British chip designer Arm Ltd. is preparing for one of this year’s largest initial public offerings (IPOs) with a target valuation ranging from $50 billion to $55 billion. Arm intends to begin discussions with potential investors as early as next week in preparation for its Nasdaq stock-market debut. SoftBank Group, Arm’s parent company, plans to divest about 10% of its total shares in this IPO.
Arm, known for its chips found in numerous smartphones and mobile devices, was acquired by SoftBank for approximately $32 billion in 2016. However, Arm’s targeted valuation is notably lower than the $64 billion implied by SoftBank Group’s recent agreement to purchase the remaining 25% stake from its Vision Fund unit.
The lower valuation is not set in stone, as strong demand during Arm’s roadshow could potentially drive up the price. It is a common practice for highly anticipated IPOs to start with a conservative valuation and later adjust it upwards based on market demand.
This IPO presents an opportunity for SoftBank to gradually reduce its stake in Arm, potentially yielding significant returns if the stock price appreciates. It also provides SoftBank with fresh capital to reinvigorate its investments in technology startups, particularly in the field of artificial intelligence.
Arm, a key player in the semiconductor industry, supplies designs to companies like Apple, Qualcomm, and Advanced Micro Devices. Despite its recent profit decline, Arm’s diversification into more powerful chips and its involvement in the growing artificial intelligence sector offer potential for future growth. However, Arm’s exposure to the Chinese market, accounting for about 25% of its revenue, presents a risk given the ongoing tensions between the U.S. and China.
Arm has explored the possibility of selling small stakes in the IPO to some of its partners and customers, though specific participants are undisclosed. This strategy can help establish relationships and bolster market credibility.
For Wall Street banks, this IPO represents a positive development, given the recent challenges in the IPO market. Notable institutions like Barclays, Goldman Sachs, JPMorgan, and Mizuho are involved in underwriting the offering.
(Source: WSJ | Financial Times )
