Amazon in talks over becoming anchor investor in Arm IPO

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SoftBank is in talks to bring in Amazon as an anchor investor in Arm’s upcoming initial public offering as part of a widening search to find customers willing to take a long-term stake in the UK-based chip designer.

The Japanese conglomerate, which acquired Arm in 2016, has over the past month intensified its efforts to secure cornerstone investors for the Cambridge-based company’s listing on New York’s Nasdaq exchange, according to two advisers familiar with the discussions.

Although the talks had originally focused on Nvidia, Intel and other chip manufacturers, two people close to the discussions said that they had since expanded to Google, Apple, Amazon and companies in other industries heavily dependent on semiconductors. The same people said that these were likely to include the automotive and factory automation sectors.

“Every big tech company that is an Arm customer or relies on Arm tech is being given the opportunity. Amazon is one of them . . . There are about 10 [potential investors] that aren’t public,” said one person close to the situation. 

SoftBank, Arm and Amazon declined to comment. Reuters first reported Amazon’s discussions over an anchor investment.

Through its Amazon Web Services arm, the Seattle-based company is one of the world’s biggest providers of cloud computing alongside Microsoft and Google.

Amazon has moved to producing its own chips to power its data centres based on Arm’s designs. An investment from Amazon would be seen as a strong endorsement of Arm’s push into the server market, which will be vital for growth at a time when its core smartphone market is declining.

A leading anchor investor in the prospective listing, which is expected as soon as September, would help support Arm’s stock as SoftBank sells down its stake in the company. The move is also designed to bolster demand for the IPO following a slowdown in new listings. 

Long-term SoftBank investors believe that the lossmaking tech conglomerate, which was founded by Masayoshi Son and recently declared itself in “offence mode” after being hammered by the global tech downturn, is seeking to list Arm with a market valuation of at least $60bn.

But a person familiar with discussions with Nvidia over being an anchor investor said the US chipmaker had suggested a share price that put Arm’s total value at between $35bn and $40bn, while Arm wanted to be valued at closer to $80bn.

“The possible presence of some big names like Apple and Samsung as anchor investors in Arm might show SoftBank’s broader reach, and they might help establish a valuation for the IPO,” said Richard Kaye, a portfolio manager at Comgest and long-term holder of SoftBank shares.

Arm’s customers span a broad range of sectors and often collaborate with the group to develop chips for products including smartphones and electric vehicles. The ecommerce, electronics and automotive sectors are all big users of chips, and Arm customers range from the carmaker Nissan to Google, Microsoft and Samsung. 

“[Arm] are casting the net wide,” said one adviser to SoftBank. “We may end up with just one or two anchor investors, but at the moment it is a long shortlist of candidates.”

Kirk Boodry, a SoftBank analyst at Astris Advisory in Tokyo, said it was natural for Arm to broaden its search for anchor investors, given the huge importance of a smooth IPO. 

“They want to be sure this listing goes right, and that is probably more important than valuation,” said Boodry, who added that the prospects of success were good and that Arm had long experience pitching the company’s story to investors. 

“The more corporates you get on board, the more stable the offering. The less extreme the valuation, the longer the list of anchor investors you have. It’s a balancing act,” said Boodry.

SoftBank said on Tuesday that a slowdown in the global semiconductor industry, as consumers spent less, had pushed down Arm’s sales for the three months to June 30, but that the group had signed “major deals with companies developing chips for future smartphone, automotive, embedded and AI applications”.

Additional reporting by Tim Bradshaw in London