Arm Holdings is preparing for its highly anticipated initial public offering (IPO) this week, testing the waters for investor interest and market conditions. The IPO raises important issues for tech investors, from artificial intelligence (AI) hype to geopolitical risks involving China, as well as the potential reinvigoration of equity capital markets. While the IPO has the potential to propel SoftBank Group Corp., Arm’s owner, into a successful IPO and boost its founder Masayoshi Son’s reputation, there are significant challenges to overcome.
The SoftBank-Arm journey has been a rollercoaster ride. SoftBank acquired Arm seven years ago for $32 billion, aiming to drive the chip designer’s growth and reshape its business model. However, 2020 brought a failed attempt by SoftBank to sell Arm to Nvidia for $40 billion, which upset customers concerned about the consolidation of the mobile-phone industry’s foundational technology. This setback led to Arm’s decision to pursue an IPO, with a goal of raising $4.87 billion and a valuation of up to $54.5 billion. Recent reports suggest that Arm may even exceed this target.
One noteworthy aspect of Arm’s IPO is its unconventional yet conservative design. SoftBank plans to float only up to 10% of the shares, creating high demand among investors. Additionally, the underwriting fees are being evenly divided among Barclays, Goldman Sachs, JPMorgan Chase, Mizuho Financial Group, and Raine Group. This even distribution approach harkens back to Alibaba’s IPO strategy from nearly a decade ago.
Arm initially aimed to raise $10 billion and achieve a higher valuation, but SoftBank scaled back its plans. SoftBank opted to purchase its Vision Fund’s 25% stake, choosing to keep the IPO float smaller. The recent sale of shares valued Arm at $64 billion, surpassing the top end of the IPO range. Arm has also reserved more than $700 million of stock to be purchased by its major customers, including Intel, Apple, Nvidia, Samsung Electronics, and Taiwan Semiconductor Manufacturing.
By involving anchor investors and keeping the float small, Arm’s IPO may discourage speculative trading once the stock hits the market. This approach aligns with the strategies of other companies like Instacart and Klaviyo, which have sought anchor investments before their own listings. Successful debuts by Arm and other companies this year, such as Instacart, Klaviyo, Rubrik, and Turo, could pave the way for a more robust IPO market in the first half of 2024.
While Arm’s IPO marks an important milestone for the company and the market, it also highlights the complex intersection of new technologies and global risks. Investors will closely monitor the outcome, providing valuable insights into the future trajectory of the tech industry and capital markets.
1. What is Arm’s IPO?
Arm’s IPO refers to the initial public offering of Arm Holdings, a renowned chip designer. SoftBank, Arm’s owner, is floating up to 10% of the shares to raise funds and determine investor interest.
2. What are the key issues surrounding Arm’s IPO?
Arm’s IPO raises concerns about the impact of artificial intelligence hype, geopolitical risks involving China, and the overall state of equity capital markets.
3. How has SoftBank’s ownership of Arm unfolded?
SoftBank acquired Arm in 2016 for $32 billion, intending to grow the chip designer’s business. However, an unsuccessful attempt to sell Arm to Nvidia in 2020 led to the decision to pursue an IPO.
4. What is the unconventional aspect of Arm’s IPO design?
Arm’s IPO design is characterized by floating only a small percentage of shares and sharing underwriting fees evenly among multiple banks, emulating a strategy used by Alibaba in the past.
5. How could the engagement of anchor investors affect Arm’s IPO?
Arm has reserved stock for its major customers, including Intel, Apple, Nvidia, Samsung Electronics, and Taiwan Semiconductor Manufacturing. This, combined with the small float, could discourage speculative trading post-IPO.