In a momentous tech industry development, shares of UK chip designer Arm have been priced at $51 per share ahead of their debut on the market, catapulting the company’s market valuation to a staggering $52.3 billion. This pricing decision represents the upper limit of a range initially set at $47-$51 per share, largely due to an overwhelming demand that led to Arm’s stock being more than five times oversubscribed. The Arm IPO has garnered immense attention as a litmus test for the health of the tech initial public offering (IPO) landscape, marking the largest listing since electric-truck manufacturer Rivian’s debut in 2021, which raised approximately $12 billion.
This IPO is of paramount importance against the backdrop of a tech industry that has witnessed a significant correction in valuations over the past 18 months. The decline in tech valuations can be attributed to economic uncertainties and rising interest rates. In this context, the Arm IPO is set to raise approximately $4.9 billion for SoftBank, which has chosen to offer 9.4 percent of the company’s stock. Following the IPO, SoftBank will continue to exert significant control, retaining around 90 percent of Arm’s shares.
Based on the number of shares outstanding after the IPO, Arm’s market capitalization, as it embarks on its trading journey, stands at $52.3 billion. However, on a fully diluted basis, considering the exercise of all stock options and other associated rights, Arm boasts a valuation of $54.5 billion.
Arm’s major clients, often referred to as Big Tech, have demonstrated their confidence in the company’s potential by expressing their intent to purchase Arm shares worth $735 million at the IPO price. Notably, Arm’s chip designs are integral to the operations of tech giants like Apple, Google, Nvidia, Samsung, Intel, and TSMC.
The process leading up to the IPO saw the underwriting banks closing orders for shares a day earlier than planned. Among the 28 banks involved in selling the Arm IPO, key players include Goldman Sachs, JPMorgan, and BofA Securities. The remarkable demand for Arm’s shares has effectively revitalized the tech IPO landscape in the United States, which had experienced a dearth of deals earlier this year. For instance, Instacart, a San Francisco-based e-commerce company, recently announced its IPO pricing with the potential to raise up to $616 million. Additionally, marketing automation firm Klaviyo disclosed its IPO pricing, aiming to sell 19.2 million shares within a range of $25 to $27 per share, potentially valuing the company at $6.3 billion.
It’s noteworthy that SoftBank initially acquired Arm for $32 billion in 2016. However, the IPO pricing now falls below the $64 billion valuation implied in a transaction with SoftBank’s own Vision Fund, a $100 billion Saudi-backed investment entity managed by the Japanese conglomerate. Despite challenges in Arm’s core market of smartphone chips this year, the company anticipates growth opportunities arising from artificial intelligence and data center customers. However, it’s important to note that Arm plays a peripheral role in the technology required for the development of large language models like ChatGPT and other generative AI systems.
SoftBank had originally aspired for a $70 billion valuation for Arm. Nevertheless, the firm reported flat sales in its latest financial year, sparking investor concerns regarding profit declines in the past quarter and Arm’s exposure to various risks in the Chinese market.
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