SoftBank’s Arm targets valuation of up to $52bn in IPO

SoftBank Group’s Arm is seeking a valuation of more than $52bn in its initial public offering (IPO), the chip designer said on Tuesday as it begins marketing for the biggest US stock market flotation of the year.

SoftBank is offering 95.5-million American depository shares (ADS) of the UK-based company for $47-$51 apiece and is looking to raise up to $4.87bn at the top of the range, Arm said in a regulatory filing.    

The valuation that Arm is chasing now represents a climbdown from $64bn at which SoftBank last month acquired the 25% stake it did not already own in the company from its Vision Fund.

Still, interest in the IPO remains robust, fuelled by a desire of its clients to expand their commercial ties with Arm and ensure rivals do not gain an edge.

The Japanese conglomerate will own 90.6% 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 investors in its IPO, including Apple, Nvidia, Alphabet, Advanced Micro Devices, Intel and Samsung Electronics.

The company said the “cornerstone investors” have separately indicated an interest in buying a combined $735m of the ADS being sold.

Arm’s listing, the biggest in New York since Rivian in late 2021, is expected to buoy the IPO market globally and fuel other start-ups towards going public as its success would signal the return of investor appetite for technology companies.

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.

SoftBank’s proposed price range for the IPO was reported on Saturday. Sources also said it could possibly raise this range before the IPO prices, should investor demand prove strong.

Arm, the client list of which includes the world’s biggest tech giants, 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 to end-March, Arm’s sales fell to $2.68bn, 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.

The company 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 $32bn. 

Barclays, Goldman Sachs, JPMorgan Chase and Mizuho Financial Group are the lead underwriters for the offering.

If the underwriters exercise their right to buy shares in Arm in full as part of a “greenshoe option”, it would take the IPO amount to be raised to $5.2bn.

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 Global Select Market.

Reuters