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SoftBank's Arm Begins Its IPO Process With A $52 Billion Valuation Ask

SoftBank's Arm Begins Its IPO Process With A $52 Billion Valuation Ask
On Tuesday, Arm Holdings Ltd. of SoftBank Group began the roadshow for its massive initial public offering (IPO), in an effort to persuade investors that it is worth up to $52 billion in the largest share offering of the year.
Arm began its roadshow in Baltimore, the home of significant asset manager T Rowe Price, highlighting the importance of the fund manager in major IPOs.
T Rowe Price served as an anchor investor in some of the biggest IPOs, including that of Rivian Automotive Inc., a manufacturer of electric vehicles, which was valued at $66.5 billion when it went public in 2021. The largest IPO since then is Arm's.
On Tuesday, Arm met with additional prospective investors, including Sands Capital of Arlington, Virginia, according to individuals who asked to remain anonymous to discuss private conversations.
In order to raise a maximum of $4.87 billion, SoftBank is trying to sell 95.5 million American depository shares of Cambridge, England-based Arm for between $47 and $51 each.
The projected range, according to Arm, would put its value between $48 billion and $52 billion. Additionally, it said that it may issue some shares as employee pay, raising its valuation to up to $54.5 billion on a fully diluted basis.
Arm is aiming for a valuation that is lower than the $64 billion price at which SoftBank last month acquired the 25% share in the business that it did not already hold from its $100 billion Vision Fund.
Even so, SoftBank would do better than its $40 billion deal to sell Arm to Nvidia Corp., which it backed out of last year after facing objections from antitrust authorities.
The valuation request made by SoftBank for the IPO, according to Jamie Mills O'Brien, portfolio manager at British fund manager Abrdn, was "more palatable than initially discussed."
"We are watching closely how the company handles the relationship with its China business – alongside any further impacts from the technology ‘war’ between China and the United States," he said.
After the offering is over, the Japanese conglomerate will hold 90.6% of Arm's common shares, the company reported, adding that it won't be receiving any money from the IPO.
Numerous of Arm's top clients, including Apple, Nvidia, Alphabet, Advanced Micro Devices, Intel, and Samsung Electronics, have agreed to participate as cornerstone investors in the company's IPO.
According to Arm, a total of $735 million worth of the stock being sold in the offering has received interest from investors.
As a collaboration between Acorn Computers, Apple Computer, and VLSI Technology, Arm was established in 1990.
From 1998 until 2016, when SoftBank acquired it in a $32 billion deal, its shares were traded on the Nasdaq and the London Stock Exchange.
Arm's listing is anticipated to boost the global IPO market and encourage other firms to go public since its success would indicate that investor interest in technology businesses has returned.
In the upcoming weeks, a number of other well-known companies, including supermarket delivery service Instacart Inc., marketing automation software Klaviyo, and shoemaker Birkenstock, are anticipated to float their shares on American exchanges.
It will also be a significant achievement for SoftBank as it secures investment from a number of renowned technological companies to help the business that supplies more than 99% of the world's cellphones.
On Saturday, Reuters was the first to report on SoftBank's suggested price range for the IPO. Moreover, sources claimed that if investor demand was strong, it could potentially hike the range before the IPO prices. 
A significant portion of Arm's income comes from royalties calculated either as a fixed charge per chip or as a percentage of the average selling price of the customer's Arm-based chip.
Arm's sales decreased to $2.68 billion for the fiscal year that ended on March 31, primarily due to a decline in global smartphone shipments.
Arm is profitable, in contrast to the majority of high-growth, loss-making IT businesses that start off with inflated values before falling below list price. Analysts have predicted that this will greatly lessen investor anxiety.
The expansion in artificial intelligence is still in its early stages, according to Sara Russo, senior analyst at Bernstein, but Arm has potential in this sector.
Analysts claim that because Arm's chips must be used with Arm's specific kind of central processing units (CPUs), which are known for being energy-efficient, the company may be able to profit from Nvidia's success, which has benefited the most from the AI boom and seen its stock soar more than 230% year to date.
The offering's main underwriters are Barclays, Goldman Sachs, JPMorgan Chase, and Mizuho Financial Group.
If the underwriters use their full entitlement to purchase Arm shares under the "greenshoe option," the IPO amount would increase to $5.2 billion.
Arm chose not to select a conventional "lead left" bank and will divide underwriting fees equally among the top four banks. Arm has tapped a total of 28 banks for the IPO.
Arm anticipates trading on the Nasdaq under the ticker "ARM".

Christopher J. Mitchell

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