Corsair-Q4-Letter-2012

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					Appendix Acacia Research Corp                                                                        $25.65)

Overview:

Acacia partners with inventors and patent owners to monetize underutilized patents. Acacia
typically enters into joint venture arrangements with inventors and other patent owners who may
lack financial resources or litigation experience. In exchange for its guidance and expertise, Acacia
earns as much as 60% of any patent payments recovered. We expect future earnings growth to be
driven by ACTG's strong foothold in growing markets coupled with its very low cost structure.
ACTG's current valuation suggests the market does not appreciate the company's growth
opportunity.

Business:

While 60% of patents issued in the U.S. are held by small companies, individual inventors,
universities and research labs, the remaining 40% of the patent market - held by larger corporate
entities - generates 99% of patent related revenue. This discrepancy arises in part because the 60%
lack the experience or financial stability to litigate and enforce their patents.       involvement
often leads to a successful resolution, creating value for both patent owners and ACTG.

Acacia internally handles joint venture agreements and outsources valuation assessments to
industry specialists, enabling the company to focus on its core expertise and efficiently scale its
business model. All Acacia settlements are one-time payments, bypassing years of costly product
audits and, thereby, allowing for a small collections staff and lean corporate infrastructure.
Therefore, Acacia's business model provides significant operating leverage as the company grows.
Importantly, the company only litigates on a contingent basis, giving investors key downside
protection from open-ended and costly patent litigation expenses.

We believe the company's dominant position and successful track record of settling patent issues -
a key strategic asset - should enable Acacia to establish itself as the "eBay" of patent settlements.
Like eBay, Acacia takes no risk of inventory and, over time, should become the trusted middle
man for patents, taking a fee when patents are "sold". As the leading counterparty of choice for
patent settlements, Acacia is well positioned for future growth.

Management, Valuation and Financial Summary

Acacia is led by Paul Ryan who has been CEO since 1997. Management believes the company can
grow annual revenues from its current level of $200mm to $1bn within five years. This growth can
be realized by leveraging its successful track record and diversifying into sectors such as oil and
gas and medical patents. As an example of this strategy, Acacia recently acquired medical device
patents from Boston Scientific and signed a license agreement with a large orthopedic company.
This letter is not a research report or recommendation to buy or sell the securities mentioned herein. The examples herein are illustrations of ways in
which Corsair and its affiliates have examined or may examine opportunities. Additionally such examples do not represent Corsair                       entire
portfolio and in the aggregate may represent only a small percentage of Corsair              portfolio holdings. Corsair and its affiliates may, at any time,
buy or sell any of the securities mentioned in this letter and may change its long or short position at any time without providing any notification of such
changes. It should not be assumed that any trading activities pursued either now or in the future will be profitable. Such activities may in fact result in
losses.                                                                                                                                                         5
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         revenue tends to be somewhat lumpy due to the litigation/settlement nature of its
business. As such, we waited for an appropriate entry point to purchase ACTG's stock. In mid-
November, on the heels of slower than expected Q3 results, the company announced a $100m
share repurchase plan representing approximately 10% of its outstanding shares. We believe the
market overreacted and misread a slow quarter for a secular downturn, providing a buying
opportunity for us, as well as the company.

We do not believe Acacia's current valuation reflects its earnings power or balance sheet strength.
         goal of $1bn in revenues should translate into ~$450m of EBIT or ~$5/share of taxed
earnings. With more than $8/share in net cash, we believe Acacia offers investors protected
downside and significant upside. Over the next 12 months, we think the stock could trade above
$40/share as investors put a 15x multiple on $2.00/share of 2014 taxed EPS (11x actual free cash
flow) and add in Acacia's net cash.

  ACTG
                                              2009             2010             2011              2012               2013               2014
  Income Statement:
  Revenue                                   $67    $132                       $172               $222              $282                $356
  EBITDA                                     (1)     46                         35                111               143                 185
  D&A                                         5       7                         10                 23                25                  27
  EBIT                                       (6)     39                         25                 88               118                 158
  Taxes                                      (2)     14                          9                 31                41                  55
  NI                                         (4)     25                         17                 57                76                 103
  S/O                                        44      43                         43                 50                51                  52
  EPS                                   $ (0.08) $ 0.58                  $    0.39        $      1.15        $     1.51        $       2.00

  CapEx                                          0               0                0                  1                 1                   1
  Non-Cash Stock Comp                            7               7               14                 17                22                  27
  FCF                                            8              39               40                 96               123                 159
  FCF/shr             $                       0.18      $     0.90       $     0.93       $       1.93       $      2.41       $        3.03

  Patent Portfolios                            138             171              207                265


                                                                                                            Total value
                                                          Multiple       Net cash Total value                per share Weighting
  2014 taxed EPS                              2.00             15             534      2,080                        40      50%
  2014 cash EPS                               3.03             11             534      2,251                        44      50%

                                                                        12-Month Price Target:                                 $           42

This letter is not a research report or recommendation to buy or sell the securities mentioned herein. The examples herein are illustrations of ways in
which Corsair and its affiliates have examined or may examine opportunities. Additionally such examples do not represent Corsair                       entire
portfolio and in the aggregate may represent only a small percentage of Corsair              portfolio holdings. Corsair and its affiliates may, at any time,
buy or sell any of the securities mentioned in this letter and may change its long or short position at any time without providing any notification of such
changes. It should not be assumed that any trading activities pursued either now or in the future will be profitable. Such activities may in fact result in
losses.                                                                                                                                                         6
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I M PORTANT DI SCLOSURES

An investment in any Corsair fund is speculative and involves a high degree of risk. Past
performance is not necessarily indicative of future results. There can be no assurances that any
Corsair fund will continue to have a similar return on invested capital because, among other
reasons, there may be differences in economic and market conditions, regulatory and political
climate, portfolio size, investment opportunities, expenses and structure.

References to benchmarks are for illustrative purposes only. Comparisons to benchmarks have
limitations because characteristics of such benchmarks, such as level of volatility and position
concentration, among other things, may differ from those of the applicable Corsair fund. The
Corsair funds do not attempt to track a benchmark.

The information in this letter is as of the date set forth on the cover page hereto and is subject to
change without notice. The delivery of this letter at any time does not imply that the
information or opinions contained herein are correct at any time subsequent to the date set forth
on the cover page hereto.

Any forward-looking statements included in this letter represent the subjective views of the
portfolio managers of Corsair, including the future performance of the market generally and
portfolio companies specifically, based on assumptions that may or may not prove to be correct.
There can be no assurance that these views are accurate or will be realized, and nothing
contained here is, or should be relied on as, a promise as to the future performance or condition
of any Corsair fund, any portfolio company or the market generally. Industry experts and the
portfolio companies themselves may disagree with these views and/or assumptions.

Certain information contained herein has been obtained by Corsair from third parties. While
Corsair believes that such sources are reliable, it cannot guarantee the accuracy of any such
information and does not represent that such information is accurate or complete.




This letter is not a research report or recommendation to buy or sell the securities mentioned herein. The examples herein are illustrations of ways in
which Corsair and its affiliates have examined or may examine opportunities. Additionally such examples do not represent Corsair                       entire
portfolio and in the aggregate may represent only a small percentage of Corsair              portfolio holdings. Corsair and its affiliates may, at any time,
buy or sell any of the securities mentioned in this letter and may change its long or short position at any time without providing any notification of such
changes. It should not be assumed that any trading activities pursued either now or in the future will be profitable. Such activities may in fact result in
losses.                                                                                                                                                         7
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