Company: ACTG
Filing Date: 2025-03-17
Form Type: 10-K
Source: 0000934549-25-000004
Chunk: 22

Company: ACACIA RESEARCH CORP
Filing Date: 2025-03-17
Form: 10-K
Item: Item 1
Chunk 22
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 business. One metric we rely heavily on is the durability and scalability of a target’s annual earnings stream, rather than its ‘exit year’ earnings, and the impact of these earnings on our income statement. Specifically, we underwrite to an acceptable range of unlevered and levered earnings yields, relative to the purchase price of the business and related equity required to fund the acquisition.

It is distinct from the ‘leveraged buyout model’ where the purchase price is heavily financed with a credit package, enabling small enhancements to earnings, and potential valuation multiple expansion, to generate returns. Both models work, as private equity has shown; however, in the private equity model the gains are heavily back weighted and thus carry a higher discount rate and incremental leverage risk. Our model, instead, targets similar returns without requiring an exit event for the business to generate those returns.

When we acquire a business at a ‘good multiple’, it means that we believe we are acquiring an attractive earnings stream relative to the price we paid to acquire that business, and that we believe there is an inherent valuation benefit relative to where similarly situated assets might trade in the market. We approach our acquisitions as long-term owners, though in our evaluation of capital allocation opportunities we may, from time to time, sell a business we own.

As part of our operating philosophy, we endeavor, through our strong network of operating partners, to enhance the values of businesses we acquire, driving both the ability to generate incremental earnings and potentially enhancing a company’s valuation multiple. Our focus is companies with total enterprise value of $1 billion or less, however, we may pursue larger acquisitions under the right circumstances. Broadly speaking, our potential acquisition targets are founder-owned or privately controlled businesses, entire public companies or carve-outs of specific segments, which show a path to consistent profitability, free cash flow generation, and higher risk-adjusted return expectations. We buy businesses to create platforms. We grow them organically and through M&A, with a clear focus on free cash flow generation and defined expectations on return on invested capital. Acacia then has the optionality to grow and reinvest free cash flow or look to monetize and build new platforms.  The Company remains focused on acquiring and building businesses that have stable cash flow generation with an ability to scale, while retaining the flexibility to make opportunistic acquisitions with high risk-adjusted return characteristics.

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

•experienced management team, which has spearheaded robust book value per share growth, with compensation