Post IPO, Arm Faces New Challenges

Arm is publicly traded again, concluding a three-year effort by SoftBank to sell it. The IPO is a better outcome than if Nvidia had acquired it.
Joseph Byrne
Joseph Byrne

Arm is a somewhat independent company again, three years after Nvidia offered $40 billion to buy it from SoftBank. The Japanese conglomerate retains 90% ownership of Arm, but the fabled CPU-design licensor is now publicly traded and in a better position to continue its business than if Nvidia had acquired it. Indeed, under the new capital structure, it will be mostly business as usual at Arm, but the company will face greater pressure to balance opposing investor demands for growth and profitability.

SoftBank sought Arm’s divestiture in 2020 alongside other asset sales to restore financial damage incurred by several bad investments, such as WeWork and Uber. Although Nvidia offered a healthy sum for Arm, the prospect of a peer owning an intellectual-property (IP) licensor turned off other licensors. Realizing they wouldn’t get regulatory approval, Nvidia and SoftBank called the deal off in early 2022. By that time, the value of the cash-and-stock deal had risen from the original $40 billion to $75 billion as Nvidia’s share price soared.

Come 2023, SoftBank had debt secured by the Arm business—debt that it was contractually obligated to transfer onto Arm’s books by the end of September if the initial public offering (IPO) didn’t take place. At the same time, the conglomerate had a new debt issuance contingent on the IPO and to be secured by most of the Arm shares it continued to hold.

In summary, Arm’s IPO was all about SoftBank—not about Arm. Having reduced operating costs to present a better income statement to the public, Arm must now consider how it’s going to invest to grow its business.

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