Patent translation expert RWS (RWS:AIM) has bought the remaining two thirds of market comparison site Inovia that it didn't already own. The deal was fully expected and today's announcement doesn't move the share price, flat at 776p. Yet the transaction is of high strategic importance. Indeed, house broker Numis raises its price target by 15% because of the deal to 860p.

Inovia's proposition is based on low price, convenience and efficiency, as we discuss in detail in this Griller article from June.

Inovia helps a corporate and their local patent attorney to find patent attorney firms in foreign countries where intellectual property (IP) protection is required. A corporate often needs to file a patent in many different countries. Inovia can get prices almost immediately for each of these territories.

The key factor for investors is that RWS has a monopoly on all patent translation work that goes through the Inovia system. Chairman Andrew Brode told Shares earlier this year that for every dollar of turnover that Inovia generates, 25 cents is translation.

RWS - Comparison Line Chart (Rebased to first)

RWS is paying $23.3 million for the remaining two thirds of the business, having bought the initial one third in September 2011 for $5.8 million.


What's interesting in today's announcement is that Inovia's financial contribution to RWS is ahead of expectations. 'Having reported +21% revenue growth in H1 and +39% growth in Q3, growth in Q4 (the quarter to June 2013) accelerated to c.+66%, giving +37% growth for the year. Inovia's EBITDA of $2.7m in the year was also ahead of our expectations, driven by operational leverage and tight cost control,' says house broker Numis.


The broker notes that Inovia has been run at arm's length from RWS to date. 'Clearly the key issue is now for RWS to execute on bringing the business into the group, while allowing it to continue to generate strong performance. We believe that management has been heavily focused on this issue.'


The shares have enjoyed a strong run in the past few years amid positive read-across from takeover activity elsewhere in the patent translation sector. All the details on that subject are contained in this article. Having full ownership of Inovia makes it even more attractive to a predator. We certainly remain bullish on the stock.

Issue Date: 17 Sep 2013