Here’s one business model. You buy a software company people have heard of, like AOL, Evernote, Vimeo, Eventbrite or WeTransfer. You rebuild it so it makes more money, usually with far fewer people, and you use the profits to buy the next one. You never sell. Bending Spoons, a Milan-based company, has been doing this for more than a decade, and as Theron Mohamed writes in Business Insider, it has never sold a material business.
Here’s another. You buy businesses to keep forever, take the cash that See’s Candies throws off and use it to buy more businesses. That’s Berkshire Hathaway. Squint a bit and these are the same model. So maybe it isn’t shocking that Berkshire now owns a piece of Bending Spoons.
On October 14, Bending Spoons announced that Berkshire would buy 10 million new shares at $33 each in a $330 million private placement. That comes on top of $600 million Berkshire invested when Bending Spoons listed on Nasdaq in July. The Next Web notes, citing CNBC’s Alex Crippen, that this release appears to be the first public mention of that IPO investment. That makes $930 million in total and a 4% stake, which Reuters, citing LSEG data, said makes Berkshire the sixth-largest investor. According to the company’s filing, the money is for general corporate purposes and new acquisitions, and the deal is expected to close in the fourth quarter, subject to customary conditions.
Luca Ferrari, the chief executive and cofounder, said Berkshire “has been among the finest and most respected capital allocators in the world, and is a longstanding inspiration for Bending Spoons.” Translation: we copied your homework, and we’re delighted you approve.
The Buffett effect, priced
The mechanics are fun. The $33 price was a discount to Tuesday’s close of $37.86, about 13% by the company’s count, closer to 12% in CNBC’s arithmetic, and the exact figure is 12.8%. Discounts are normal in private placements: the buyer takes a big block of unregistered stock that it can’t flip right away. Then the market heard who the buyer was. On the day of the announcement the shares closed up 41% at $53.46, after touching $58.56. By October 16 they had slipped back to $47.07. Even then, Berkshire’s not-yet-delivered shares were worth about $14 more apiece than it was paying. That’s roughly $140 million on 10 million shares, or about 43%, for signing a document.
Is that a bad deal for Bending Spoons’ other shareholders? I’d argue the opposite. The company sold two things: 10 million shares, and the right to say “Berkshire Hathaway owns us.” Imagine it had sold the same block to a pile of anonymous funds at a 13% discount. The stock would likely have dropped. Selling to Berkshire made it soar. The discount was the price of the endorsement, and it was cheap.
Is this a Berkshire stock?
The odd part is everything else. Berkshire has mostly avoided tech, with Apple and Alphabet as the big exceptions, because Buffett wanted a margin of safety and liked to stay inside his circle of competence. Bending Spoons earned 32 cents a share last year, and $33 is about 103 times that. It is growing fast: second-quarter revenue rose 126% to $704 million, and adjusted operating income rose 150% to $381 million, a 54% adjusted margin. But nobody calls 103 times earnings a bargain. In Barron’s, quoted by CNBC, Andrew Bary wrote that Bending Spoons “was a surprise,” pointing to its high valuation. Mizuho analysts called the deal another vote of confidence in the model.
Then there’s style. Berkshire is famously hands-off: founders cash out and keep running things their way. Bending Spoons is hands-on. In its words, it practises “deep” transformation: “reorganizing teams, overhauling technology, redesigning user interfaces, accelerating product development, and enhancing marketing and monetization.” Here’s what that means in practice. On the Joys of Compounding podcast, Ferrari said Evernote had around 350 employees when Bending Spoons bought it at the start of 2023, roughly 60 within 12 to 18 months, and about 20 now. Yet this spring, he said, it “launched by far the biggest update to the product in maybe a decade.” At Airtable, agreed in August, the company said on October 12 that a large part of the pre-acquisition team would leave with “substantial separation packages,” CNBC’s CJ Haddad reported.
The two fit together better than they first look. Berkshire isn’t running Evernote. It’s a passive investor in a very active owner, and its money is fuel for more deals. “Bending Spoons continuously evaluates M&A opportunities, and our pipeline remains strong,” said cofounder Francesco Patarnello, who leads acquisitions. Ferrari told CNBC in an interview the next day that the “overwhelming majority” of the company’s growth comes from doing more deals. CNBC titled one clip from it, roughly, buy any company it thinks it can make better. It signed for Miro in September, a cash deal Reuters valued at about $1.36 billion.
For Berkshire this is a rounding error. It had $365 billion in cash at the end of June, a $1.1 trillion market value and a top stock position worth about $66 billion. The $930 million is about a quarter of one percent of that cash. Berkshire hasn’t said who picked the stock or whether Buffett was involved. A position this small could belong to investment manager Ted Weschler. Or it could be Greg Abel, who succeeded Buffett as chief executive this year and added $10 billion to Alphabet through a private placement this summer after consulting him. Reuters reported that Berkshire has increased its exposure to tech and AI under Abel.
For years Bending Spoons studied how Berkshire buys businesses. Its first lesson in selling turned out to be: sell to Berkshire.