Amid the dearth of global mergers and acquisitions, a handful of investment banks are finding business advising companies on patent sales. Lazard (LAZ), Evercore Partners (EVR), and Barclays (BCS) are moving in on turf traditionally dominated by lawyers. While global deal volume is down 24 percent this year as of July 18, patent deals have jumped in the past 12 months to $18.8 billion from $450 million the year before, according to data compiled by Bloomberg. “Patents have historically been a small, private, and illiquid asset,” says Robert Heath, head of corporate development at RPX, a San Francisco firm that buys and licenses patents. “Now you have money piling in from all kinds of sources.”
For technology companies, patents have become a valuable asset to wield against competitors and to defend themselves against intellectual-property infringement lawsuits. The competition among Apple (AAPL), Google (GOOG), Microsoft (MSFT), and Facebook (FB) to dominate the wireless market accounts for much of the rise in patent deals. Activist investors including Carl Icahn and hedge fund Starboard Value have been riding the trend, urging companies such as Motorola Mobility Holdings and AOL (AOL) to extract value from their patents.
Until recently, most Wall Street firms stayed on the sidelines in patent deals because they’ve been “too much of a niche asset,” says Craig Opperman, partner and intellectual-property asset specialist at law firm DLA Piper. “Lazard, Evercore, and Barclays are the banks that I come across the most” in patent deals, he says.
Lazard’s specialty is selling patents out of bankruptcy, a skill it honed when it advised Canadian telephone equipment maker Nortel Networks on its restructuring after it filed for Chapter 11 protection in 2009. The bank’s strategy was to first sell Nortel’s operating units, making sure not to give away each asset’s underlying patents, says David Descoteaux, a Lazard banker who worked on the deal. After 18 months of negotiations and an auction, Nortel sold the patent portfolio last year to a group including Apple, Microsoft, and Research In Motion (RIMM) for $4.5 billion, five times Google’s initial offer of $900 million.
Lazard then advised Google when it agreed to buy 100 percent of Motorola for $12.5 billion last year. The deal was motivated largely by Google’s desire for Motorola’s patents after it lost its chance for Nortel’s. The sale came a month after Icahn urged Motorola to explore ways to make money from its patents. “Banks are contributing to make the patent market more liquid by attracting more potential buyers,” says David Berten, founder and partner of Global IP Law Group, the law firm that advised Nortel together with Lazard.
Patents will represent as much as 20 percent of Evercore’s technology business this year, up from 5 percent a year ago, according to Naveen Nataraj, a technology banker. Evercore, along with Goldman Sachs Group (GS), advised AOL when it agreed on April 9 to sell its patent portfolio to Microsoft for about $1.05 billion, more than triple the $290 million value patent advisory firm M•Cam had estimated. “The success of the Nortel and AOL patent sales has added to a growing awareness among large patent holders of the value trapped in their portfolio of inventions,” says Nataraj. “It’s traditional M&A with a few important tweaks and some esoteric aspects.”