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Tech titans and banks revive IPO market with ARM's relisting

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2023-09-08

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Some of the globe's largest investment banks and tech giants are making every effort to rescue the global IPO market from a second disastrous year by vigorously promoting the relisting of chipmaker Arm.

ARM is being hailed as the most significant and buzzworthy IPO in years, with its relisting on Wall Street, a British chip designer that many have not heard of, rather than returning to the London market.

To combat the downturn in the IPO market and bolster its American profile, ARM will also serve as a prime example of the growing trend of prominent investors taking stakes at the outset of a company's initial public offering. These investors are then leveraged by issue promoters and banks to enhance the company's credibility with other investors during the pricing and fundraising process.

This strategy aims to jumpstart the moribund IPO market, which has plummeted from the $154 billion boom of 2021 to a meager $8.6 billion in 2022 and just over $10 billion so far this year. ARM and other issuers using cornerstone investors are expected to contribute significantly to this figure.

UK-based Arm, responsible for designing chips for 99% of the world's smartphones, plans to price its shares between $47 and $51 each when they debut on Nasdaq later this month, resulting in a company valuation of $52 billion. The company is owned by Japanese tech investor Softbank, which has been seeking a suitable deal for the company for months. Softbank acquired Arm in a $32 billion takeover in 2016 and attempted to sell it to Nvidia for $40 billion in 2020, but the deal was thwarted by competition regulators.

The upcoming relisting is set to raise between $4.7 billion and $4.9 billion for Softbank, with a potential valuation of up to $52 billion—an achievement for the Japanese company.

However, this relisting won't proceed without the support of a group of key investors, known as cornerstone supporters, all of whom have existing ties with Arm. Prominent tech giants like Apple, Google, Nvidia, Alphabet, AMD, Samsung, and Intel, among others, have reportedly expressed interest in acting as cornerstone investors, collectively purchasing shares worth up to $735 million in the IPO. Tech companies like Cadence Design Systems and Synopsys are also being considered as early investors, with investments ranging from $25 million to $100 million—an insignificant amount for these tech giants, particularly Apple, the world's largest company by market valuation.

Taiwanese chip manufacturer TSMC is another potential investor, and Chairman Mark Liu has indicated that the company will decide this week whether to invest in Arm's IPO. Amazon, on the other hand, previously considered investing in the IPO but ultimately chose not to participate, according to Reuters.

The Financial Times has highlighted that the use of "cornerstone" investors in major IPOs is currently the primary method for securing deals. Instacart, the grocery delivery company, managed to secure Norway's sovereign wealth fund as the world's largest investor, contributing around $400 million of an expected $1 billion fundraising.

Three other upcoming IPOs—Israeli cosmetics group Oddity Tech, restaurant group Cava, and budget retail chain Savers Value Village—have also enlisted cornerstone investors to lend credibility to their offerings among a wider group of investors.

In a similar fashion, Rivian, the US electric vehicle maker, relied on Amazon and Ford as its cornerstone investors during its IPO in late 2021 (which raised $11.9 billion and was the largest issue of the year). However, its share price experienced a significant decline in 2022, leading Amazon and Ford to sell their shares and realize substantial paper gains in the final quarter of 2021, only to incur significant (mostly) paper losses in 2022 when they sold most of their shares.

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