Friday, December 14, 2012

Acacia Research ( Nasdaq - ACTG ) -- Ready for Blastoff

Acacia Research (ACTG $24.00) is prepared to drive its financial results substantially higher over the next two years.  The company has expanded its patent portfolio to include 250 families.  Five of those are especially high potential collections.  Two are owned outright by Acacia.  The remainder of the company's intellectual property holdings are shared with the original inventors.  In most cases Acacia divides any proceeds received 50-50 with the original owners, less what they pay to outside patent lawyers to pursue the cases.  The three major families where Acacia has partners were designed on a more customized basis, where the company paid the holders some cash up front and retained a higher interest in the future proceeds.  It ordinarily takes 12-18 months for Acacia to prepare a new group of patents for commercialization.  That preparation phase is nearing an end for three of the company's five big portfolios.  The other two have been in something of a hiatus, too, for different reasons.  In 2013 a flood of settlement activity could develop. propelling earnings dramatically above current levels.

Acacia is negotiating 5-6 large "structured agreements."  Those are bundled transactions where infringing companies license all of Acacia's intellectual property for a three year period.  Past deals with Microsoft, Oracle, Samsung, and Cisco Systems have averaged $40 million.  Acacia's portfolio is far more extensive today than it was when those deals were signed, although it's much more diversified, too.  The company's initial focus was wireless and computer technology.  Recent expansions include medical devices, automotive, and industrial systems.  Future structured transactions probably will include only a subset of Acacia's total arsenal, relevant to the target's area of interest. 

Acacia is heading to court in April to sue Apple Computer.  The company owns the Palm patents, which created the foundation for the smart phone industry.  Apple recently won a $1.0 billion judgement against Samsung over the shape of the phone.  Acacia could win that much if not more if it's victorious in its claims concerning how the phones actually work.

In 2-3 years earnings could reach $2.50-$3.00 a share.  Faster gains are possible.  Acacia's existing patents still have plenty of shelf life.  And the company probably will reinvest some of its future cash flow in additional patent families.  Above average growth could be sustained well into the decade.

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