Introduction
SoftBank Group Corp.’s U.K. chip arm announced Wednesday it had picked the U.S. as the location of its long-anticipated share sale, though the size and date of the offering are still up in the air.
Arm Holdings PLC plans to seek a listing on one of two major American stock exchanges but keeps mum about which of 74 technology companies it considers potential partners to acquire or invest in with proceeds from its initial public offering (IPO).
The IPO plan follows a series of complex transactions that left SoftBank as Arm’s main owner following a landmark $32 billion deal for chip designer Nvidia Corp., a transaction that prompted investor speculation about what would happen with Arm if SoftBank exited its ownership stake completely. In July 2019, SoftBank bought out all other shareholders in Arm Holdings and has since pursued an IPO listing for it. The lofty effort is expected to raise at least $5 billion and likely more if demand proves strong among investors seeking exposure to Arm’s portfolio of microprocessor IP and related technologies used in vehicles, networked systems, medical devices, smartphones, tablets and other digital products used around the world by tech titans like Apple Inc., Samsung Electronics Co Ltd. and IBM Corp.
SoftBank’s Arm
SoftBank’s Arm, the leading provider of semiconductor IPs and microprocessors, is gearing up for a U.S. IPO. The offering is expected to value Arm over $20 billion, making it one of the largest tech IPOs in history.
The IPO will be closely watched, as it will be the first public offering since SoftBank acquired Arm in 2016 and could serve as a bellwether for the semiconductor industry. So what is the current market reception and how much is Arm truly worth?
SoftBank’s Arm’s History
SoftBank’s Arm Holdings was founded in 1990 by computer scientists Hermann Hauser and Sir every Stephen Furber to create a new type of computer microprocessor which would be much more efficient and powerful than existing processors in the market.
The company initially saw success through its research and development organization and went public in 1998, eventually becoming the world’s leading designer of mobile phone chips.
Since its acquisition by SoftBank in 2016, Arm has continued to innovate its technology offerings, now extending into internet-of-things (IoT), automobile agriculture, health care, robotics, semi-conductors, processing systems and much more. As a result, major industry players such as Apple, Samsung, Sony and Cisco Systems – among others – use the company’s products for various tasks within specialized markets.
As Arm grows in prominence within the industry both for use as technology systems as well as an investment opportunity on public markets, it is increasingly seen by SoftBank as a key lucrative asset that could benefit both their customers and shareholders alike.
SoftBank’s Arm’s Business Model
SoftBank’s ARM is an intellectual property development company that licenses chip designs to the tech industry. The company licenses the designs of the chips, making them available to other manufacturers and companies who can incorporate them into their products. In this way, ARM can leverage its expertise across multiple industries, from consumer electronics to medical devices, ultimately driving revenues and profits for SoftBank itself.
ARM also provides training and support services to chip manufacturers so they can design customized chips for specific applications or markets. The company has also been expanding its offering into several areas including automotive and robotics applications, aiming to become a major player in both these rapidly-growing markets.
At present though, ARM is best known for its role in helping to power mobile communications devices such as cellphones and tablets. For example, apple’s iPhones, Samsung’s Galaxy devices, and Microsoft’s Surface devices are all powered by ARM-based chips. As such, the success or failure of any given phone maker depends on how well their chosen ARM processor performs within the device.
Thus far, SoftBank’s Arm has successfully licensing its IP across many different device types and applications – so much so that it is now preparing for a potentially massive initial public offering on the US stock market – one that could value it at over $20 billion when complete. Now all eyes are on how big of an IPO it will be capable of securing – but whatever happens in share price performance, there can be no doubting the impact this innovative business model has had on Silicon Valley over recent years.
SoftBank’s Arm Picks U.S. for Chip IPO. Now the Question Is How Much It’s Worth
SoftBank’s Arm is planning to go public in the United States and has been waiting for some time. As it looks to go public, the big question becomes how much is the chipmaker worth.
Going public requires a lot of paperwork that must be done, and then the market must decide how much the chipmaker is worth on the open market. While the market price is unknown, much is still to be said about what an IPO in the United States means.
Reasons for Choosing U.S. for IPO
SoftBank Group Corp.’s chip division, Arm Ltd., has chosen the United States as the venue for its initial public offering, marking a significant event in the tech industry.
Several factors drive the decision to go public in the U.S.. First, SoftBank wants access to a large, liquid capital market, giving it more flexibility and visibility into share price movements and trading activity. The U.S securities exchange also offers regulatory advantages, giving Arm access to more investors than most international markets would provide. Finally, listing on a U.S exchange allows SoftBank to tap into American institutional investors who are likely to be more familiar with technology offerings than many counterparts abroad.
In addition, listing in the U.S allows officials from Arm and SoftBank greater control over how information is disclosed during and after the IPO process, as well as increased control of execution logistics such as pricing discrepancies between global exchanges. As tech IPOs often involve greater market volatility than traditional offerings due to their larger size and wide range of potential investors, being able to manage such degree of complexity can be beneficial in ensuring a smooth transition into public markets for Arm’s shareholders and management team alike.
Impact of U.S. IPO
SoftBank Group Corp.’s chipmaking arm has chosen the U.S. to float its initial public offering, setting up what’s likely to be the largest tech IPO since Uber Technologies Inc. went public last year. The listing of Arm Holdings PLC will generate at least a billion dollars and serve as a bellwether for how deep investors are willing to dive into tech stocks amid the pandemic.
The planned IPO could open an opportunity for SoftBank Chief Executive Masayoshi Son to unlock value from his chip business, and could make chips more accessible throughout the industry by opening options for easier financing and faster expansion of operations. It could also spark more technology start-ups from countries such as Japan, where investment in research and development has lagged behind that of other developed countries, particularly in North America and Europe.
The success of the IPO could also be seen as a signal for investor confidence in technology companies, even during periods of global recession due to factors such as trade tensions, geopolitical instability or market volatility posed by coronavirus-related concerns. Furthermore, if the share sale is successful, it would signify an approval from investors in the chipmaker’s long-term prospects — something that might not be possible with a listing on Tokyo stock exchange any time soon given its current low valuations.
If successful in raising funds through an American IPO, Arm Holdings will join a growing list of public-market companies trying to boost profitability through expansion plans or other strategies needed to deliver on investor expectations — which is often dependent on whether they can keep up with customer demand or deliver innovative products or services that capture enough market share within their respective industry verticals. Moreover, such ambitions often require significant capital investments over extended periods — funds that become available when companies are confident they have enough trust from their shareholders via access to an more liquid equity markets like those found in United States markets such as NASDAQ or NYSE .
Valuation
SoftBank’s chip-design arm, Arm Holdings, has filed for an initial public offering (IPO) on the Nasdaq. As the valuation of Arm Holdings is yet to be determined, many investors and analysts are watching eagerly to see how much the company is worth.
This article discusses the different methods that can be used to value a company and how stakeholders could value Arm Holdings.
Factors Influencing Valuation
The valuation of an initial public offering (IPO) of a semiconductor company like SoftBank’s ARM can be influenced by various factors. To determine an accurate value for the stock, potential buyers will take into account the following metrics:
Financial performance: SoftBank’s ARM reported solid profits for the year ending June 2020. Investors will use financial data to help them decide how much a company would be worth after going public.
Industry size and growth rate: Investors are also interested in industry size and growth rate. By analyzing this data they can make an educated guess as to how profitable a tech company such as SoftBank’s ARM could become.
Risks: It is wise to consider risks before investing, particularly with IPOs. Investors should examine geopolitical risks and economic conditions that could cause volatility in the industry or price of shares of the company being offered in an IPO.
Competitive landscape: It is critical to analyze how the market is divided among other players, including competitors selling similar products or services and their market share. This helps investors decide which companies are better suited for long-term success or have potential for significant returns after going public.
Expectations: Before investing, investors must look at their expectations from such investment opportunities; whether capitalizing on current trends or looking at a long-term hold. Analyzing past information from similar investments can give insight into possible results from investing in SoftBank’s ARM IPO.
Estimating the Valuation
One of the most important steps in SoftBank’s subsidiary, Arm, going public is estimating a fair and accurate company valuation. Once financial projections have been identified for Arm’s business, calculating a reliable valuation for the company is essential. Determining how much a company is worth is an exercise in assessing risk, analyzing potential gains and ultimately arriving at a figure that can be justified from all angles.
Valuation approaches will vary based on individual circumstances and objectives. Generally, an estimated valuation includes:
- Comparison methods: Analyzing comparable companies to gauge where the market might value certain criteria
- Discounted cash flow methods: Calculating future revenues discounted to their present value to arrive at an appraisal of future earnings versus investments
- Price/Earnings ratio analysis: Establishing a multiplier by comparing related companies in terms of their price/earnings ratio
- Price/Book ratio analysis: Estimating the value by comparing related firms in terms of P/B ratios
- Traditional enterprise value models (EV): Filtering out debt and noncash assets to calculate possible merger or strategic investment multiples against equity value.
By applying these approaches (or combinations thereof) among other calculations, a reliable estimate can be achieved that balances expectations with prevailing market conditions, allowing Arm to successfully bring its Initial Public Offering onto the stock market.
Conclusion
Given the uncertainty surrounding the chip market, valuation for Arm is at a premium with an IPO. However, arm still believes in the long-term prospects of its chip technology and that an IPO on the U.S. exchange provides more stability and higher visibility for the company than if it were to go public elsewhere.
However, it remains to be seen how successful such a high-risk move will be for SoftBank’s subsidiary. Regardless of the outcome, SoftBank’s decision will serve as an example that should be noted by other tech companies considering a similar move in public markets.
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