experience, funds, and perspective behind decisions. Acacia Research Corporation is very well versed in regards to the experience in the industry with a quality management team that has expertise in the field.
The issue at hand becomes whether or not the companies who own the patents even want to enter into a partnership with Acacia Research Corporation. Other more established businesses can also step in with acquisition offers and take the prospective technologies before Acacia Research Corporation can effectively process a deal.
For example, if a company like Intel finds out about a smaller semiconductor business with a patent for their products, what stops them from offering a billion-dollar bid? The lengthy trials and complicated processes that have to take place before deals are completed are also enemies of the business.
As mentioned in their reports, acting as enforcers is an expensive and challenging task that takes time as well. Overall, the barriers are high in this industry as there are many variables in play for companies to remain profitable operating with such measures.
The challenges are there for Acacia Research Corporation, but that has not stopped them from consistently generating high revenues in the past. $1.6 billion with over $776 MM given back to the owners of the patents. Their methods have proven to work and are now going through a test of time. On a more positive note, the company recently completed a deal for a new credit facility worth up to $400 MM with investment advisor Starboard.
With total assets worth over $400 MM and total liabilities at around $200 MM, the company seems to be in a solid position for the time being. In 2020, Acacia Research Corporation also announced the acquisition of a portfolio of assets worth over $200 MM from Link Fund Solutions Limited. From that moment onwards, it is simple to appreciate the uptrend in the stock’s value.
Acacia Research Corporation is proactively seeking to improve its performances, and it has the means to do so.
Uncertainty is the Enemy of the Value Investor
Without facts and tangible proof that show an organization will continue to perform well for years to come, it just becomes speculation. Acacia Research Corporation is a truly unique business that knows exactly what it’s doing, and it shows in its track record. Recent news may hint that the company could be on the way to improve performance. However, the industry in which it competes is very volatile, and so has been Acacia’s results. Due to these reasons, it’s best to beware of the situation and keep an eye on future press releases or possible patent deals. Overall, it’s a very challenging market with high-risk and high reward potential, but few players like Acacia Research Corporation.