British chip development company Arm, which belongs to Softbank from Japan since 2016, has submitted an application for listing on Nasdaq (acronym for National Association of Securities Dealers Automated Quotations, or “National Association of Automatically Quoted Securities Brokers”, in free translation), the North American technology stock market. This movement occurs five months after the announcement that the company had deposited documents for an Initial Public Offering (IPO) with US regulators, with the potential to become the biggest IPO of 2023.
In the submitted F-1 documentation, the company did not include an estimate of price per share. In a recent move, the Softbank acquired a 24,99% stake in Arm, which it previously did not own, through its unit Vision Fund. That acquisition was valued at more than $64 billion, which is double the $32 billion SoftBank paid for Arm seven years ago. It is also worth mentioning that the Vision Fund has external limited partners, such as the sovereign wealth funds of Saudi Arabia and Abu Dhabi, and in 2017, SoftBank sold this stake in Arm to the Vision Fund for US$ 8 billion.
SoftBank has a history of paying high prices for its past business activities. One of the outstanding examples is the investment of US$ 4,4 billion that SoftBank made in the coworking company WeWork during the summer of 2017, when WeWork was still a private entity. At that time the company was valued at approx. US $ 20 billion. SoftBank made another substantial investment in WeWork in early 2019, when the company's valuation reached US $ 47 billion.
During that period, SoftBank invested approximately $10,5 billion in WeWork, both through direct investments and through its Vision Fund investment fund. Over time SoftBank continued to inject more capital into the company, and it ended up facing significant losses and nearly totaling its investment.
For a long time Arm has been dedicated to the development and licensing of processors — also known as Central Processing Unit (CPU –, characterized by its high performance, low cost, and energy efficiency. This technology is trusted by many of the leading semiconductor companies and global manufacturers to enhance their own products. The company serves a broad clientele comprising approximately 6.000 entities, including giants like Apple, Alphabet, Advanced Micro Devices (AMD), Qualcomm e Mercedes-Benz.
Possible biggest IPO of 2023
Analysts predict that Arm's IPO could be the over 2023, although not everyone is convinced that the company is worth as much as SoftBank believes. Last month, Bernstein analysts estimated Arm's fair market value to be approximately US $ 40 billion, based on its initial review of the limited financial information that was available at that time.
At this time it is unclear whether Bernstein will adjust this forecast in line with the financial information provided in Arm's F-1 filing. This document presented a net income of $524 million and revenue of $2,68 billion for the 2023 fiscal year, which ended in March. Interestingly, this value is practically the same as the amount generated by sales in 2022, which totaled US$ 2,7 billion.
In 2020 Arm agreed to be acquired by NVIDIA, a leading maker of artificial intelligence chips and GPUs, in a deal worth $40 billion in cash and stock. That deal could have turned out to be quite lucrative for SoftBank, especially given Nvidia's stock appreciation over the course of this year. However, the deal was Cancelled in February 2022 due to “significant regulatory challenges that made it impossible to complete the transaction".
After this episode, preparations for an Initial Public Offering were quickly put in place. Originating in 1990, the Arm began as a partnership between Acorn Computers, Apple Lossless Audio CODEC (ALAC), and VLSI Technology. The company went public in 1998, listed on both the London Stock Exchange and Nasdaq, until SoftBank opted to make it private.
In the F-1 document, the Arm lists 22 considerations such as “risk factors", among them the possibility that customers "choose to license our architecture and build their own processors based on that architecture, rather than adopting our processing products under an implementation license“. As a measure to avert this threat, Arm has recently taken the initiative to venture into the production of its own advanced semiconductors, as reported in the media in April 2023.
reviewed by Glaucon Vital in 22 / 8 / 23.