Prices for companies that support and sell IP services and analytical software remain surprisingly strong, even as patent licensing and sales continue to decline.
Their success appears to be fueled by the very problems facing patents: lower values and lack of certainty.
IP tools providers are the proverbial sellers of picks and shovels; the “miners” take the primary risk. Most are satisfied with the steady cash flow, while their clients make the big bets in R&D and litigation. Uncertainty makes investing even more dangerous and the information premium more valuable.
For the full IP services deal story, “Defying the monestisation market” in the September IAM magazine, go here. In this issue the Intangible Investor explores recent IP service firms transactions and their prices.
Examples of IP services successes include CPA Global’s 2017 acquisition by private equity firm Leonard Green & Partner’s for 2.4 billion pounds ($3.1B USD). Cinven had acquired the firm in 2012 from Intermediate Capital Group for around £950 million ($1.3 billion), backed
by $555 million of debt financing.
In 2015, CPA Global – with approximately $12 million in revenues and no profit – acquired Innography for an undisclosed amount. An industry-insider told IP CloseUp it was likely between $80 and $90 million, or about seven times revenue. Innography, with a strong reputation, had raised $14 million in venture capital.
Among the newer and more interesting entries in the IP services space is ClearAccessIP, a Palo Alto, CA-based firm “that indexes patents, looks for vulnerabilities in a corporation’s patent strategy, and finds opportunities in a patent collection for further value.”
Founded by Nicole Shanahan, a young patent attorney who served as a researcher for IP scholar Colleen Chien at Santa Clara University College of Law. Professor Chien is a member of the Clear Access IP Advisory Board, along with former AIPLA president Wayne Sobon.
“I am essentially trying to build and democratize a marketplace platform because not all patent holders and sellers can afford the large transaction firms,” she says. “I’m also solving a very old problem and putting docket management in the cloud.”
Ms. Shanahan, it seems fair to inform readers, has been living with Sergey Brin, founder of Google and President of its parent company, Alphabet, Inc., which, historically, has been dubious about strong patents.
IP services and software providers, especially those using the latest algorithms, may represent a new wave for beleaguered IP holders and their law firms seeking to manage patent risk. The computing strength and analytics capability they offer may be just what some IP holders and margin-conscious law firms need to compete, or these companies may simply be repackaging the outsourcing mantra for the AI age.
These relationship-driven, technology-focused service providers are likely to grow in value as global patent applications and portfolios increase and uncertainty lingers. An improved outlook for patent licensing will make them even more attractive.
Image source: softwareengineeringdaily.com; clarivate.com; cpaglobal.com