Where to next for QANTM IP?


I’m going to dive straight into this.  Let’s assume that the merger of equals between QANTM IP and Xenith IP is laid to rest.  Either because IPH acquire Xenith IP or simply because IPH’s stake-holding in Xenith IP makes it impossible for the merger proposal to have sufficient votes to go ahead.

What does QANTM IP need to do?  On one analysis – nothing.  It is the holding company for three high quality patent attorney firms – Davies Collison Cave and FPA Patent Attorneys in Australia and Singapore and  Advanz Fidelis in Malaysia.  It is a profitable and stable business.  It can keep trucking along…

However, as an ASX listed public company, QANTM IP looks very pedestrian compared to its sector rival IPH which is going from strength to strength.   QANTM is a very low market cap, illiquid company, compared to the IPH behemoth.  QANTM IP’s share price is languishing well below its IPO price and any easy prospects of growth in Australia through acquisition are beginning to fade unless one of FB Rice, Wrays or Phillips Ormonde Fitzpatrick have a sudden change of heart (I will discuss what might drive this change of heart in a later post).

It’s a bit frustrating to see a company comprised of Davies Collison Cave and FPA (formerly Freehills) Patent Attorneys, who historically have had some of the most astute and commercially minded patent attorney partners in the game, looking out of its depth.

What does QANTM need to do to convince the outside world it is an investable proposition and that it can scale and grow to a size that increases liquidity and brings it to the attention of the bigger fund managers?

Appreciate that QANTM IP is not a partnership!  It’s a public company now…

This appears to be the biggest issue with QANTM IP.  It still seems to think it is a partnership or collocation of partnerships.  It does not appreciate how to use the fact that it is a listed entity.  It doesn’t realise it is now in a different world.

Let’s take an example.  The proposed “merger of equals” with XIP.  This seemed a very old fashioned transaction, as if two partnerships were merging.  The emphasis on equality could only have been an appeal to the sensibilities of the “employee shareholders” (ie ex-partners of Shelston IP, Griffith Hack and Watermark).  No money was changing hands.

What happened?  IPH bought out 19.9% of Xenith IP from a fund and effectively scuppered the prospects of the merger.  They have offered a cash and equity component in their acquisition and the market have reacted with a significant uplift to Xenith IP’s share price.

What if QANTM IP had bought a significant number of XIP shares in the merger process, as a defensive measure?  It could have easily afforded to.  I suspect that QANTM just didn’t think about it or perhaps regarded it as inconsistent with the “merger of equals” philosophy…

It seems that QANTM forgot the fact that a significant proportion of the shareholder base of both companies are outsiders to the profession – ie funds and the like.  It also misread the fact that for public companies, there are other players in the game, and you can’t keep them out.

So, what can they do?  Here are some thoughts to spring to mind.

Merge the firms under the Davies Collison Cave brand

 Davies Collison Cave is by far the strongest brand in the QIP stable.  Advanz Fidelis is a big name in a small jurisdiction and FPA had a strong brand when it was Freehills Patent Attorneys, but now it just sounds like a purplish offshoot of the Financial Planners Association.

Having three separate firms running their own race seems silly.

Bringing these brands under one umbrella is possible – IPH seem to have done this well with their merger of a number of firms under the Spruson’s banner.  Step one would be approaching clients who may have conflicts and obtaining their consent.  The synergies, reduction in back office costs and improvement in scale would be well worth it.

Invest heavily in growth

The big advantage of being a listed entity is the access to capital and capability to think for the future.  Partnerships are unwilling to forego today’s lunch for tomorrow’s feast.  Companies can get away with it – particularly as they can borrow money and, if necessary, carry out a capital raise.  Shareholders reward growth strategies and stories.

Let’s look at QANTM’s investments to date.  A couple of lateral hires (which arguably could be done easily by a partnership), the acquisition of a small firm in Malaysia, and establishing a Singapore office for FPA Patent Attorneys.  Hardly game changers.

They have missed out on the type of big acquisitions that IPH have made.  Perhaps a sign of a lack of overall strategy.

The biggest growth story for DCC has been the increase in revenue for their law firm.  Growing the DCC law firm sounds good but the sums involved are low compared to the overall revenue base.  Find the fields where you can grow business rapidly and invest in them.  An example might be incoming US patent filings.  Clearly the biggest and most profitable source of work.  Why not set up a US office staffed by employees of QANTM IP to capture that work rather than using the time of individual principals who need to travel to the US from Australia?   Another example might be setting up a Chinese office to capture incoming overseas work.

Liaising directly with corporate clients in a coordinated and structured way by having a presence in the client’s jurisdiction (and/or a jurisdiction of significant interest to the client) would seem to be a no-brainer for a listed entity

Talk soon.

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