Arm’s parent company SoftBank has apparently settled at the upper end of its valuation target for the British semiconductor architect as the year’s largest tech IPO approaches.
Initially tipped for US$60 billion, SoftBank has steadily climbed down closer to the US$50 billion mark as it sought to attract big-ticket investors.
SoftBank will retain the lion’s share of Arm stock; 90.6% to be exact, with Arm’s globally significant client roster also set to take up large equity positions.
Taiwan Semiconductor Manufacturing Company, aka TSMC, aka the world’s preeminent semiconductor manufacturer, announced its US$100 million IPO investment on Tuesday.
The who’s who of Big Tech, from Apple (NASDAQ:AAPL) and Google parent Alphabet (NASDAQ:GOOGL) to fellow chipmakers AMD and Nvidia, have also signed up as cornerstone investors.
Simply put, SoftBank will remain the controlling interest with a few Big Tech henchmen peering over its shoulder, leaving next to no remaining voting power for the taking in the public markets.
"Arm is an important element of our ecosystem, our technology and our customers' ecosystem. We want it to be successful, we want it to be healthy. That's the bottom line," TSMC chairman Mark Liu said of its investment.
But no one needs this IPO to go off without a hitch more than SoftBank founder, chair and chief executive Masayoshi Son.
SoftBank Vision Fund chalked up US$32 billion in losses in the last financial year ending in March, thanks in part to massive write-downs on its investments in DoorDash and GoTo.
In fairness, tech took a nosedive across the board, but the spectre of its investment in the catastrophic WeWork IPO still looms large.
Son admitted his "judgment was poor” after pumping billions upon billions into one of the worst IPOs of all time.
WeWork has a similar pre-IPO valuation to Arm of US$47 billion, though the similarities end there.
For one, Arm is not headed by a cowboy, and its CPU designs are one of the most ubiquitous pieces of technology in existence, found on over 99% of all smartphones globally.
Hopefully, Softbank’s massive overvaluation of WeWork was less of a theme and more of a freak occurrence.
SoftBank’s self-congratulatory Arm valuation
Under Masayoshi Son, SoftBank took Arm off the public markets in 2016 through a US$32 billion take-private deal.
He’s now praying for a US$50 billion-plus valuation which should net SoftBank a tidy US$5 billion or so, all the while holding a controlling interest in a Nasdaq 100 company.
Forbes contributor David Trainer made a decent point in that SoftBank effectively doubled the on-paper value of Arm after acquiring the 25% stake in Arm it didn’t already own from SoftBank’s own Vision Fund in August.
This horizontal purchase effectively gave SoftBank the opportunity to pen an Arm valuation double what it paid for in 2016, simply by buying shares from itself.
Trainer suggested that this type of soft dealing “was a big part of the basis for attempting to IPO WeWork at a $40+ billion valuation”. A valuation that crumbled in the opening seconds of WeWork’s debut.
The markets will ultimately decide if Arm’s US$50 billion-plus valuation holds water.
Numerous Arm headwinds came to light in recent weeks, including considerable China exposure, flatlining revenues and an increasingly volatile smartphone market.
The Arm’s race is on.