While Apple and Samsung Battle it out, Acacia Keeps Chugging Along
Saul is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In my blog a month ago titled “Oracle, Microsoft and Samsung Paid this Little Company Tens of Millions of Dollars Upfront,” I wrote about Acacia Research (NASDAQ: ACTG), which represents patent holders and has acquired numerous patent portfolios itself. I pointed out that they had tripled their revenues in two years from 2009 to 2011, and that they had definitely broken into the big time, having separately licensed their entire patent portfolio for three years to Oracle, Microsoft, and Samsung, for amounts ranging from $25 million to $45 million, paid upfront, as well as negotiating licensing settlements with other major companies such as Cisco, Hewlett-Packard, Citigroup and Commerce Bancshares, among many, many others.
I also mentioned that Acacia was, at that time, selling at about $25, which gave them a PE ratio of about 10 or 11.
The fact that Oracle, Microsoft, and Samsung were willing to pay $25 million, $40 million, and $45 million to this little company to license their patents for just three years has to mean that they feel the patents are valuable and valid, and that it wasn’t worth going to court to battle Acacia.
Since I wrote that article a month ago, Acacia has announced new licensing settlements with such additional major companies as Fujitsu Semiconductor and Fujitsu Semiconductor America, as well as with Analog Devices (NASDAQ: ADI), with Revere Inc., and just this week they announced two different settlements and licenses with Panasonic (NASDAQOTH: PCRFY) as well as one with E*Trade Financial (NASDAQ: ETFC), E*Trade Bank, and one with Varian Medical Systems (NYSE: VAR).
Acacia never explains exactly what the licenses are for, but you can get an idea from the names of their subsidiaries that closed the deals. For example Panasonic's two licenses were with Acacia's Smart Memory Solutions subsidiary and their Advanced Data Access subsidiary.
Acacia has also continued to amass new patent portfolios, announcing such varied patent portfolio acquisitions as patents for 360-degree-view technology, a patent for stent graph technology, patents on gas modulation control systems technology, patents for radio frequency modulation technology, and most recently patents for product lifecycle management technology. I have to admit that I don’t have a clue what that last one is. But it doesn’t matter. Acacia knows. And they think it was worthwhile to acquire.
I want you to note, first of all, that all these new licensing deals and new acquisitions of patent portfolios weren’t accomplished over a three-month quarter but were just their ordinary business in a single month.
Secondly, note that these companies settled with Acacia. They licensed the patents that they needed. There were no long drawn-out trials with bitter results and court awards and appeals like the recent Apple versus Samsung trial.
On the contrary, Fujitsu, Analog Devices, Panasonic, E*Trade and Varian Medical decided that the patents were valid. They licensed them, and went on with their business. This is another validation of Acacia’s business model.
The price had advanced by last Friday’s close to $29.70 from that $25 when I first mentioned them a month ago, but this is still a bargain price. We’re talking about a PE of perhaps 12 on a company with established success and which has tripled revenues in three years. It’s an unheralded success story.
I have long positions in Acacia and Apple. I have no position in any other stock mentioned. I'd like to mention that I've learned a lot about this company from a free blog called Growth Stock Insider by Walter Ramsley. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.