TL;DR:
- Arm Holdings’ long-awaited IPO is set to become the year’s largest listing.
- Key issues include the AI hype and geopolitical risks, particularly related to China.
- SoftBank’s ownership and its history of IPO struggles add intrigue.
- Arm pivoted to an IPO after a failed $40 billion sale to Nvidia.
- IPO aims to raise $4.87 billion, valuing Arm at up to $54.5 billion.
- Unconventional IPO structure includes a 10% share float and evenly distributed underwriting fees.
- Arm allocated $700 million worth of stock for purchase by major customers.
- Anchor investors and a smaller float may deter share flipping.
- Success of Arm’s IPO could influence other tech firms considering listings.
Main AI News:
Arm Holdings Plc, the British chip designer under the ownership of SoftBank Group Corp., is gearing up for its long-awaited initial public offering (IPO) scheduled for Wednesday. This event has garnered immense attention as it is poised to be the most significant listing of the year, promising to reignite equity capital markets. Investors are closely monitoring this development, considering it touches on several pivotal issues in the tech industry, including the fervor surrounding artificial intelligence (AI) and the intricate geopolitical challenges posed by China’s role in the ongoing chip wars. Notably, Nvidia Corp., the world’s most valuable semiconductor company, is among the participants in this landmark IPO.
For SoftBank’s founder, chairman, and CEO, Masayoshi Son, the IPO is an opportunity to demonstrate success in the shorter term, countering a history marked by ambitious proclamations and IPO stumbles. SoftBank’s acquisition of Arm seven years ago for $32 billion represented a transformative moment for the chip designer, albeit not without its share of challenges.
In a notable turn of events in 2020, SoftBank attempted to sell Arm to Nvidia for $40 billion, a move met with resistance from customers fearing a monopolistic grip on the mobile-phone industry’s foundational technology. With the deal falling through, Arm pivoted towards an IPO with plans to raise $4.87 billion and achieve a valuation of up to $54.5 billion, signifying a substantial 70% increase from the 2016 purchase price. Recent reports suggest Arm is even eyeing a pricing strategy exceeding the initial target, aiming to value its IPO shares at one dollar or more above the $47 to $51 range.
The IPO’s structure is a blend of innovation and conservatism. SoftBank intends to offer only up to 10% of the shares, a move that could trigger a fierce scramble among investors to secure their stake. Additionally, underwriting fees are being evenly distributed among four leading investment banks: Barclays Plc, Goldman Sachs Group Inc., JPMorgan Chase & Co., and Mizuho Financial Group Inc., with advisory support from Raine Group LLC, in which SoftBank holds a stake. This approach mirrors the one employed by Alibaba Group Holding Ltd. almost a decade ago.
Initially aiming for a more substantial fundraising target and a higher valuation, Arm scaled back its plans. SoftBank’s decision to acquire roughly 25% of its own Vision Fund’s stake and keep the float smaller was a pivotal factor in this adjustment. The subsequent valuation, bolstered by the shares traded in this transaction, pushed Arm’s worth to $64 billion, nearly $10 billion above the upper end of the IPO range.
Notably, Arm has allocated over $700 million worth of stock in the IPO for purchase by some of its prominent customers, including Intel Corp., Apple Inc., Nvidia, Samsung Electronics Co., and Taiwan Semiconductor Manufacturing Co. This strategy aligns with the current trend, as several IPO candidates, including Instacart Inc. and Klaviyo Inc., are securing anchor investments ahead of their own listings.
The presence of anchor investors, coupled with a limited float, may discourage rapid share flipping by funds once trading commences on Nasdaq. If Arm’s IPO, along with those of Instacart and Klaviyo, proceeds smoothly, it could pave the way for other companies, such as software firm Rubrik Inc. and car-sharing platform Turo Inc., to consider their own listings. Industry experts anticipate that successful debuts by these firms, among others, in 2023 could catalyze a more robust IPO resurgence in the first half of 2024.
Conclusion:
Arm’s forthcoming IPO symbolizes a significant event in the tech industry, addressing AI excitement and geopolitical concerns. SoftBank’s attempt to monetize its investment, coupled with the unique IPO structure, showcases the complex dynamics at play. The success of this IPO could potentially set the stage for a renewed IPO surge in 2024, impacting the broader market’s sentiment and activity in the tech sector.
