Jacob Schindler

Japan’s SoftBank took another step towards its goal of becoming the world’s largest technology investor yesterday, surprising markets again with its latest deal: a $3 billion takeover of Fortress Investment Group. It is a transaction that comes with plenty of dimensions, but the one that will no doubt pique IAM readers’ interest is what it means for the asset manager’s IP finance group led by Eran Zur. Fortress’ endeavours in the IP space don’t look to have figured heavily in driving the deal, but as things stand they put the Japanese company - founded by Masayoshi Son - in the interesting position of owning a major player in the NPE market.

Fortress moved into IP finance four years back when Eran Zur, Joseph Kessler and other former senior RPX employees joined the firm. The team evaluates companies’ patent portfolios and lends them money – often in the eight digit range – against their patent assets. It is a model predicated on the Fortress team’s ability to sell on or otherwise monetise those assets in the event of a default. There has been speculation recently about whether Fortress may become more directly active in monetisation, especially after it announced in December that it would take control of a 740-patent portfolio from Inventergy with “sole discretion to make any and all decisions relating to the company’s patents and patent monetisation activities”.

The fact that Fortress is no longer publicly traded could be helpful in any monetisation effort it undertakes with the Inventergy patents or others. But that is assuming Softbank wants to be an NPE owner. It does control the UK’s ARM, suggesting some appreciation of IP licensing; but it is hard to gauge whether the company would be comfortable with more aggressive monetisation tactics. A big Japanese corporate owning a business that lends money to NPEs and may itself assert patents would certainly be a new development. If patent monetisation doesn’t square with SoftBank’s plans for Fortress, we could see a spinoff or some other form of departure for the IP finance team.

However, if Zur and co do stay put they become part of a growing tech empire that could yield some interesting opportunities. Between its core telecoms business, the aforementioned ARM, and many smaller acquisitions, SoftBank owns a huge quantity of technology and IP that could create a lot of value. Its influence across Asia could also potentially provide openings for Fortress to expand its IP lending business among operating companies in this part of the world.

Interestingly, it seems that Fortress' human capital played a key role in driving the deal. A source told Bloomberg: “Son thinks that Fortress [..] can become a sort of brain trust for SoftBank, helping to track down and analyze investment opportunities around the world.” So while Fortress will remain an independently operated company based in New York, and the firm’s principals and major fund managers will reportedly stay in place, it sounds like their expertise will be called upon to support SoftBank’s broader tech-sector efforts.

Chief among these efforts is Son’s ambitious plan to make Softbank the world’s largest technology investor. In October, the Japanese company announced the formation of the SoftBank Vision Fund, which would deploy up to $100 billion over the next decade. SoftBank will reportedly pump $25 billion into the fund, alongside $45 billion from the Kingdom of Saudi Arabia and smaller investments from Apple, Qualcomm and Larry Ellison. Most of that money will go not towards venture and start-up funding, but towards larger investments: private equity deals or stakes in publicly traded technology companies that are undervalued.

With all the emphasis on leveraging Fortress’ human capital and investment expertise, it will be interesting to see whether SoftBank – an increasingly IP-rich company – looks to capitalise on the extensive source of IP knowledge that Zur’s team represents. As its $100 billion fund starts to take shape, SoftBank will be evaluating the investment potential of a huge range of technology companies big and small. And the company now has in its stable a team with a wealth of collective experience of analysing patent portfolios and making strategic decsions about them in order to make lending decisions; for lending read investing. Son is a master of spotting valuable assets, and he might do well to take advantage of this one.