Sep 6, 2023

The valuation that Arm is chasing represents a climb-down from the $64 billion valuation at which SoftBank last month acquired the 25 per cent stake it did not already own in the company from its $100 billion Vision Fund. Arm met also with other potential investors on Tuesday, including Arlington, Virginia-based Sands Capital, according to sources who requested anonymity discussing private meetings. (Image credit: Reuters) SoftBank Group's Arm Holdings Ltd launched the roadshow for its blockbuster initial public offering (IPO) on Tuesday as the chip designer tries to convince investors it is worth as much as $52 billion in this year's biggest share sale. Arm kicked off its roadshow in Baltimore, where influential asset manager T Rowe Price is headquartered, underscoring the fund manager's significance in big IPOs. T Rowe Price has been an anchor investor in some of the biggest stock market debuts, including that of electric car maker Rivian Automotive Inc, which was valued at $66.5 billion in its IPO in 2021. Arm's IPO is the largest since then. Arm met also with other potential investors on Tuesday, including Arlington, Virginia-based Sands Capital, according to sources who requested anonymity discussing private meetings. SoftBank is offering 95.5 million American depository shares of Cambridge, England-based Arm for $47 to $51 apiece and is looking to raise up to $4.87 billion at the top of the range. Arm disclosed the proposed range would value it at between $48 billion and $52 billion. It also revealed that it could issue some shares as compensation for its employees, taking its valuation, on a fully diluted basis, at up to $54.5 billion. The valuation that Arm is chasing represents a climb-down from the $64 billion valuation at which SoftBank last month acquired the 25% stake it did not already own in the company from its $100 billion Vision Fund. TRENDING NOW Yet even with this more modest valuation ask, SoftBank would fare better than its $40 billion deal to sell Arm to Nvidia Corp, which it abandoned last year amid opposition from antitrust regulators. Jamie Mills O’Brien, portfolio manager at British fund manager Abrdn, said he found SoftBank's valuation ask in the IPO "more palatable than initially discussed." "We are watching closely how the company handles the relationship with its China business – alongside any further impacts from the technology ‘war’ between China and the United States," he said. The Japanese conglomerate will own 90.6 per cent of Arm's ordinary shares after the offering closes, the company said, adding that it will not receive any proceeds from the IPO. Arm has signed up many of its major clients as cornerstone investors in its IPO, including Apple, Nvidia, Alphabet, Advanced Micro Devices (AMD.O), Intel (INTC.O) and Samsung Electronics. Arm said the investors have indicated an interest in buying a total of $735 million of the stock being sold in the offering. RETURN TO THE PUBLIC MARKETS Arm was founded in 1990, as a joint venture between Acorn Computers, Apple Computer, and VLSI Technology. Its shares traded on the London Stock Exchange and the Nasdaq from 1998 until 2016, when it was taken private by SoftBank in a deal that valued it at $32 billion. Arm's listing is expected to buoy the IPO market globally and fuel other startups toward going public as its success would signal the return of investor appetite for technology companies. Several other big names including grocery delivery service Instacart Inc, marketing automation platform Klaviyo and footwear brand Birkenstock are expected to list their shares on U.S. exchanges in the coming weeks. It will also be a milestone for SoftBank, as it taps several marquee technology names as investors to drum up support for the company whose designs power more than 99% of the world's smartphones. Reuters first reported on SoftBank's proposed price range for the IPO on Saturday. Sources also said it could possibly raise this range before the IPO prices, should investor demand prove strong. Arm generates a big share of its revenue through royalty fees based on either the average selling price of the customer's Arm-based chip or a fixed fee per chip. For the year ended March 31, Arm's sales fell to $2.68 billion, hurt mainly by a slump in global smartphone shipments. Unlike most loss-making but high-growth tech companies that debut with lofty valuations but later plummet below list price, Arm is profitable. This is expected to significantly reduce investor anxieties, analysts have said. Sara Russo, senior analyst at Bernstein, said it is early days for Arm to benefit from the boom in artificial intelligence but the space represents an area of potential growth for Arm. Analysts have said Arm can potentially ride on Nvidia's coattails, which has been the biggest beneficiary of the AI boom with the stock surging more than 230 per cent year-to-date, as its chips must be coupled with energy-efficient central processing units (CPUs) - Arm's specialty. Barclays (BARC.L), Goldman Sachs (GS.N), JPMorgan Chase (JPM.N), and Mizuho Financial Group (8411.T) are the lead underwriters for the offering. If the underwriters exercise their right to buy shares in Arm in full as part of 'greenshoe option', it would take the IPO amount to be raised to $5.2 billion. Arm, which has tapped a total of 28 banks for the IPO, has not picked a traditional "lead left" bank and will split underwriter fees evenly among the top four banks. Arm expects to trade on the Nasdaq under the symbol "ARM".