Acacia Research: Positive Developments, Discount To Book Value High Despite Recent Price Spike


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Maksim Safaniuk

I previously wrote articles about Acacia Research (NASDAQ:ACTG), which were published on August 23, 2023 and December 3, 2023. ACTG released its 2023 full year results on March 14, 2024. In the last two months the company released three important announcements. The first, that it completed the sale of the shares it held in Arix Bioscience (Arix). The second, that its wholly owned subsidiary, Atlas Global Technologies LLC (AGT), its patent licensing business, entered into licensing and settlement agreements in connection with its WiFi-6 patent portfolio, for aggregate payments of more than $81 million (but indicated that the sum received by AGT will be net of customary legal fees and other expenses). And, the third, is, as expected following the report about the purchase of majority stake in Benchmark Energy II LLC (Benchmark), thatreported an expansion of its oil and gas activity through the Benchmark platform.

Expansion Of Oil And Gas Investment

ACTG started to execute in Q4 2023 its new strategy following the recapitalization transaction and Starboard Value taking a majority stake in the company as a result. The first transaction it engaged in was an investment of $10 million for a majority stake in Benchmark. The intention was to use Benchmark’s platform for additional cash deployments in the oil and gas business - mainly in projects that would generate predictable cash flows. In February 20, 2024 the company informed that it started expanding the oil and gas projects through Benchmark by entering into an acquisition in the Western Anadarko Basin. According to the press release the company issued in that regard:

The Acquisition is anticipated to expand the Benchmark portfolio, adding approximately 140,000 net acres and approximately 470 operated producing wells in the prolific Western Anadarko Basin throughout the Texas Panhandle and Western Oklahoma.

In the company’s latest earnings call it was noted that the expectation is that this acquisition would close sometime in Q2 2024.

Completion of Arix Sale

On January 22, 2024, the company reported that it completed the sale of its holdings in Arix for $57 million. The completion of this transaction made a meaningful contribution to the company’s cash pile, which was hefty to begin with.

IP Portfolio Monetization

The company announced on February 7, 2024 that AGT, its wholly owned subsidiary, entered into licensing and settlement agreements in connection with its WiFi-6 patent portfolio, for aggregate payments of more than $81 million (but indicated that the sum received by AGT will be net of customary legal fees and other expenses). That is a considerable amount that further strengthens the company’s already substantial cash position. In addition, the company noted in its latest earnings call:

We still think there’s a material amount of incremental capital that we can generate from that WiFi portfolio. And recall, we own four other portfolios that don’t have the same magnitudes associated with them, but have a very consistent set of settlements and licenses that generate a nice level of base cash flow.

New Stock Buyback Plan & Discount to Book Value

I was somewhat disappointed to learn that during Q4 of 2023 the company did not make any use of its new repurchase plan, which was authorized on November 9, 2023, because for the remainder of Q4 2023 the stock traded at a discount ranging approximately between 20% and 29% to Q3 2023 book value. Although the shares soared almost 17% last Friday following the report of Q4 2023 results and the related earnings call, the stock price still reflects a substantial discount of approximately 21% to the company’s book value as of December 31, 2023.

Since it seems the company was very picky in its capital deployment process under its new strategy and took the time to find the first investment (in Benchmark) and the follow-on investment through Benchmark, which was reported last month, I believe there is a good chance that these investments will bear fruit and produce substantial value for the company over time. In addition, meaningful value could possibly still be squeezed out of the company’s IP portfolio and as mentioned in the company’s latest earnings call:

We continue to hold positions in three private Life Sciences companies and we remain excited about their prospects…We believe there is still more value to unlock in these remaining holdings.

Therefore, and albeit the ~17% rise in its stock price last Friday, the company – trading at ~21% discount to 2023 year-end book value - is still greatly undervalued. I hope the company would not hesitate to soon start making use of its repurchase plan for at least as long as there remains a discount to book value. Moreover, being rather thinly traded, repurchases, if done on a large scale, could meaningfully increase trading volumes, possibly drawing more attention to this thinly covered stock.

Execution Of New Strategy Is Shifting Gears

The execution of the company’s new strategy seems to have shifted gears following the purchase of the majority stake in Benchmark. In Q1 of 2024 the company announced it is acquiring oil and gas assets through Benchmark. The closing of that acquisition is expected to take place in Q2 of 2024, subject to customary closing conditions and termination rights.

It is expected to be a sizeable acquisition, which will be financed by multiple parties and will include debt financing. The company is expected to contribute $57.5 million to the purchase price in that transaction, which is roughly the sum it received for the sale of Arix shares.

Risks To My Thesis

I believe Starboard is in ACTG for the long run, but there is always a chance that it may decide at some point to no longer be involved in the company - should that happen, ACTG will lose access to Starboard's valuable network, resources and experience. Another risk is that ACTG’s investments in the oil and gas assets will not bear fruit.


ACTG shifted gears and has started pursuing its new, post-recapitalization, strategy more aggressively, while also realizing meaningful value from its pre-recapitalization assets through the sale of Arix shares and the licensing and settlement agreements announced in February with respect to its IP portfolio. Further to the recent developments described in this piece and the meaningful discount to book value, I continue to rate ACTG stock a buy.