Arm Holdings climbed 25% in its trading debut after raising US$4.87 billion in the year’s biggest initial public offering, delivering a boost for both equity markets and SoftBank Group Corp founder Masayoshi Son.
Shares of the chip designer, still 90% owned by SoftBank, closed at US$63.59 in New York trading Thursday, giving Arm a market value of more than US$65 billion. Including restricted share units, Arm’s fully diluted valuation is closer to US$68 billion.
Arm on Wednesday sold 95.5 million American depositary shares at the top of a marketed range of US$47 to US$51 each. The shares opened trading Thursday at US$56.10 and rose as much as 30%.
The debut stands as a vindication for Son, SoftBank’s chairman and chief executive officer. In a final meeting Wednesday, some bankers and executives made the case for pricing the shares above the marketed range but Son said it wasn’t worth risking a healthy debut for US$100 million or so in additional proceeds, Bloomberg News reported. With Thursday’s gains, the value of SoftBank’s stake has increased by about US$12 billion.
SoftBank’s shares rose as much as 5.1% during early morning trade in Tokyo on Friday, in their biggest intraday gain in three months.
Investors in the IPO included some of Arm’s biggest customers. The company set aside more than US$700 million of its stock for Intel Corp, Apple Inc, Nvidia Corp, Samsung Electronics Co and Taiwan Semiconductor Manufacturing Co.
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Arm’s listing is the largest in the US since electric-vehicle maker Rivian Automotive Inc.’s US$13.7 billion offering in October 2021. The IPO is also set to rank among the tech industry’s largest-ever, though still well below the two biggest: Alibaba Group Holding’s US$25 billion 2014 offering and 2012’s US$16 billion debut by Meta Platforms, then known as Facebook Inc.
The listing surpassed the US$4.37 billion raised in May by Johnson & Johnson consumer health spinoff Kenvue Inc to become 2023’s top offering in the US.
IPO Catalyst
Arm’s debut could serve as a catalyst for IPOs from dozens of tech startups and other companies whose plans to go public in the US have been stuck during the deepest, longest listing trough since the financial crisis in 2009.
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Online grocery-delivery firm Instacart Inc and marketing and data automation provider Klaviyo are set to price their IPOs next week. Vietnam-based internet startup VNG and footwear maker Birkenstock Holding are also among those that have also filed to go public.
“This is just the beginning of the cycle and Arm is a great sign of what’s to come,” said Ross Gerber, co-founder and CEO of wealth management firm Gerber Kawasaki Inc. “The pricing is a big part of it, SoftBank was smart to price it where they did because they got a pop and drew investors in.”
Son’s approach to IPO reflects his continuing long bet on Arm, whose chips are found in most of the world’s smartphones. Arm also stands to benefit from the stampede toward artificial intelligence chips and generative AI — an industry shift that has helped give Nvidia Corp. a market value of more than US$1.1 trillion. Founded in 1990 as a joint venture between Acorn Computers, Apple and VLSI Technology, Arm was listed on the London Stock Exchange and Nasdaq from 1998 until 2016, when SoftBank acquired the business for US$32 billion.
In 2020, SoftBank tried and failed to sell Arm to Nvidia for US$40 billion. That move angered Arm customers who didn’t want to see the company, which supplies the foundational technology used by the mobile-phone industry, fall into the hands of a single buyer.
IPO Pivot
With that deal off the table, Arm pivoted to an IPO in which it earlier sought to be valued at US$60 billion to US$70 billion, Bloomberg News reported.
SoftBank planned for a listing earlier, only to see a timeline knocked back by a slump in investor interest in technology stocks.
“The markets of last year didn’t really cooperate,” Arm’s CEO Rene Haas said in an interview. “In terms of where we landed the plane, relative to where we thought we were six to nine months ago, we, we landed in a great place.”
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Haas added in an appearance on Bloomberg TV that the company, which is based in Cambridge, England, is open to considering a listing in the UK.
While Arm had previously aimed to raise US$8 billion to US$10 billion in the listing, that target was lowered at least in part because SoftBank decided to buy the roughly 25% stake held by its Vision Fund in a transaction valuing Arm at more than US$64 billion, based on Arm’s filings.
Though Arm’s technology is used in almost every smartphone, it isn’t well-known among consumers. Arm sells the blueprints needed to design microprocessors, and licenses technology known as instruction sets that dictate how software programs communicate with those chips. The power efficiency of Arm’s technology helped make it ubiquitous on phones, where battery life is critical.
Arm’s past success won’t necessarily carry over in new growth areas, where alternatives to its chips are available and other companies are in control, according to Charles Shi, a Needham & Co. senior research analyst. While Arm can still grow, it won’t be enough to support its valuation in the IPO, wrote Shi, who put a hold rating on the stock.
Chip Slump
Meanwhile, the overall chip industry is still contending with a sales slump, though, worsened by a glut of inventory.
Arm’s revenue fell about 1% to US$2.68 billion for the fiscal year ended March 31, according to its filings. The company’s net income, which jumped to US$549 million in fiscal year 2022 from US$388 million the previous year, fell this year to US$524 million.
The company’s shares are trading on the Nasdaq Global Select Market under the symbol ARM.
Barclays Plc, Goldman Sachs Group Inc, JPMorgan Chase & Co and Mizuho Financial Group Inc led Arm’s offering, in an unusual arrangement with the four serving as equal partners. Raine Securities LLC, which is backed by SoftBank, also acted as financial adviser in connection with the IPO.
While Arm is a unique business, others will likely follow it to public markets, said Tom Swerling, global head of equity capital Markets at Barclays.
“As markets further improve, we will see a broader range of companies looking to come to market at the back end of this year or into the first and second quarters of next year,” Swerling said. “In the US, everyone is going to be mindful of the election at the back end of next year.”
