Arm Holdings is poised to return to the public markets when US trading opens today, marking a milestone in parent company SoftBank’s $32 billion gamble on the British semiconductor designer.
Precise valuations quoted by the press have varied, but based on Arm’s quotation of $51 per share for 95,500,000 units, the offering should raise $4.87 billion for parent company SoftBank ($4.8705 billion) to be precise.
Since SoftBank will retain a 90.6% controlling stake in Arm, the public offering constitutes 9.4% of the group, equating to a $51.8 billion valuation.
Arm’s underwriters, basically a who’s who of global finance including Goldman Sachs (NYSE:GS), JPMorgan Chase & Co (NYSE:JPM), Barclays and 25 other institutions, have also indicated an interest in purchasing a further $735 million worth of shares offered in this offering at the initial public offer, per the IPO prospectus.
Fully executing this option brings Arm’s valuation to $52.535 billion.
Reports vary on Arm’s fully diluted share count, though consensus has it that Arm’s fully diluted market capitalisation is $54.5 billion, given the $2 billion in stock-based compensation due to staff and executives.
This suggests a fully diluted share count of nearly 1.069 billion at the $51 IPO price.
Regardless of the specific number of shares, Arm’s worth will be determined when US markets open today.
UK-based retail investors were unable to participate in the IPO subscription but will be able to buy Arm shares post-IPO through their brokers.
IG, for instance, will offer spot and derivatives trading with a standard commission rate of £10 and £15 respectively.
Given SoftBank’s possession of 90.6% of outstanding shares, coupled with the large positions taken up by cornerstone investors, liquidity will be lacking on the open markets.
SoftBank has consistently climbed down from its initial valuation of its most-prized portfolio asset.
Originally purchased for $32 billion in 2016, SoftBank first said it wanted a $70 billion valuation on the group.
When SoftBank bought back the remaining 25% owned by its investment wing Vision Fund, it effectively penned a $64 billion valuation, double the 2016 purchase, by buying shares from itself.
During the IPO roadshow, when headwinds in the form of China exposure and a stagnating smartphone market – where Arm generates nearly all of its revenues – SoftBank recalibrated its expectations closer to $50 billion.
SoftBank is preparing for a bumper, multibillion-dollar payday regardless, while it will also significantly increase its position in the debt markets by leveraging Arm shares.
The question for prospective retail investors is whether Arm has any growth left in the engine, or if the IPO is simply a SoftBank cash grab.
SoftBank has a track record of overvaluing its portfolio companies (hello WeWork) and is under pressure to realise value where it can right now. Arm already has a sky-high valuation in terms of multiples after all.
The debut hours are likely to be volatile, with existing investors possibly looking to unload their shares and others attempting to join the hype train.
Market-weighted index funds will also be scrambling to adjust their portfolios accordingly, which could potentially inflate Arm's share price artificially in the short term.
As always, approach this IPO with caution.