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Item 1. Business

2024-03-15 compared with 2023-03-17 · 110 added, 51 removed, 80 unchanged (67% of the section changed)

Acacia Research Corporation (the “Company,” “we,” “us,” or "our") is an opportunistic 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.

Acacia Research Corporation (the “Company,” “Acacia,” “we,” “us,” or "our") is focused on acquiring and managing companies across industries including but not limited to the industrial, energy, technology, and healthcare verticals.

We focus on identifying, pursuing and acquiring businesses where we are uniquely positioned to deploy our strategy, people and processes to generate and compound shareholder value.

We have 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 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 are particularly attracted to situations where we believe value is not fully recognized, the value of certain operations are masked by a diversified business mix, or where private ownership has not invested the capital and/or resources necessary to support long-term value.

Through our public market activities, we aim to initiate shareholding positions 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 is 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 are, however, opportunistic, and may pursue acquisitions that are larger under the right circumstances.

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

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• strong expertise in corporate governance and operational transformation.

Our 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.

Our long-term focus positions our businesses to navigate economic 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.

We 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.

Currently, 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 through our Patent Licensing, Enforcement and Technologies Business.

We own and operate a leading manufacturer and distributor of industrial impact printers, also known as line matrix printers, and related consumables and services through our Industrial Operations Business, and we continue to monetize assets from our Life Sciences Portfolio (as defined below).

People, Process and Performance

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

Our Company 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.

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Relationship with Starboard Value, LP

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

Our strategic relationship with Starboard Value, LP (together with certain funds and accounts affiliated with, or managed by, Starboard Value LP, “Starboard”), the Company's controlling shareholder, provides us access to industry expertise, and operating partners and industry experts to evaluate potential acquisition opportunities and enhance the oversight and value creation of such businesses once acquired.

Starboard has provided, and we expect will continue to provide, ready access to its extensive network of industry executives and, as part of our relationship, Starboard has assisted, and we expect will continue to assist, with sourcing and evaluating appropriate acquisition opportunities.

Recapitalization

On October 30, 2022, the Company entered into a Recapitalization Agreement (the “Recapitalization Agreement”) with Starboard and certain funds and accounts affiliated with, or managed by, Starboard (collectively, the “Investors”), pursuant to which, among other things, the Company and Starboard agreed to enter into a series of transactions (the “Recapitalization”) to restructure Starboard’s existing investments in the Company in order to simplify the Company’s capital structure.

Under the Recapitalization Agreement, the Company and Starboard agreed to take certain actions in connection with the Recapitalization.

For a detailed description of the Recapitalization and the actions taken and contemplated to be taken in connection therewith, see Note 8 to the consolidated financial statements and to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information.

On October 30, 2022, the Company entered into a Recapitalization Agreement (the “Recapitalization Agreement”) with Starboard and certain funds and accounts affiliated with, or managed by, Starboard (collectively, the “Investors”), pursuant to which, among other things, the Company and Starboard agreed to enter into a series of transactions (the “Recapitalization”) to restructure Starboard’s investments in the Company in order to simplify the Company’s capital structure.

Under the Recapitalization Agreement, the Company and Starboard agreed to take certain actions related to the Series A Redeemable Convertible Preferred Stock in connection with the Recapitalization, including submitting a proposal for stockholder approval to remove the “4.89% blocker” provision contained in the Company's Amended and Restated Certificate of Designations (the “Amendment to the Amended and Restated Certificate of Designations”).

The Company’s stockholders approved the Amendment to the Amended and Restated Certificate of Designations at the Company’s annual meeting of stockholders held on May 16, 2023, which became effective on June 30, 2023.

Subsequently, and in accordance with the terms contained in the Second Amended and Restated Certificate of Designations and the Recapitalization Agreement, on July 13, 2023, Starboard converted an aggregate amount of 350,000 shares of Series A Convertible Preferred Stock of the Company, par value $0.001 per share (the “Series A Redeemable Convertible Preferred Stock”) into 9,616,746 shares of common stock, which included 27,704 shares of common stock issued in respect of accrued and unpaid dividends (the “Preferred Stock Conversion”).

Further to the terms of the Recapitalization Agreement and in accordance with the terms of the Company’s Series B Warrants (the “Series B Warrants”), on July 13, 2023, Starboard also exercised 31,506,849 of the Series B Warrants through a combination of a “Note Cancellation” and a “Limited Cash Exercise” (each as defined in the Series B Warrants), resulting in the receipt by Starboard of 31,506,849 shares of common stock (the “Series B Warrants Exercise” and, together with the Preferred Stock Conversion, the “Recapitalization Transactions”), the cancellation of $60.0 million aggregate principal amount of the Company’s senior secured notes held by Starboard (as described further in Note 10, the “Senior Secured Notes”) and the receipt by the Company of aggregate gross proceeds of approximately $55.0 million.

Following completion of the transactions contemplated by the Recapitalization Agreement, Starboard beneficially owns 61,123,595 shares of common stock as of March 11, 2024, representing approximately 61.2% of the common stock based on 99,895,473 shares of common stock issued and outstanding.

No shares of Series A Redeemable Convertible Preferred Stock, no Series B Warrants, nor any Senior Secured Notes remain outstanding.

Refer to Note 10 to the consolidated financial statements for a detailed description of the Recapitalization and the Recapitalization Transactions.

Services Agreement

On December 12, 2023, the Company entered into a Services Agreement with Starboard (the “Services Agreement”), pursuant to which, upon the Company’s request, Starboard will provide to the Company certain trade execution, research, due diligence and other services.

Starboard has agreed to provide the services on an expense reimbursement basis and no separate fee will be charged by Starboard for the services.

Pursuant to the Services Agreement, the Company has agreed that Starboard (and certain of its affiliates) will not be liable to the Company for acts or omissions relating to the Services Agreement in the absence of bad faith, fraud, willful misconduct or gross negligence.

The Company will also indemnify and advance expenses to Starboard (and certain of its affiliates) against any loss, cost or expense relating to third party claims in connection with the services or the Services Agreement.

The Services Agreement provides (i) that certain work product developed by each of the Company and Starboard will be owned by the party that produced such work product and (ii) for mutual confidentiality obligations between the Company and Starboard for information disclosed pursuant to the Services Agreement.

Either the Company or Starboard may terminate the Services Agreement at any time upon thirty days’ written notice.

The Audit Committee of the Board of Directors of the Company (the “Audit Committee”), consisting of entirely of disinterested directors who are independent of Starboard, reviewed, directed the negotiation of the material terms of, and ultimately approved the Services Agreement prior to the Company’s execution thereof.

The Audit Committee received, reviewed, and considered a number of factors prior to such approval, including, but not limited to, (i) the business purpose of the Services Agreement, (ii) whether comparable terms of the Services Agreement would be available to the Company in a transaction with an unrelated party and (iii) the benefits of the Services Agreement to the Company’s business and operations.

Core Corporate Development and Investment Approach

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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 of our public market research expertise, as well as our private market sourcing process.

We seek to 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 the industrial, energy, technology, and healthcare sectors.

Our team is focused on identifying acquisition opportunities across the public and private markets where we are positioned to generate enduring shareholder value.

Overall, we believe our acquisition pipeline is robust, and is a product of 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:

Our research process focuses on, though is not limited to, the below considerations:

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

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Transactions and Execution

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

Acacia is focused on the identification, acquisition and integration of both public and private companies.

We are uniquely positioned to catalyze change with the support of our long-term capital base, depth of industry relationships and differentiated approach to transaction structuring.

Private Market Acquisitions

Acacia is focused on acquiring businesses across the private market landscape.

We believe we are uniquely positioned to empower best-in-class operators as they seek to build enduring businesses within their vertical of focus.

Partnering with Acacia represents an opportunity for business leaders, entrepreneurs and founders to grow their business without the constraints of a private equity fund.

Public Market Acquisitions

Acacia is focused on acquiring businesses across the public market landscape.

We believe we are uniquely positioned to catalyze change within companies where we have developed, alongside our industry advisors, a differentiated view of the value creation opportunity within a given business.

We evaluate public companies as currently constructed today, free of historical strategic decisions made with regard to the target in question.

Where appropriate, this empowers us to unlock value through, but not limited to, identifying opportunities for improved execution, identifying opportunities where the sum-of-the-parts may be greater than the whole, and acquiring non-core strategic assets.

Once we identify a favorable public market acquisition opportunity, we may purchase a strategic block of shares in the target company.

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.

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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

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• supporting attractive external growth and acquisition opportunities;

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

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

• implementing operational efficiencies;

• sharing best practices across our portfolio companies.

Equity Securities Portfolio Investment

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 the "Life Sciences Portfolio", 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 2022, we received proceeds of $504.3 million as we monetized the Life Sciences portfolio.

We retained an investment in the Life Sciences Portfolio valued at $68.4 million at December 31, 2022.

Refer to Note 3 to the consolidated financial statements elsewhere

herein for additional information and to Item 7.

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

Our Operations

Intellectual Property Operations - Patent Licensing, Enforcement and Technologies Business

We invest in intellectual property ("IP") and engage in the licensing and enforcement of patented technologies.

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.

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

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 from 2019 to 2022.

During the years ended December 31, 2023 and 2022, we did not acquire any new patent portfolios.

Dur ing 2021, we acquired one new patent portfolio consisting of Wi-Fi 6 standard essential patents.

In 2020, we acquired five new patent portfolios consisting of (i) flash memory technology, (ii) voice activation and control technology, (iii) wireless networks,

(iv) internet search, advertising and cloud computing technology and (v) GPS navigation.

The patents and patent rights acquired in 2021 and 2020 have estimated economic useful lives of approximately five years.

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

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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.

We have established a proven track record of licensing and enforcement success with over 1,600 license agreements executed to date as of December 31, 2022, across nearly 200 patent portfolio licensing and enforcement programs.

We have established a proven track record of licensing and enforcement success with over 1,600 license agreements executed as of December 31, 2023, across nearly 200 patent portfolio licensing and enforcement programs.

As of December 31, 2023, we have generated gross licensing revenue of approximately $1.8 billion, and have returned $865.2 million to our patent partners.

During the past five calendar years ending on December 31, 2023, we generated gross licensing revenue of approximately $225.7 million and returned approximately $84.9 million to our patent partners.

Refer to Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information concerning our Patent Licensing, Enforcement and Technologies business.

Energy Operations Business

In November 2023, we invested $10.0 million to acquire a 50.4% equity interest in Benchmark Energy II, LLC ("Benchmark").

Headquartered in Austin, Texas, Benchmark is an independent oil and gas company engaged in the acquisition, production and development of oil and gas assets in mature resource plays in Texas and Oklahoma.

Benchmark is run by an experienced management team led by Chief Executive Officer Kirk Goehring, who previously served as Chief Operating Officer of both Benchmark and Jones Energy, Inc.

Benchmark’s existing assets consist of over 13,000 net acres primarily located in Roberts and Hemphill Counties in Texas, and an interest in over 125 wells, the majority of which are operated.

Benchmark seeks to acquire predictable and shallow decline, cash-flowing oil and gas properties whose value can be enhanced via a disciplined, field optimization strategy, with risk managed through robust commodity hedges and low leverage.

Through its investment in Benchmark, the Company, along with the Benchmark management team, will evaluate future growth and acquisitions of oil and gas assets at attractive valuations.

The Company's consolidated financial statements include Benchmark's consolidated operations from November 13, 2023 through December 31, 2023.

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

On February 16, 2024, Benchmark entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) with Revolution Resources II, LLC, Revolution II NPI Holding Company, LLC, Jones Energy, LLC, Nosley Assets, LLC, Nosley Acquisition, LLC, and Nosley Midstream, LLC (collectively, “Revolution”).

Pursuant to the Purchase and Sale Agreement, Benchmark has agreed to purchase and Revolution has agreed to sell certain upstream assets and related facilities (the “Assets”) in Texas and Oklahoma, upon the terms and subject to the conditions of the Purchase and Sale Agreement (such purchase and sale, together with the other transactions contemplated by the Purchase Sale Agreement, the “Revolution Transaction”).

The Assets include approximately 140,000 net acres and approximately 470 operated producing wells in the Western Anadarko Basin throughout the Texas Panhandle and Western Oklahoma.

Under the terms and conditions of the Purchase and Sale Agreement, which has an economic effective date of March 1, 2024, the aggregate consideration to be paid to Revolution in the Revolution Transaction will consist of $145.0 million in cash (the “Purchase Price”), subject to customary post-closing adjustments.

Benchmark expects the Revolution Transaction to close in the second quarter of 2024 subject to customary closing conditions.

The Company’s expected contribution to Benchmark to fund its portion of the Purchase Price, is $57.5 million, which the Company anticipates will be funded from cash on hand.

The remainder of the Purchase Price is expected to be funded by a combination of borrowings by Benchmark under a new revolving credit agreement of approximately $72.5 million and the remaining being funded through a cash contribution of approximately $15 million from McArron Partners, the other investor in Benchmark.

Following the Revolution Transaction, the Company’s interest in Benchmark is expected to be approximately 73.1%.

Refer to Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional Energy Operations information.

Industrial Operations Business

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

Additionally, our Patent Licensing,

Enforcement and Technologies Business faces intense competition in identifying, evaluating and executing strategic acquisitions from other entities having similar business objectives.

Additionally, our Patent Licensing, Enforcement and Technologies Business faces intense competition in identifying, evaluating and executing strategic acquisitions from other entities having similar business objectives.

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

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We may 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.

Lastly, our Energy Operations Business faces intense competition in identifying, evaluating, and executing attractive oil and gas asset acquisitions from other entities having similar business objectives, including major and independent oil and natural gas companies and private equity groups.

Our Energy Operations Business also competes for drilling rigs and other equipment and labor required to drill, complete, operate and develop its properties.

Many of our Energy Operations Business’ competitors have substantially greater financial resources, staffs, facilities and other resources.

In addition, larger competitors may be able to absorb the burden of any changes in federal, state and local laws and regulations more easily than our Energy Operations Business, which could adversely affect its competitive position.

These competitors may be willing and able to pay more for drilling rigs, leasehold and mineral acreage and productive oil and natural gas properties and may be able to identify, evaluate, bid for and purchase a greater number of properties and prospects than our Energy Operations Business can.

The oil and natural gas industry also competes with other energy-related industries in supplying the energy and fuel requirements of industrial, commercial and individual consumers.

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.

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

Cyberattacks on such systems continue to grow in frequency, complexity and sophistication.

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.

We remain focused on making strategic investments in information security to protect the clients and informational and operational technology 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.

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 such risks.

Title to Oil and Natural Gas Properties

It is customary in the oil and natural gas industry to make only a preliminary review of title to undeveloped oil and natural gas leases at the time they are acquired and to obtain more extensive title examinations at the time one is preparing to develop the undeveloped leases and when acquiring producing properties.

In future acquisitions, our Energy Operations Business will conduct title examinations on material portions of such properties in a manner generally consistent with industry practice.

Certain of our Energy Operations Business oil and natural gas properties may be subject to certain imperfections in title, encumbrances, easements, servitudes or other restrictions, none of which, in management's opinion, will in the aggregate materially restrict its operations.

Human Capital

As of December 31, 2022, on a consolidated basis, we had 263 full-time employees and six contractors.

As of December 31, 2023, on a consolidated basis, we had 170 full-time employees and two contractors.

We believe we have good relations with our employees.

As of December 31, 2022, our parent company had 14 full-time employees and two contractors, our Intellectual Property Operations business had eight full-time employees and no contractors and our Industrial Operations had 241 full-time employees and four contractors.

As of December 31, 2023, our parent company had 12 full-time employees and one contractor, our Intellectual Property Operations Business had seven full-time employees and no contractors;

our Industrial Operations Business had 145 full-time employees and no contractors;

and our Energy Operations Business had six full-time employees and one contractor.

Additionally, we have a strategic relationship with Starboard that has provided, and we expect will continue to provide, us access to industry expertise and operating partners and industry experts to evaluate potential acquisition opportunities and enhance the oversight and value creation of such businesses once acquired.

Executive Officers and Directors

Information About our Executive Officers

Name Position

Martin ("MJ") D.

Chief Executive Officer

Jason Soncini General Counsel

Robert Rasamny Chief Administrative Officer

Kirsten Hoover Interim Chief Financial Officer

Name Position

Gavin Molinelli Senior Partner and Co-Portfolio Manager of Starboard Value LP

Martin ("MJ") D.

Chief Executive Officer of the Company

Kohlberg Senior Associate Provost and Chief Technology Development Officer at Harvard University

Maureen O' Connell Member of the Board of Directors of Board of ISACA and HH Global Ltd.

Geoff Ribar Member of the Board of Directors of Director of MACOM Technology

Ajay Sundar Managing Director at Starboard Value LP

Katharine Wolanyk Managing Director at Burford Capital, LLC

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, 2022.

Our website address is www.acaciaresearch.com .

For further details of the development of our business, refer to our website at www.acaciaresearch.com .

The information on our website is not part of this Annual Report on Form 10-K and is not incorporated herein by reference.

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