Masayoshi Son isn't the only one praying for Arma's placement to be a triumph. Credit: Kiyoshi Ota/SoftBank
Masayoshi Son has a lot to do with the success of Arm's upcoming New York listing. The outspoken Japanese billionaire, briefly the world's richest man, seems to have gotten more wrong than he's done right in recent years.
Since buying Cambridge-based Arm in 2016, Mr. Son's conglomerate SoftBank has made a series of optimistic tech projects. bets that didn't pan out, including huge investments in WeWork, Uber and DoorDash. Vision Fund's investment fund lost $32bn (£25bn) last year.
Arm's value is expected to be about twice what SoftBank paid for the company seven years ago at £24bn. If so, this would be taken as some indication that there is still something of a Midas touch in Sona.
But he's not the only one who's praying that Armagh's entry into the water will be a triumph. After a post-pandemic downturn in valuations and funding for tech companies, investors looking for the next Google and entrepreneurs looking to get rich are counting on the British company to revive their fortunes.
At its $70 billion valuation, Arm will be the biggest tech listing since Chinese taxi giant Didi in 2021. The company is rumored to raise up to $10 billion, the largest for a tech company since Alibaba, nine years ago.
“That will show us whether we are open for business or not,” says one tech banker. Several other tech companies are poised to follow Arm's lead in the market if the stock offering proves successful, he said. The IPO will be a key litmus test of investor appetite.
At $70 billion valuation, Arm will be the largest tech company listing from 2021. Credit: Chris Ratcliffe/Bloomberg News
Tech valuations hit an all-time high in 2021. Financial stimulus measures during the pandemic-driven downturn and growing reliance on the Internet have led to manias such as the NFT boom and the Spac craze.
Money-losing companies like Amazon-backed electric car maker Rivian reached a valuation of more than $100 billion on opening day. Even on the London Stock Exchange, the poor cousin of the New York exchanges, there have been several multi-billion-pound listings such as Deliveroo, Wise and Darktrace.
A parade of companies lined up behind them. Reddit, the social networking giant, filed for a public offering in December 2021. Instacart, an American grocery delivery company, followed suit a few months later. In Europe, governments, including those in the UK, courted Klarna, a payments giant valued at $46 billion.
Today, all three remain privately owned. In 2022, the value of tech companies plummeted amid rising interest rates, which tend to hit high-growth companies, and as investors realized that the tech boom caused by the pandemic is on the wane.
The IPO has stopped. There were just 22 tech stock offerings in the U.S. last year, according to Dealogic, bringing the total fund raised to £1.4bn. This is less than the £53.3bn raised from 127 listings a year earlier. The picture in the UK was even bleaker, with free float falling from 37 to 5 and revenue of £42m compared to £6bn the previous year.
“It was very difficult for parts of the market that have been extremely hot,” says Ben Rogoff, partner at Polar Capital Technology Trust, a technology fund listed on the London Stock Exchange. “After the pandemic, the world reopened and everything was back to normal, there were technological stories that fought it.”
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The recession has forced many underfunded private companies to pledge money en masse laying off employees in an attempt to save cash instead of tolerating shameful underpriced fundraisers.
The wealth of many remaining employees has dwindled. Employees at companies like payments giant Stripe and self-driving car company Cruise are at risk of losing the expiration date of their share rewards if their employers don't go public.
Mike Seidenberg, fund manager at Allianz Technology Trust, says: “Overall, it's been a pretty soft IPO market and the company that goes public should be something that investors really get excited about. The hand meets all requirements.
After the microchip company publicly unveiled its prospectus last Monday, bankers will now spend the coming weeks building investor interest before setting the price at which the shares will be sold in mid-September. Whether a company sinks on Arm's first day of trading may determine whether a parade of other companies will follow.
“Usually the strongest companies break the seal of a closed IPO market. Rogoff says.
Grocery delivery company Instacart is expected to file for stock on Friday night, while software company Databricks and marketing company Klaviyo are also being considered as potential candidates.
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“Tech bankers love to queue them up,” says Seidenberg. “After the pandemic, I would be shocked if they didn’t have a group of good private companies ready to go public after 18 difficult months to invest in technology.”
Martin Davies, chief executive of London-based venture capital firm Molten Ventures , says a return of confidence could happen to startups that have also faced a funding slump. UK VC investment has more than halved this year, according to GlobalData.
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“When you talk to investors, it's obvious that there's a lot of money on the stock exchange. side lines. They are looking to sell huge quantities of dry powder to both the public and private markets,” says Davis. «I think there will be a positive effect [from Arma].»
However, the days when technology company founders could secure their wealth with just an idea are over, at least for now.
One banker says that even investors who were once known for spending money at a loss made losses. companies now require their investments to comply with laws such as the «rule of 40» — the rule of sustainability, which requires profits and growth to add up to at least 40%, which generally excludes highly loss-making firms.If Arm successfully revives optimism in the tech world, the UK could miss the party. The company has snubbed government efforts to encourage its listing on the London Stock Exchange, and there are few signs that earlier rumors of IPOs by tech companies like Klarna or graphics chip company Imagination are brushing aside their plans.
The European investor psyche is still risk averse,” says Davis.
There is a glimmer of hope, however. Davis says: “I understand the US is the right place. But everything that happens in the US then happens in Europe. There is a delay, but it's happening.»
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