Intellectual property heavyweight IPH acquires another Canadian firm as profit soars 23pc

Leading intellectual property (IP) services group IPH (ASX: IPH) has reached a deal to acquire Canada-based firm Ridout & Maybee for CAD$65 million ($74 million), building on the momentum of another Canadian company acquired in October that contributed to a 23 per cent lift in profit.

Ridout & Maybee will form part of Smart & Biggar, which IPH bought for CAD$282 million ($320.4 million) and contributed $31.4 million in underlying EBITDA for the nine months of FY23 that it was part of the IPH group.

This means the Canadian subsidiary now accounts for almost one fifth of total underlying earnings at the company, with success to date that also allowed it to achieve the maximum cap of earn-out entitlements of CAD$66 million ($76 million) in new IPH shares for the vendors.

Toronto-headquartered Ridout & Maybee was founded in 1893 and today has 30 intellectual property staff across three offices, with the company filing more than 2,800 patents and 1,000 trademarks for its clients last year.

The transaction will be funded from IPH's existing debt facilities, and IPH expects it will lift the group's underlying earnings in Canada by a quarter including cost efficiencies of approximately CAD$2 million ($2.3 million).

"The acquisition of Ridout & Maybee is consistent with our growth strategy and supports our vision to be the leading IP services group in secondary IP markets," says IPH managing director and CEO Dr Andrew Blattman.

"Following the successful acquisition of Smart & Biggar in October 2022, this transaction further consolidates our presence in the Canadian IP market and we look forward to Ridout & Maybee becoming part of Smart & Biggar and contributing to the wider IPH network."

Smart & Biggar managing director Matthew Zischka describes Ridout & Maybee as a quality IP firm with a leading team of IP specialists.

"We are delighted to be able to bring together the strengths of two Canadian IP businesses as one firm under Smart & Biggar," he says.

"We are really excited about joining Smart & Biggar and believe this will best position our firm for the future, both in Canada and internationally. As a combined firm we can provide enhanced career opportunities for our people and an enhanced service offering for our clients as part of a larger firm," adds Ridout & Maybee partner Peter Everitt.

IPH has today reported a net profit after tax (NPAT) result of $64.5 million for FY23, although like-for-like underlying earnings were down 3 per cent.

For the group's largest division in Australia and New Zealand, like-for-like earnings were down 5 per cent, but they were up in IPH's Asian hub in Singapore with growth of 7 per cent. This was offset by a significant decline in patent and trademark revenue in Hong Kong/China.

"One of our larger clients exited operations in China which reflects recent industry supply chain de-risking as some corporates seek alternative manufacturing locations to China," says Blattman.

"Continued geopolitical impacts in the region caused a decline in patent and trademark revenue in Hong Kong with a decline in translation revenue.

"As a result, total like-for-like revenue in Asia increased by 4 per cent while like-for-like EBITDA was steady on the prior year."

IPH notes an $11 million difference between the group's statutory and underlying NPAT figures, relating to changes in deferred consideration, costs associated with acquisitions, costs associated with managing a cyber incident earlier this year, restructuring expenses and IT Software as a Service (SaaS) implementation costs.

Australian patent market filings declined by 3.3 per cent in FY23.

"The relative decline in IPH Group filings in Australia reflects a full year of the integration of Spruson & Ferguson Australia and Shelston IP in FY23, compared to seven months in FY22," adds Blattman.

"We have previously noted the disruptive impact of member firm integrations on filing activity.

"IPH Group filings began to stabilise in 2HFY23 while both Spruson & Ferguson Australia and Griffith Hack recorded improved filing performance in 2HFY23."

Blattman says IPH remains the market leader in Australia with combined group patent market share (excluding innovation patents) of 32.4 per cent in FY23. In Singapore, it holds a market share of 23.1 per cent.

Blattman says IPH continues to focus on complementary growth step-out opportunities in Canada and other core secondary IP markets, and organic growth opportunities across its leading IP network.

"We continue to progress complementary acquisition opportunities in Canada. We believe there are a number of further consolidation opportunities to expand our patent market share in a material manner, each in the region of approximately 4-7 per cent of the Canadian patent market," he says.

IPH is also continuing to pursue other acquisition opportunities and is involved in discussions.

“We are also implementing specific business development initiatives targeting organic growth in Australia/New Zealand while focusing on restoring growth in Asia," says Blattman.

“Separately we are reviewing our operating model to ensure our future state capability, in terms of the management of the expanding IPH group."