August 15, 2019 saw the merger of two of Australia’s three listed IP firm holding companies – with IPH acquiring Xenith in its entirety – and consequently, an uncertain future for the remaining IP holding company, QANTM. Clients, already starved of choice, will find themselves with even less choice and increased conflict of interest risks1 in this new landscape.
Those not familiar with what has happened to the patent attorney profession in Australia and New Zealand since 2014, will view the new altered reality with incredulity.
The story so far…
The battle for ownership and control of Australasia’s patent attorney firms has been a fascinating watch. Between them, IPH, Xenith and QANTM own nine of the eleven biggest patent attorney firms in Australasia and employ around 70% of the trans-Tasman patent attorney profession.
When the holding companies were formed, IPH, Xenith and QANTM, paid out their equity partners and listed on the ASX (Australian Stock Exchange), they promised investors that the capital raised would be used to increase incoming patent filings and expand both domestically and into Asia. They also pitched economies of scale to investors that was to be achieved by acquiring and agglomerating previously-rival IP firms and reducing their overheads.
In the battle for supremacy, IPH, as the first mover, clearly came out on top by snapping up several Australian and New Zealand patent attorney firms, as well as the Beijing and Hong Kong offices of Ella Cheong. Lagging well behind, QANTM hasn’t been able to buy a single Australasian IP firm, while Xenith only did marginally better by overpaying for Watermark and Griffith Hack.
However, the Australasian market simply wasn’t big enough to sustain three large IP groups. As a result, Xenith and QANTM both struggled to achieve forecasted profits initially. With shareholder expectations not met, Xenith and QANTM’s share values slipped to around less than a third, and less than half, of their respective post listing highs.
In this environment, QANTM and Xenith sought to merge their business – this being the only sensible commercial option they had to expand.
However, IPH had other ideas. The creation of a competitor with a bigger share of the Australasian market would adversely affect IPH. Immediately after the announcement of the proposed merger, IPH disclosed that it made several takeover offers for QANTM. While it was no secret that IPH wanted QANTM, the boards of both Xenith and QANTM made it publicly known that they considered the merger of QANTM and Xenith to be a better fit. From a cultural and employee perspective, they were probably right. However, this corporate battle had nothing to do with what was good for clients, the firms or their attorneys – it was all about corporate profits. The reality was that the holding companies were no longer IP firms first and foremost, but rather acquisition vehicles.
Spurned by QANTM, IPH surreptitiously acquired almost 20% of Xenith from institutional investors, making an offer that those investors obviously found more attractive than the proposed merger. This move enabled IPH to become Xenith’s single biggest shareholder, putting into motion its plans to scupper the proposed merger.
As Xenith’s largest shareholder, IPH publicly advised the market that it would oppose the merger of Xenith and QANTM. With QANTM and Xenith unconvincingly claiming their merger was unaffected, IPH moved in for the kill with a series of aggressive takeover offers.
In the end, IPH’s generous offers won over the Xenith board and its shareholders once the Australian Competition and Consumer Commission (ACCC) publicly notified that it did not oppose the merger, despite possible adverse effects on competition.
What does the next chapter forecast?
Out-maneuvered and now completely dwarfed by IPH, QANTM must be concerned that it raised millions of dollars from investors on the promise of expansion and profit growth. And yet, apart from acquiring an IP firm in Malaysia, there is little sign of a significant expansion. With its stock value languishing well below its historic highs, QANTM must be under shareholder pressure to do something – but where will it find a suitable target?
The outlook for QANTM may not be too rosy. If its stock price falls further, or it loses more market share, or is impacted by an economic recession – what then? Will shareholders abandon QANTM? Might cashed-up former equity partners break away once they are no longer tied to QANTM? Or will IPH acquire QANTM for a bargain? The latter scenario is entirely realistic, but if that occurred, we really would enter the Twilight Zone with one company owning more than 70% of the patent attorney profession in Australia and New Zealand.
And what of the profession itself in Australia? Recently, a Xenith-owned patent attorney firm emailed its clients advising it was now owned by IPH, but not to worry, it was “business as usual.” This is Twilight Zone stuff. For patent attorneys, there should be nothing that qualifies as “business as usual” when firm ownership is subject to constant change, or when clients are exposed to a heightened risk of conflicts, or firms are unable to pursue new business or the clients of previously rival firms.
Is this really the new norm? And amongst all this movement and potential uncertainty, is anyone still looking out for clients and the attorneys?
The IPH Group Businesses comprises of:
- AJ Park
- Glasshouse Advisory
- Griffith Hack
- Pizzeys Patent and Trade Mark Attorneys
- Practice Insight
- Shelston IP
- Spruson & Ferguson
Qantm Intellectual Property comprises of:
- Davies Collison Cave Pty Ltd
- FPA Patent Attorneys Pty Ltd
- Advanz Fidelis IP Sdn Bhd