Bending Spoons has built its public-market story around acquisitions, but Bank of America says investors may be expecting far more dealmaking than the company can realistically fund.
In a note given to TheStreet, BofA analyst Omar Dessouky downgraded Bending Spoons (BSP) to Underperform from Neutral while raising his price objective to $39 from $37.
With shares at $53.44 when the note was published, the new target still implied about 27% downside.
The analyst’s biggest concern sits inside the valuation. BofA estimates roughly $23 of the current share price reflects value creation from future mergers and acquisitions, which would require about $18 billion of additional M&A.
BofA says Bending Spoons needs exceptional deal returns
Bending Spoons acquires digital businesses, cuts costs, improves operations and reinvests the resulting earnings into more acquisitions. The company says it has followed that model for more than a decade and has never sold a material business.
That strategy has already produced a sprawling portfolio that includes AOL, Eventbrite, Vimeo, Evernote, and WeTransfer.
Bending Spoons also agreed this month to acquire Airtable in an all-cash deal valuing the software company at $1.285 billion in enterprise value. Airtable had about $480 million in annual recurring revenue as of June, growing more than 20% year over year.
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BofA argues the problem is how much additional success investors have already priced in.
Dessouky estimates the current share price would require approximately $18 billion of future M&A enterprise value and returns near a 35% internal rate of return. Bending Spoons has previously discussed a 25% hurdle rate, according to the note.
Even if Bending Spoons could deploy $18.4 billion into deals over two years, BofA’s scenario analysis suggests anything below a 35% IRR would leave its valuation below the $53.44 share price used in the report.
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Debt capacity could limit Bending Spoons’ acquisition pace
Financing presents another hurdle. BofA estimates Bending Spoons could have roughly $7 billion of additional debt capacity by the end of 2027, assuming the company completed no further acquisitions before then.
That falls well short of the M&A volume BofA believes the stock currently implies.
The company’s latest financial results help show the scale of that constraint. Bending Spoons reported $4.09 billion of net debt at the end of the second quarter, along with a 2.4 times leverage ratio. It had $793 million in cash and $1.28 billion of unused borrowing capacity under its revolving credit facilities.
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Bending Spoons has added capital since quarter-end. Its July IPO generated $1.10 billion in net proceeds, while the company also entered new or expanded euro-denominated term loan facilities totaling €590 million.
Those moves increase the company’s ability to keep buying businesses, but BofA still sees a wide gap between available financing and the amount of dealmaking embedded in the stock.
Airtable adds a new execution risk
The Airtable acquisition also pushes Bending Spoons deeper into software-as-a-service, an area BofA views as both an opportunity and a risk.
Dessouky said the SaaS pivot could accelerate deal volume if Bending Spoons can acquire high-growth businesses at attractive valuations. However, he questioned whether those assets can be bought cheaply at scale and pointed to execution risk as the company moves toward sales-driven SaaS businesses.
The warning comes as Bending Spoons continues to post rapid headline growth. Second-quarter revenue jumped 126% to $704 million, while adjusted operating income rose 150% to $381 million.
Organic revenue growth, however, was just 3%, with the company saying acquisitions drove most of the revenue increase.
For BofA, the issue is no longer whether Bending Spoons can make successful acquisitions. The current valuation appears to require the company to make far more of them, finance them, and continue generating unusually high returns along the way.
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