Arm shares jump by 25% on first day of trading

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Shares in chip designer Arm closed up a quarter at the end of its first day trading on the Nasdaq exchange on Thursday, valuing the SoftBank-backed company at more than $65bn.

Arm opened at $56.10 per share on Thursday afternoon and closed at $63.59, significantly above the $51 offer price agreed on Wednesday evening.

The closing price gave the chip designer a market capitalisation of $65.2bn based on shares outstanding, or nearly $68bn on a fully diluted basis.

The IPO raised almost $5bn for SoftBank, making it the largest US listing in almost two years. Ten “cornerstone” investors — a set of large Arm customers and partners including Apple and Nvidia — bought $735mn worth of Apple stock as part of the listing.

Rene Haas, Arm’s chief executive, said discussions with investors during the IPO roadshow had presented a chance to explain “just how different a company that we are today” since SoftBank acquired the Cambridge-based chip designer for $32bn in 2016.

Arm has striven to diversify its business from being reliant on the mobile market, which is currently in decline, to expand into automotive and data centre chips. “We are far more diversified,” Haas said.

SoftBank discussed with underwriters on Wednesday whether to price Arm shares above the initial range, at $52, but settled on the lower figure in the belief shares would trade up and boost confidence in overall markets after nearly two years of pressure on valuations.

“So many people, including SoftBank and all the underwriters, have so much riding on the overall health of the IPO market,” said one person close to the Arm listing.

Despite selling about 10 per cent of Arm in the IPO, SoftBank has been a “net buyer” of the company’s shares, Haas said. SoftBank last month bought back the 25 per cent of Arm that it did not already own from Vision Fund, an investment firm managed by the Japanese conglomerate, in an internal transaction that valued the chip company at $64bn.

“[SoftBank chief executive Masayoshi Son] owns more of Arm today than he did a number of weeks ago, so that should tell you that he is very, very optimistic about the future,” said Haas.

“If you look at the fact that they have not sold very many shares, they’re going to be a big shareholder in Arm going forward, they are sharing the vision that I have that the best days for our company are ahead of us,” he added.

The strong reception for Arm’s listing will fuel confidence in the wider IPO market, which has been gradually reopening after one of the worst fundraising downturns in decades.

“Just because Arm can come and do a good IPO . . . does that mean everyone can do it? Probably not,” said one banker involved in the deal. “But are conditions improving? Yes.”

IPOs for grocery delivery app Instacart and marketing software group Klaviyo are expected to provide a further test of investor appetite next week.

A large first-day “pop” for a new listing can be disappointing for company executives and existing shareholders as it indicates that they could have raised more cash in the initial offering.

The $51 offer price was at the top of Arm’s announced price range. Bankers discussed pricing the deal even higher given the strong demand.

However, several people involved in the listing have said SoftBank and Son were more concerned with ensuring the stock trades well than maximising their initial payout.

“This is going to be their biggest asset going forward, so every decision they make should be around protecting the value of the 90 per cent [of Arm that SoftBank still owns], not optimising the value of the 10,” said one person who worked on the deal.

Another person working on the IPO added: “It is in everyone’s interest that we need the IPO market to come back.” SoftBank has a large portfolio of start-up investments it hopes will list, the person said, “so the thinking was: let’s not get greedy, let’s play for the long term”.

Barclays, Goldman Sachs, JPMorgan and Mizuho acted as lead bookrunners on the deal, with a further 24 banks working as underwriters.

Additional reporting by Ivan Levingston in London and Richard Waters in San Francisco