Acacia Research (ACTG) 17th Annual Southwest IDEAS Conference summary

Business strategy and investment approach

• Focuses on acquiring under-managed B and C quartile assets with strong margin of safety and operational improvement potential.

• Operates as a value investor, holding businesses in perpetuity and allocating capital based on opportunity, not fund cycles.

• Emphasizes operational turnarounds, free cash flow generation, and earnings growth, with a disciplined, process-driven approach.

• Maintains a lean parent cost structure and prioritizes cash-on-cash returns over speculative exit values.

• Leverages a network of experienced operating partners to drive improvements in acquired businesses.

Recent acquisitions and portfolio performance

• Acquired Benchmark Energy, increasing production and value through operational focus and strategic land deals in the Cherokee Play.

• Purchased Deflecto, implementing headcount reductions and process improvements to address market headwinds and position for future growth.

• Portfolio businesses, including Printroducts, are generating high cash yields, with Benchmark and Printroducts in the high teens and Deflecto at 8%-9%.

• Returned capital to shareholders via buybacks, balancing with change control considerations.

• Maintains significant liquidity, ending with about $330 million in cash and securities after acquisitions and buybacks.

Capital allocation and risk management

• Invests in asset-based loans through a partnership with Unchain, lending against Bitcoin collateral at attractive rates.

• Focuses on risk-adjusted returns and cash management, using excess cash to generate additional yield.

• Limits leverage in portfolio companies to 2-3x, prioritizing operational over financial leverage.

• Incentive structure is based on growth in book value and asset value, with a carry-like mechanism to align management with long-term performance.

• Prioritizes cost savings, commercial opportunities, and operational enhancements in due diligence and post-acquisition planning.