Arm’s Reduced IPO Shows Pitfalls in Quest for New York Premium

Arm Holdings Ltd.’s initial public offering, planning to raise $4.87 billion at the top of its range, shows the premium valuation the British chip designer was seeking from a New York listing may not fully materialize.

(Bloomberg) — Arm Holdings Ltd.’s initial public offering, planning to raise $4.87 billion at the top of its range, shows the premium valuation the British chip designer was seeking from a New York listing may not fully materialize.

The firm was taken private by SoftBank Group Corp. for $32 billion in 2016, when it was listed in London. Seven years later, Arm will be valued at close to $55 billion — a contrast to the five-fold surge in the Philadelphia Semiconductor Index during the same period and below the original target of up to $70 billion. 

Arm could still raise more or less money depending on investor demand on its roadshow.

That’s a blow to Masayoshi Son, who sought to flourish in the era of artificial intelligence computing that has helped chipmaker Nvidia Corp. scale a $1.2 trillion market capitalization. Vision Fund’s transaction valued Arm at more than $64 billion, based on Arm’s filings.

“It’s a lot more challenging for Arm to capitalize on the current trend for AI than a company like Nvidia,” said Albie Amankona, analyst at Third Bridge. That’s because “around 60-70% of Arm’s revenues are derived from mobile and the AI landscape is centered around cloud-based operations, rather than being heavily integrated at the device or edge level, where Arm is more prominent.”

Arm will offer 95.5 million American depositary shares for $47 to $51 each, the company said in a filing Tuesday with the US Securities and Exchange Commission. The deal would value Arm at as much as about $54.5 billion, according to Bloomberg News calculations. After the IPO, SoftBank will still control about 90% of Arm’s shares, it said in the filing. 

China Slowdown 

On a price-earnings basis, that would value the company at 104 times trailing net income, making it look expensive compared with 64 times earnings for Mountain View-based Synopsys Inc. and 71 times earnings for another Californian peer, San Jose-based Cadence Design Systems Inc. 

Son’s desire to take Arm public in the US to tap a deeper investor base and attractive valuations is now facing risks from an economic slowdown in China, which accounted for a quarter of the total sales in the year ended March.

Arm sells the blueprints needed to design microprocessors, and licenses technology known as instruction sets that dictate how software programs communicate with those chips.

London has been hit by setbacks in its efforts to remain at the pinnacle of equity markets. Apart from losing out on Arm, other firms are assessing their domestic listings. Building-materials supplier CRH Plc is set to start trading on the New York Stock Exchange from later this month, while large caps such as InterContinental Hotels Group Plc and British American Tobacco Plc have also been mentioned when the topic of a move to Wall Street is discussed.

Steady Exodus

The Cambridge-based chip designer’s decision to ditch London for New York as a listing venue earlier this year follows a steady exodus from Europe, particularly the UK. Companies are either choosing to list in the US or shifting their primary listing across the Atlantic. 

Over the past decade, about two dozen UK companies listed in the US market, with only three still trading higher, and four of them have since delisted, according to BNP Paribas SA data earlier this year. 

While London has struggled to attract IPOs, continental Europe has had some success. Europe’s most recent high-profile listing, Porsche AG, has risen more than 20% since the kickoff last year, when it was priced at the top of the indicated range.

Even at the bottom of the share-sale range, Arm’s IPO would still be the world’s biggest this year, surpassing the $4.37 billion listing by Johnson & Johnson consumer health spinoff Kenvue Inc. Arm’s listing could also break ground for IPOs by 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.

–With assistance from Phil Serafino and Julia Fioretti.

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