Warren Buffett, America’s most beloved investor and part-time Bitcoin hater, sometimes talks about Berkshire Hathaway’s massive cash pile as an “elephant gun.” The company’s assets are huge and it sits on hundreds of billions in cash, which means that for Buffett to meaningfully move the needle for his company’s investments, acquisitions have to be supersized.
The bitcoin treasury company sphere is coming around to a similar observation: Go big or go home, even when the bitcoin price falls and makes life difficult for the BTCTCs. To make a meaningful dent in the race to most corporate bitcoin -slash- carve out a nice chunk of this future financial world we think Bitcoinizing finance will produce, you need a lot of bitcoin: Even Nakamoto’s $679-million purchase only got them some 5,000 BTC.
Buffett’s problem is that in the supersized class, most things are efficiently priced and so you can’t readily outperform by acquiring businesses there. The bitcoin treasury scene isn’t very efficient (yet?). Why a pot of bitcoin listed on a stock exchange trades at anything other than its bitcoin market value makes little sense to me (yes, yes, I get it: discounted future banking opportunities, and ability to keep financially engineer yourself into a larger pile). Thus, our beloved BTCTCs have the same problem Buffett has.
“Every day I wake up thinking, ‘crap, I gotta get to work because the Metaplanet people will outpace me'” – Michael Saylor, Sept 17, New York City
In Bitcoinland, we like to keep things interesting. From macro news this morning, we saw gold reach all-time highs, while Metaplanet, Strategy and Capital ₿ announced poorly timed massive gobblings of coins as the bitcoin price abruptly fell some 5% amid the largest liquidation event for crypto this year.
And we saw the first of many predictable acquisitions of bitcoin treasury companies taking place.
Semler Scientific (NASDAQ: $SMLR), a health care company turned bitcoin treasury company with 5,021 BTC on its balance sheet, has for weeks traded below the market price of its bitcoin, making it a prime acquisition target, as it would allow any sufficiently large player to buy 5,021 BTC at roughly the cost of 4,400 BTC). Thus, the financial-engineering flywheel ability for Semler was over and its Bitcoin management would have had to rely on actual, old-school cash flows to stack more sats. (Some one-quarter of bitcoin treasury companies are in that situation now.)
In came Strive (NASDAQ: $ASST), with an all-share acquisition deal to take over the company, while also acquiring 5,886 bitcoin for itself (instantly underwater by 3%, having burned some $20 million on bad timing). The press release for the deal cites this hypothetical, kind of misleading “210% premium” figure (that’s also all over Twitter):
“Semler shareholders will receive 21.04 Class A common shares of Strive for each Semler share, valuing Semler at $90.52 per share, a premium of more than 210% to its Friday close.”
Semler Scientific’s stock (NASDAQ: $SMLR) shot up almost 30% in early morning trade, to quickly give back most of that gain, at press time sitting on +11%. In typical financial market fashion where the acquirer in hubris might have overpaid for a target, Strive (NASDAQ: $ASST) saw its shares fall upward of 11% in today’s trading.
And there’s clearly more to the story, with Strive itself forking over overvalued shares (its mNAV is in the 3-8 range, depending on dilution), so the real bitcoin-value that SMLR shareholders receive is roughly aligned with where Wall Street is trading that stock this morning. There’s no arbitraged premium when you’re paying with air! The price of Strive shares when they unlock later this year, is unknowable. Plus, our beloved Matt Levine at Bloomberg called the trade in July:
“eventually there will be stock-for-stock mergers of Bitcoin treasury companies. The ones that trade at lower premiums will sell to the ones that trade at higher premiums.”
…which he reminded everyone about in his newsletter today.
At the NYC Unconference treasury event last week, I spoke to someone who definitely had knowledge of this deal — they shared nothing; I received no MNPI — but they seemed oddly unfazed by the fact that many treasury companies trade below the value of their bitcoin holdings. Of course, if I was aware of an elephant hunter already closing a premium deal on my undervalued company, then I’d feel pretty calm as well.
Doing some back-of-the-envelope calculations here, Semler’s 17,051,000 fully diluted shares gave it a market capitalization of just below $500 million per Friday’s close… but its bitcoin holdings on Friday were worth $580 million (about $564 million at press time, bitcoin price crumbling today). With each common share of SMLR turning into 21.05 ASST shares, Strive is forking over some $1.4 billion of paper for the privilege of owning Semler — with $564 million being pure, market-value bitcoin and the remainder for the cash-flow positive business that is Semler Scientific. At free cash flow of about $49 million last year, that spits out a price-to-free-cash-flow of about 17 for Semler’s operating business. Looking up valuations of other health care companies, that seems pretty reasonable.
Of course, it raises the question as to why SMLR shares were changing hands at $29 on Friday if $90 would have been a reasonable value… and Mr. Levine has the snarky answer for us:
“Wouldn’t it be more efficient for Strive to sell that $1.3 billion worth of stock for cash and use the cash to buy $1.3 billion worth of Bitcoin, roughly twice as much as it’s getting in this merger? Why wouldn’t it just do that? Ahahaha no I’m kidding I know why. These days it is harder than it used to be to sell $1 worth of Bitcoin for $2 on the stock market, but it’s easier if the buyer is also a crypto treasury company.”
We’ll see how the exact details flush out, but the world of bitcoin treasury companies defying financial gravity sure keeps our days interesting.
BTC Inc, Bitcoin Magazine’s parent company, is affiliated with Nakamoto ($NAKA) through common ownership. BTC Inc also has a contractual relationship with Nakamoto to provide marketing services.
Semler Scientific ($SMLR) and Strive ($ASST) are both members of Bitcoin for Corporations connected to Bitcoin Magazine via shared ownership, as BTC Inc operates Bitcoin For Corporations, a platform focused on corporate adoption of Bitcoin.
