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Analysis: Arm goes public

By Paul Mackintosh   
September 20, 2023

Arm Holdings went public on Nasdaq, rising 25% on its debut in the largest initial public offering worldwide in the last two years. The success of the IPO, with bookrunners including Goldman Sachs reaping their own payday, seems to have had the much-hoped-for knock-on effect on market sentiment in general, with the Dow Jones Industrial Average gaining over 330 points on September 14, the day of the listing.

Arm has mostly continued to gain since the listing. Prime investor SoftBank Group and its founder Masayoshi Son are looking distinctly rosy in the aftermath.

SoftBank itself picked up US$4.87 billion immediately after successfully pricing the listing at the top of its target range, and retains some 90% of the shares for now. Of course, with such a valuation, there’s going to be plenty of prospects for further market sales. And the valuation at least exceeded the $40 billion price tag put on the company in the abortive sale to Nvidia in 2022, nixed on regulatory and other concerns.

Some critics say the final structure and pricing of the deal left plenty of untapped value, and that SoftBank could have recouped rather more. At this point, I doubt many at SoftBank or in the investment community at large are too worried about that.

Will this revive the whole value of SoftBank’s Vision Fund, and return Son’s platform to the same position it enjoyed back when it was attracting huge amounts of capital to invest in venture propositions and blowing valuations up to ludicrous heights? I doubt it. Even if this IPO, and the track record of the company itself, has to some extent vindicated Son’s leadership, I don’t see the broader market conditions being that supportive.

It’s inevitable that many other companies will now come to market, some of them solid investable propositions. But there’s no longer a huge pool of cheap money to fuel the excesses of the past. Private markets could tweak that equation as a legacy of the same cheap money still locked up in long-dated funds, and other private investors will doubtless be looking to roll out their own portfolio companies.

But I also suspect that end investors are still in risk-off mode, as Goldman Sachs Chief Executive Officer David Solomon remarked in a recent earnings call.

I don’t expect a speculative flood. Macroeconomic dynamics don’t support such a stance, and no one is expecting too much overall global growth to fuel another tech bubble. The overall climate for listings will probably be fair to moderate, with investors being persistently selective.