SoftBank-backed Arm drew overflowing demand for its US$4.9bn Nasdaq IPO before staging a strong debut that has reinvigorated bankers' hopes for a spurt of new issues in the final months of the year.
After a seven-day roadshow, a 27-firm syndicate led by Barclays, Goldman Sachs, JP Morgan and Mizuho on Wednesday priced the all-secondary sale of 95.5m ADSs, representing 9.4% of the UK chip designer, at the top of the US$47–$51 marketing range.
The proceeds, minus a hefty US$97.4m fee shared among the banks, went to SoftBank. The Japanese tech conglomerate cut its stake to 90.6%, and that will drop to 89.9% assuming a smaller-than-typical greenshoe of 7m ADSs is exercised.
Shortly after 12pm in New York on Thursday, the ADSs began trading at US$56.10 for a 10% gain. Arm found more momentum near the close, ending its opening session at US$63.59 for a day-one return of 24.7%.
"This is a very good outcome," said a banker in the syndicate. "This is about as much upside as you could have hoped for a deal of this size."
The offering ended 12 times subscribed and was twice covered from one-on-one meetings alone, bankers said.
Despite limited pre-marketing, the final book included more than 650 institutional investors and the top 25 took 70% of the ADSs.
Allocations were dominated by long-only investors, sovereign wealth funds and large fundamentally driven hedge funds. Still, the distribution had a long tail that meant more investors than usual received stock, just not nearly as much as they wanted.
The leads had flirted with pricing above the range at US$52 but opted for caution in an improving but far from robust IPO market.
No bargain
The IPO marked Arm's return to public markets seven years after SoftBank took it private and about 18 months after a planned US$40bn sale to high-flying chipmaker Nvidia collapsed due to antitrust objections.
The offering's success provided some relief for SoftBank founder Masayoshi Son, whose reputation as a tech investor has taken a battering in recent years following its disastrous backing of fallen unicorns such as WeWork.
Arm and SoftBank also overcame concerns that the IPO terms overvalued the company, especially given risks associated with its large China operation and weak top-line growth in the first half of this year.
Some very high-quality accounts "could not get there on valuation", a second banker said, noting that this has been seen on other major ECM trades around the world and shows that the market is not yet fully open.
"[They needed] a fair bit of education around what has changed since [going private], including the shift in the revenue model from licensing to royalties that could not have been done if Arm had remained public."
The IPO valued Arm at a 2025 P/E ratio of nearly 30, a discount to comps including Cadence Design Systems and Synopsys. But by the end of Arm's debut session, the company commanded a premium to both those comps.
The initial terms gave Arm a market cap of more than US$52bn, rising to US$65bn by the end of its first session, a small premium to the US$64.4bn valuation where SoftBank had bought 25% of Arm shares from its Vision Fund ahead of the IPO.
“The IPO was expensive, but Arm is an incredibly high-quality asset and you don’t often see companies going public at this scale,” a third banker said.
The IPO was much smaller than the US$8bn–$10bn estimates in the months leading up to the offering, though Arm still ranks as the biggest US IPO since Rivian Automotive raised US$13.7bn in November 2021.
Bankers hope Arm's successful debut will ease the path for a more meaningful US IPO recovery after a lean 2022 and 2023. Already grocery delivery firm Instacart and marketing software firm Klaviyo are in front of investors with large IPOs scheduled to price early in the coming week and both are in strong shape.
Cornerstones
As previously disclosed, 10 of Arm's customers and/or partners, among them Nvidia, Apple, Alphabet and Intel, agreed upfront to buy a combined US$735m of the ADSs, or about 15% of the offering.
Bankers said each of these "cornerstone" investments was capped at US$100m to avoid regulatory filing requirements under the Hart-Scott-Rodino Act. That requires acquisitions of more than US$111.4m to be reported to the Federal Trade Commission and the Department of Justice at least 30 days prior to closing.
Raine Securities was financial adviser on the IPO. Barclays was billing and delivery agent, Goldman was IPO allocation coordinator, JP Morgan is stabilisation agent and Mizuho was roadshow launch coordinator.
