What changed in this filing

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Item 1. Business

2022-03-31 compared with 2021-03-29 · 111 added, 114 removed, 4 unchanged (98% of the section changed)

Acacia Research

Corporation (the “Company”, “we”, or “us”) acquires businesses and operating assets that we

believe to be undervalued and where we believe we can leverage our resources and skill sets to realize and unlock value.

our (i) access to flexible capital that can be deployed unconditionally, (ii) expertise in corporate governance and operational

restructuring, (iii) willingness to invest in out of favor industries and businesses that suffer from a complexity discount and

untangle complex, multi-factor situations, and (iv) expertise and relationships in certain sectors, to

complete strategic acquisitions of businesses, divisions, and/or assets with a focus on mature technology, healthcare, industrial

and certain financial segments.

We seek to identify opportunities where we believe we are advantaged buyers, where we can avoid

structured sale processes and create the opportunity to purchase businesses, divisions and/or assets of companies at an attractive

price due to our unique capabilities, relationships, or expertise, or where we believe the target would be worth more to us than to

other buyers.

We operate our

business based on three key principles of People, Process and Performance and have built a management team with identified expertise

in Research, Execution and Operation of our targeted acquisitions.

We utilized these

skill sets and resources to acquire a portfolio of equity securities of life science businesses (the “Portfolio Companies”)

in June 2020.

As of December 31, 2020, we have monetized a portion of the portfolio while retaining an interest in a number of operating

businesses, including a controlling interest in one of the companies in the portfolio.

Further, some of the businesses in which we continue

to hold an interest generate revenues through the receipt of royalties.

We also operate

our legacy business of investing in intellectual property, or IP, and related absolute return assets and engaging in the licensing

and enforcement of patented technologies.

We partner with inventors and patent owners, from small entities to large corporations,

applying our legal and technology expertise to patent assets to unlock the financial value in their patented inventions.

an intermediary in the patent marketplace, bridging the gap between invention and application, and facilitating efficiency in

connection with the monetization of patent assets.

revenues and related cash flows from the granting of IP rights for the use of patented technologies that our operating subsidiaries

control or own.

We assist patent owners with the prosecution and development of their patent portfolios, the protection of their

patented inventions from unauthorized use, the generation of licensing revenue from users of their patented technologies and,

where necessary, with the enforcement against unauthorized users of their patented technologies through the filing of patent infringement

Currently, on a consolidated basis, our operating subsidiaries own or control the rights to multiple patent portfolios,

which include U.S.

patents and certain foreign counterparts, covering technologies used in a variety of industries.

We have established

a proven track record of licensing and enforcement success with over 1,590 license agreements executed to date, across nearly

200 patent portfolio licensing and enforcement programs.

To date, we have generated gross licensing revenue of over $1.6 billion,

and have returned more than $797 million to our patent partners.

further details of the development of our business, refer to our Annual Report on Form 10-K for the year ended December 31, 2019,

which is incorporated herein by reference.

Corporate Information

We were originally

incorporated in California in January 1993 and reincorporated in Delaware in December 1999.

Our website address is www.acaciaresearch.com .

Reference in this annual report to this website address does not constitute incorporation by reference of the information contained

on or accessed through our website and references to our website address in this annual report are inactive textual references

We make our filings with the Securities and Exchange Commission, or the SEC, including our annual reports on Form 10-K,

quarterly reports on Form 10-Q, current reports on Form 8-K, other reports filed or furnished pursuant to Section 13(a) or 15(d)

of the Exchange Act, and amendments to the foregoing reports, available free of charge on or through our website as soon as reasonably

practicable after we file these reports with, or furnish such reports to, the SEC.

In addition, we post the following information

on our website:

our code of conduct for chief

executive officer and other senior officers;

our code of conduct for employees

and directors and our fraud policy;

our insider trading policy;

charters for our audit committee,

nominating and corporate governance committee and compensation committee.

Also, the SEC

maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers,

including us, that file electronically with the SEC.

The public can obtain any documents that we file with the SEC at http://www.sec.gov .

Patent Licensing and Enforcement

We are a principal in the licensing and enforcement

of patent portfolios, with our operating subsidiaries obtaining the rights in the patent portfolio, or purchasing the patent portfolio

We assume all responsibility for advancing operational expenses while pursuing a patent licensing and enforcement program, and

when applicable, share net licensing revenue with our patent partners as that program matures, on a pre-arranged and negotiated basis.

Acacia Research Corporation (the “Company,” “we,” “us,” or "our") is a permanent capital platform that purchases businesses based on the differentials between public and private market valuations.

We use a wide range of transactional and operational capabilities to realize the intrinsic value in the businesses that we acquire.

Our ideal transactions include the acquisition of public or private companies, the acquisition of divisions of other companies, or structured transactions that can result in the recapitalization or restructuring of the ownership of a business to enhance value.

We are particularly attracted to complex or multi-factor situations, where value is not fully recognized in the public markets, where values of certain operations are masked by a diversified business mix, or where private ownership has not invested capital necessary to drive long-term value.

We aim to operate a transactional platform through which we can initiate a strategic block position in public companies as a path to complete whole company acquisitions or strategic transactions that unlock value.

We believe this business model is differentiated from private equity funds, which do not typically own public securities prior to acquiring companies, hedge funds, which do not typically acquire entire businesses, and other acquisition vehicles such Special Purpose Acquisition Companies, which are narrowly focused on completing one singular, defining acquisition.

Our focus to date has been on companies with market values in the sub-$2 billion range and particularly on businesses valued at $1 billion or less.

We are, however, opportunistic, and may pursue acquisitions that are larger under the right circumstance.

We believe Acacia has the potential to develop advantaged opportunities due to its:

• access to flexible capital that can be deployed opportunistically as a result of our strategic relationship with Starboard Value LP (discussed in further detail below);

• disciplined focus on identifying opportunities where the Company can be an advantaged buyer, initiate a transaction opportunity spontaneously, avoid a traditional sale process and complete the purchase of a business, division or other asset at an attractive price;

• willingness to invest across industries and in off-the-run, often misunderstood assets that suffer from a complexity or multi-factor discount;

• relationships and partnership abilities across functions and sectors;

• strong expertise in corporate governance and operational transformation.

Our access to flexible capital and long-term focus positions our businesses to navigate difficult cycles and allows sellers and other counterparties to have confidence that a transaction is not dependent on achieving the types of performance hurdles demanded by private equity sponsors.

As we have permanent capital, we can consider opportunities based on the attractiveness of the underlying cash flows, without regard to a specific fund life or investment horizon.

Further, as a publicly traded company, we can offer sellers or employees straightforward equity participation in the ongoing business.

People, Process and Performance

Our investment platform is built on the principles of People, Process and Performance.

We have built a management team with demonstrated expertise in Research, Transactions and Execution, and Operations and Management of our targeted acquisitions.

We believe our priorities and skills underpin a compelling value proposition for operating businesses, partners and future acquisition targets, including:

• the flexibility to consummate transactions using financing structures suited to the opportunity and involving third-party transaction structuring as needed;

• the ability to deliver ongoing financial and strategic support;

• the financial capacity to maintain a long-term outlook and remain committed to a multi-year business plan.

Relationship with Starboard Value, LP

Our strategic relationship with Starboard Value, LP (“Starboard”) provides us access to capital, industry expertise, and a deep bench of operating partners and industry experts to evaluate potential acquisition opportunities and enhance the oversight and value creation of such businesses once acquired.

Starboard provides ready access to its extensive network of highly successful industry executives and, as part of our relationship, Starboard assists with sourcing and evaluating appropriate acquisition opportunities.

Core Corporate Development and Investment Approach

We focus on creating transactions where we are able to acquire operating businesses and strategic assets that we believe are undervalued.

Our expertise in, and experience with, complex multi-factor situations enables us to discover and structure opportunities that are attractive for our shareholders and the leadership of the businesses we purchase.

We utilize our capabilities across Research, Transactions and Execution, and Operations and Management to drive the discovery, investment, acquisition and integration of such target opportunities.

Through our Research platform we identify companies, both public and private, at an appreciable discount to intrinsic value.

We have a broad mandate, with a particular interest in businesses operating in mature technology, industrial, healthcare and certain financial services sectors.

We believe attractive opportunities will continue to present themselves as publicly owned businesses can be misunderstood due to strategic misalignment such as an incompatible business mix or misdirected capital allocation strategy.

We also see opportunities as large corporate owners seek to divest non-core operations.

Overall, our acquisition pipeline is robust, and is a product our public market research expertise, as well as our private market sourcing process.

The success of our strategy depends on our ability to properly identify acquisition candidates.

Our approach often involves the concept of “applied investment banking”, whereby we can leverage our ability to understand complex situations,

identify a path to value creation through deal structuring, and invest capital to drive such outcomes.

Identifying these situations involves:

• engaging in a substantial amount of detailed fundamental research, both internally and in conjunction with third-parties;

• critically evaluating management teams;

• identifying and assessing financial and operational strengths and weaknesses absolutely and relative to industry competitors;

• researching and evaluating relevant industry information;

• thoughtfully negotiating acquisition terms and conditions.

Transactions and Execution

Once we identify a favorable opportunity, we may purchase a strategic block of shares in the target company, if publicly traded.

From that point, the process of consummating a transaction or acquisition can be time-consuming and complex, taking months if not a year or longer to complete.

During that time we will continue to leverage our management team’s experience and expertise in researching and valuing prospective target businesses, as well as negotiating the ultimate acquisition of such target businesses.

We will also leverage the extensive networks of our operating partners, who are essential partners in identifying and executing acquisitions and managing for value creation.

We also regularly review our portfolio for opportunities to build long-term shareholder value, which may result in the divestiture of certain businesses over time.

Operations and Management

Our operational strategy involves identifying critical operating management either within the businesses or divisions we acquire or from our extensive executive network.

We support the management teams of each of our acquired businesses by, among other things:

• financing internal growth strategies;

• supporting attractive external growth and acquisition opportunities;

• providing resources to assist management in controlling overhead costs and leveraging platform-wide resources;

• implementing operational efficiencies;

• sharing best practices across our portfolio companies.

Our Operations

Intellectual Property Operations - Patent Licensing, Enforcement and Technologies Business

We invest in intellectual property ("IP"), and related absolute return assets, and engage in the licensing and enforcement of patented technologies.

Through our Patent Licensing, Enforcement and Technologies Business we are a principal in the licensing and enforcement of patent portfolios, with our operating subsidiaries obtaining the rights in the patent portfolio or purchasing the patent portfolio outright.

We assume all responsibility for advancing operational expenses while pursuing a patent licensing and enforcement program, and when applicable, share net licensing revenue with our patent partners as that program matures, on a pre-arranged and negotiated basis.

We may also provide upfront capital to patent owners as an advance against future licensing revenue.

We have the flexibility to structure arrangements

to address the needs and specific sets of circumstances presented by each of our unique patent partners, ranging from outright purchases

to various forms of partnering arrangements.

Generally, we maintain a substantial preferred

rate of return until all deployed capital and advanced operational costs are recovered by us.

After recovery of these costs, the net profit

revenue share with patent partner commences, if applicable.

We engage highly competent and experienced patent

lawyers to prosecute our patent portfolio litigation.

It is imperative for us to be persistent and patient throughout the litigation process

as it typically takes 18-36 months from the filing date of a lawsuit to yield a license agreement from a potential licensee.

takes longer to secure a final court judgment.

Patent license negotiations and litigation initiated

by our operating subsidiaries usually lead to serious and thoughtful discussions with the unauthorized users of the patented inventions.

The result can be quite favorable with the user being granted rights under the patents for the patented invention in its products and

services in exchange for financial remuneration.

In fiscal year 2019 and 2020, the Company experienced

a number of changes in its outlook and leadership.

With new management in place, the focus was on capturing the value of remaining portfolio

assets while building the new business pipeline.

In addition, we began to pursue other business opportunities which complement our legacy

licensing and enforcement business and leverage our IP expertise.

Patented Technologies

Currently, on a consolidated basis, our operating

subsidiaries own or control the rights to patent portfolios covering technologies used in a number of industries, including:

transportation

and automotive, telecommunications, semiconductor, consumer electronics, energy efficiency, wireless, video/imaging and medical devices.

While that business saw activity slow significantly in 2018 and early 2019, beginning in late 2019, we began to commit modest amounts of capital to acquiring new portfolios, and have since successfully acquired the rights to five noteworthy new patent portfolios for aggregate consideration of approximately $46.9 million during 2019, 2020 and 2021.

This business has recently begun to show substantial revenue and operating profit growth and deliver on our targeted return hurdles.

Currently, on a consolidated basis, our operating subsidiaries own or control the rights to multiple patent portfolios, which include U.S.

patents and certain foreign counterparts, covering technologies used in a variety of industries.

We generate revenues and related cash flows from the granting of IP rights for the use of patented technologies that our operating subsidiaries control or own.

Refer to Item 7.

“Management’s Discussion

and Analysis of Financial Condition and Results of Operations”

for a summary of patent portfolios generating revenues for the applicable

periods presented.

We face intense competition in identifying, evaluating

and executing strategic acquisitions from other entities having a business objective similar to ours, including private equity groups

and operating businesses seeking strategic acquisitions.

We compete with financial firms, corporate buyers and others investing in strategic

opportunities and acquiring IP.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a summary of patent portfolios generating revenues for the applicable periods presented.

Life Sciences Portfolio

As an example of our opportunistic approach and flexibility, in early 2020, our research into the potential acquisition of a life science company led to the discovery of a portfolio of life science investments available for purchase at a substantial discount to realizable asset value.

We negotiated an exclusive option to acquire the portfolio in April 2020, during a period of substantial uncertainty in the public markets in the early phase of the COVID-19 pandemic.

In June 2020, we consummated the acquisition of the Link Equity Income Fund, a portfolio of investments in 18 public and private life sciences companies.

That purchase was funded with a combination of available cash and capital from Starboard, for a total of approximately $282.0 million at the time of acquisition.

Since the closing, equity markets have recovered, we sold a substantial number of these positions, and importantly, two of the private company holdings completed successful initial public offerings, which enabled us to realize gains.

Through the end of 2021, we recovered all of our upfront purchase price and an additional $33.0 million of capital, while retaining stakes in the Life Sciences Portfolio valued at $343.1 million at December 31, 2021.

Refer to Note 4 to the consolidated financial statements elsewhere herein for additional information.

Refer to Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional equity securities investments information for the applicable periods presented.

Industrial Operations Business

In October 2021, we consummated our first operating company acquisition of Printronix Holding Corp.

(“Printronix”).

Printronix is a leading manufacturer and distributor of industrial impact printers, also known as line matrix printers, and related consumables and services.

The Printronix business serves a diverse group of customers that operate across healthcare, food and beverage, manufacturing and logistics, and other sectors.

This mature technology is known for its ability to operate in hazardous environments.

Printronix has a manufacturing site located in Malaysia and third-party configuration sites located in the United States, Singapore and Holland, along with sales and support locations around the world to support its global network of users, channel partners and strategic alliances.

This acquisition was made at what we believe to be an attractive purchase price, and we are now supporting existing management in its execution of strategic partnerships to generate growth.

We acquired all of the outstanding stock of Printronix, for a cash purchase price of approximately $37.0 million, which included an initial $33.0 million cash payment and a $4.0 million working capital adjustment.

The Company's consolidated financial statements include Printronix's consolidated operations from October 7, 2021 through December 31, 2021.

Refer to Note 3 to the consolidated financial statements elsewhere herein for additional information.

Refer to Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional Industrial Operations information for the applicable periods presented.

We face intense competition in identifying, evaluating and executing strategic acquisitions from other entities having a business objective similar to ours, including private equity groups and operating businesses seeking strategic acquisitions.

We compete with financial firms, corporate buyers and others investing in strategic opportunities.

Many of these competitors may have greater financial and human capital resources than we have.

find more companies entering the market for similar technology opportunities, which may reduce our market share in one or more technology

industries that we currently or in the future may rely upon to generate future revenue.

As of December

31, 2020, on a consolidated basis, we had 20 full-time employees.

Neither we, nor any of our subsidiaries, are a party to any

collective bargaining agreement.

Information Security

We are highly dependent on information technology networks and systems to securely process, transmit and store electronic information.

Attacks on information technology systems continue to grow in frequency, complexity and sophistication.

Such attacks have become a point of focus for individuals, businesses and governmental entities.

These attacks can create system disruptions, shutdowns or unauthorized disclosure of confidential information, including non-public personal information, consumer data and proprietary business information.

We remain focused on making strategic investments in information security to protect the clients and information systems of our operating subsidiaries and unconsolidated affiliates.

This includes both capital expenditures and operating expenses on hardware, software, personnel and consulting services.

As the primary products and services of our operating subsidiaries and unconsolidated affiliates evolve, we apply a comprehensive approach to the mitigation of identified security risks.

We have established risk management policies, including those related to information security and cybersecurity, designed to monitor and mitigate information security related risks.

Human Capital

As of December 31, 2021, on a consolidated basis, we had 287 full-time employees and six contractors.

We believe we have good relations with our employees.

Additionally, we have a strategic relationship with Starboard that provides us access to capital, industry expertise, and a deep bench of operating partners and industry experts to evaluate potential acquisition opportunities and enhance the oversight and value creation of such businesses once acquired.

Where You Can Find Additional Information

For further details of the development of our business, refer to our Annual Report on Form 10-K for the year ended December 31, 2021, which is incorporated herein by reference.

Our website address is www.acaciaresearch.com .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business