Private equity firm HGGC LLC has agreed to buy RPX Corp., a service provider that buys patents to shield its clients from infringement lawsuits.
The deal continues the trend of companies that extract revenue either directly through patent licensing and litigation or indirectly through patent-related services selling themselves to private equity firms and investment funds.
RPX will be acquired in an all-cash transaction with an estimated value of $555 million, the company said in a statement May 1. The announcement comes less than three months after RPX, which lets companies subscribe to its network to defend against costly patent litigation, said it was exploring strategic alternatives.
RPX May 1 posted revenue of $67 million for the first quarter of 2018, compared to $75 million in the same period a year earlier. The company has been trying to expand into new businesses, such as patent litigation insurance and electronic document discovery, to boost sales.
U.S. Supreme Court decisions and Patent and Trademark Office patent challenge procedures have made it harder for companies known as non-practicing entities to mount and win infringement fights against large companies. The smaller companies earn revenue by licensing and litigating patents rather than by selling a product. The shift has lowered patent litigation risks for RPX’s clients, pushing the company to look for additional revenue streams.
Digital video recording technology maker TiVo Corp., which depends on patent licensing for revenue, also announced in February that it was looking at strategic alternatives. They included an acquisition, a merger with its competitors, or going private.
Skadden, Arps, Slate, Meagher & Flom LLP is serving as a legal advisor and GCA Advisors LLC is serving as the financial advisor to RPX. Houlihan Lokey Capital Inc.'s Tech and IP Advisory Group and Jefferies LLC are financial advisersfor HGGC while Kirkland and Ellis LLP is serving as its legal advisor. Jefferies Finance LLC is HGGC’s sole lead arranger for debt financing.
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