Acacia Research: What To Make Of The Latest Acquisition Announcement

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Acacia Research (ACTG), a holding company controlled by investment firm Starboard Value, continues to trade at a discount to its underlying value.However, a recent acquisition announcement could mark ...

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overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nAcacia Research: What To Make Of The Latest Acquisition Announcement\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-01 00:31 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4731498-acacia-research-what-to-make-of-latest-acquisition-announcement><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Acacia Research (ACTG), a holding company controlled by investment firm Starboard Value, continues to trade at a discount to its underlying value.However, a recent acquisition announcement could mark ...</p>\n\n<a href=\"https://seekingalpha.com/article/4731498-acacia-research-what-to-make-of-latest-acquisition-announcement\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4123","symbol_name":"调查和咨询服务","start_time":0,"source_url":"https://seekingalpha.com/article/4731498-acacia-research-what-to-make-of-latest-acquisition-announcement","article_id":"2480005589","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1594765101/image_1594765101.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2480005589","pubTimestamp":1730392266,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Acacia Research , a holding company controlled by investment firm Starboard Value, continues to trade at a discount to its underlying value.However, a recent acquisition announcement could mark the start of a change in approach that helps to bridge this valuation gap, and perhaps drive the next big run-up for shares.Even if Starboard Value's game plan for ACTG stock doesn't entail turning this holding company into a growth-focused industrial conglomerate, from a risk/return standpoint shares remain worthy of a buy.  Could Acacia Research's  latest acquisition mark the start of a pivot towards turning this holding company into an industrial conglomerate?","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4123":"调查和咨询服务","ACTG":"阿卡西亚","BK4164":"特殊金融服务"},"translate_title":"Acacia Research：如何看待最新的收购公告","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"ACTG":0.9},"content_text":"Acacia Research (ACTG), a holding company controlled by investment firm Starboard Value, continues to trade at a discount to its underlying value.However, a recent acquisition announcement could mark the start of a change in approach that helps to bridge this valuation gap, and perhaps drive the next big run-up for shares.Even if Starboard Value's game plan for ACTG stock doesn't entail turning this holding company into a growth-focused industrial conglomerate, from a risk/return standpoint shares remain worthy of a buy.  Could Acacia Research's (ACTG) latest acquisition mark the start of a pivot towards turning this holding company into an industrial conglomerate? LukaTDB  Acacia Research (NASDAQ:ACTG), a holding company controlled by Starboard Value, has in recent years shifted its focus from monetizing net operating loss carryforwards through the acquisition and licensing of patents, to acquiring undervalued companies. So far in 2024, Acacia has ramped up its M&A activity. Back in February, Acacia's Benchmark Energy II subsidiary announced plans to acquire 470 producing wells located in the Western Anadarko Basin. This deal closed in April. On Oct. 21, the company announced its $103.7 million acquisition of Deflecto, a manufacturer of specialty equipment for the commercial transportation, HVAC, and office markets. Yet while ACTG stock is up by over 21.3% year-to-date, much of these gains accrued earlier in the year, due to well-received updates on past investment, rather than in response to the announced acquisitions. That said, with shares still trading at a discount to their likely underlying value, and given the potential for ACTG to both bridge the valuation gap, plus pursue a change in acquisition approach that drives the next big move for shares, I remain bullish on the stock. ACTG Stock: Recent Performance and Developments Acacia shares have steadily climbed higher YTD, much of this is the result of ACTG stock's big surge back in March, upon the release of the company's full year 2023 results. As Seeking Alpha contributor Gems Capital discussed in a write-up detailing the full year results release, investors reacted bullishly to news of Acacia's $57 million sale of its interest in Arix Bioscience (OTC:ARIXF), as well as news of an $81 million WIFI patent licensing and settlement agreement. Since then, however, shares have largely traded sideways. Shares barely budged on the February Benchmark acquisition announcement, and haven't moved much in response to the Deflecto acquisition announcement. Data by YCharts Nevertheless, while more recent price action suggests limited upside potential from these deals, that may not necessarily be the case. At least, based on ACTG's underlying value, plus potential upside if the company decides to make a more focused acquisition approach going forward. Valuation Breakdown As the Deflecto acquisition has only been announced, and has yet to close, let's take a look at the current underlying value of ACTG stock, based upon its latest reported cash position, plus the likely value of its operating businesses. Cash and Short-Term Investments Per Acacia's Q2 2024 earnings presentation, as of June 30, 2024, ACTG's cash position, plus the fair value of its equity securities, totaled $405.2 million. As of June 30, there was also zero debt at the holding company level. Operating Segments Alongside this large cash and securities position are Acacia's three key holdings:  full ownership of Acacia Research Group LLC, or ARG (patent licensing) A 73.5% stake in Benchmark Energy II (oil and gas production) full ownership of Printronix (a manufacturer of industrial impact printers).  Valuing Printronix is fairly cut-and-dry. Acacia purchased the business back in 2021 for $33 million. Per the adjusted EBITDA figures provided in the aforementioned earnings presentation, TTM adjusted EBITDA for Printronix comes in at around $4.5 million. Assigning a conservative 7x multiple gives us a valuation of $31.5 million, a figure slightly below Acacia's purchase price. Valuing ARG and Benchmark, however, is a bit more tricky. ARG generates revenue and cash flow from largely unforeseen monetization events. The patent portfolio (classified as \"other intangible assets, net\") are on the books at around $36 million. Based on the company's success in recent quarters monetizing this portfolio, I believe that this book value reasonably reflects the future value of cash flows from this portfolio. As for Benchmark, it may be best to value this asset based upon the net amount of equity capital ACTG has invested in this venture. ACTG initially invested $10 million into Benchmark in November 2023, investing an additional $59.9 million in order to finance the Western Anadarko Basin asset purchase. This gives us a total value of around $69.9 million. Adding it All Together In short, we get the following gross valuations for ACTG's current cash position and operating assets:  $405.2 million for cash and equity securities $31.5 million for Printronix $36 million for the ARG patent portfolio $69.9 million for the Benchmark stake  This gives us a total gross valuation of $542.6 million. Subtracting $14.5 million in profit interests payable to several former executives of the company (referred to as the \"AIP Matter\"), we get a net valuation of around $528.1 million, or $5.26 per share.   Acacia Research (ACTG) had a book value of $5.95 per share as of June 30, 2024, but $5.26 per share may be a more accurate assessment of the company's current underlying value (Acacia Research Q2 2024 Earnings Presentation) While somewhat less than the company's reported $5.95 per share book value, my assessment still signals that a gap of around 10.8% between trading price and underlying value remains. Having said this, given the potential with Benchmark as well as with the pending Deflecto deal, long-term upside may be far greater than a move to prices slightly above penny stock territory (under $5 per share). What Could Drive the Next Big Run-Up ACTG stock has delivered decent price performance over the past year, but for investors following this situation for several years, performance has been underwhelming, with shares underperforming the market over the past five years. Data by YCharts That said, over the next five years, or perhaps over an even shorter time frame, there may be a path for Acacia to deliver much more satisfactory price performance. How? For one, over the next few years, the company could add tens of millions more to its war chest, and not just from further patent monetization. Based on the impact of the latest Benchmark Energy asset purchase on adjusted EBITDA, this segment could produce tens of millions in annual free cash flow for this business. Not too bad, for an asset purchased for than than $70 million. ACTG has two options with these additional cash flows. First, they could be used to finally begin buying back stock, as part of a $20 million share repurchase program announced nearly a year ago. Second, and perhaps to the greater benefit of ACTG stock investors, these funds could be used to supplement Acacia's nine-figure war chest, to go beyond just making opportunistic investments, but to build a growth-focused holding company. How Starboard Could Turn Acacia Into a Growth-Focused Industrial Conglomerate While the Deflecto deal has a total value exceeding $100 million, the acquisition target has borrowed $48 million in order to help finance the transaction. This suggests that Acacia is investing around $55.7 million into this deal. In turn, leaving the company with around $350 million to put to work in other potentially-accretive acquisitions. Yes, it's reasonable to assume that Acacia will continue to be industry-agnostic in its acquisition approach. However, management may eventually come to the conclusion that focusing on the acquisition of industrial businesses could be the best path forward to maximizing shareholder value. That is, with ACTG, Starboard Value may have the opportunity to build a \"mini Danaher (DHR),\" or, at the very least, build its own version of Crawford United (OTCPK:CRAWA). Calling itself a \"growth-oriented holding company,\" Crawford United has created significant shareholder value over the past decade. Largely, by implementing the industrial holding company playbook utilized to great success in decades past by Danaher, as well as other decentralized industrial conglomerates like Illinois Tool Works (ITW). Acacia clearly has down pat the ability to acquire businesses at more-than reasonable valuations. For instance, given that Deflecto is expected to generate EBITDA of between $17.5 million and $19.5 million, ACTG is getting this business at a low EBITDA multiple of between 5.3x and 5.9x. Add in improvements to profitability, and the potential impact of a re-rating from this and subsequent acquisitions could be substantial. Risks and Uncertainties Although pivoting towards becoming an industrial conglomerate seems like a viable path to maximize shareholder value for ACTG investors, it's far from certain that Starboard Value considers taking this approach. Admittedly, Starboard could take a different approach, one that results in a similar positive outcome of outsized gains for investors. For example, rather than pivot towards becoming a Danaher and Crawford United-style business, ACTG could double-down on its investments in oil and gas. However, if Acacia decides to continue taking an industry-agnostic approach, ACTG's holding company discount could remain, as the stock continues to be tough to value given its disparate assets. While not certain, it's also possible that Starboard Value capitalizes on the valuation gap, by ultimately making an offer to buy out outside shareholders. Even if a buyout offer represents a healthy premium to the stock's trading prices, outside investors could miss out on potential upside with Benchmark, Printronix, Deflecto, and the patent portfolio assets. That said, despite the possibility of mediocre price performance going forward, downside risk may be minimal, considering the large cash position and lack of debt at the holding company level. Bottom Line I have held a position in ACTG stock for several years. While hopeful that Starboard has also considered pursuing the industrial conglomerate approach, considering the margin of safety provided by the stock's underlying value, coupled with the potential for Acacia to pursue opportunities that could be more well-received by the market, I believe shares remain worthy of a buy at current price levels.  Acacia Research is scheduled to next release quarterly results pre-market on Nov. 12. Barring the unveiling of negative developments warranting a change in my view on the stock, I do not anticipate exiting my ACTG stock position in the foreseeable future.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2480005589"}