Adam Levy, The Motley Fool
6 min read
Warren Buffett once said in an interview that he doesn’t think Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB) has ever participated in an initial public offering (IPO). There are too many incentives on the sell side for it to make sense to buy an IPO, he argued.
Greg Abel may have just found the exception that proves the rule. The new Berkshire CEO invested $600 million in the Bending Spoons (NASDAQ: BSP) IPO in July, when the company raised $1.68 billion at a valuation of around $18 billion. He recently added another $330 million to the investment in a private placement, giving Berkshire a 4% stake in the Milan-based tech company.
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It’s unclear whether Abel or Ted Weschler (who manages about 6% of Berkshire’s equity portfolio) is responsible for the purchases. While it goes against Buffett’s thoughts on IPO stocks, the investment is rooted in the fundamentals that drove Buffett’s success for over 60 years in charge of Berkshire.
Some similarities and differences with Berkshire Hathaway
Bending Spoons is in the business of buying software companies, improving operations, collecting cash flow, and reinvesting in more software companies. In the same ethos as Berkshire Hathaway, it plans to hold the companies it acquires forever.
Additionally, it doesn’t chase “sexy” names like hot new AI companies. It sticks to relatively boring businesses that other investors (either private or public) may have dismissed. Past acquisitions include AOL, Evernote, Vimeo, Eventbrite, and Meetup.
Unlike Berkshire, which takes a mostly hands-off approach with its acquisitions, Bending Spoons completely revamps the operations of each business it adds to its portfolio. The company hires best-in-class operators to take over new acquisitions. It focuses on cutting costs, expanding product development, and improving monetization (typically by increasing prices). Its track record is solid, and it’s developed a repeatable playbook.
The company benefits from a virtuous cycle. As it builds its portfolio and track record of acquisitions, it has a better understanding of how much a business is worth as a stand-alone company and how much more it’s worth inside Bending Spoons. That allows it to outbid competitors while still producing solid returns on its investment.
