Arm Holdings plc (ARM) shares shot up 24.7 percent to close at $63.59 – up $12.59 from their $51.00 IPO price – in their first day of NASDAQ trading on Thursday (Sept. 14, 2023). The day got off to a great start for Arm, the biggest U.S. IPO in nearly two years. Arm’s stock jumped 10 percent to open at $56.10 – up $5.10 from their $51.00 IPO price – at 12:08 p.m. EDT on Thursday on volume of about 13.3 million shares, NASDAQ records showed. Arm’s successful debut came amid a rally in the overall U.S. stock market. Total volume for Arm’s debut was about 126.4 million shares.
Arm Holdings priced its long awaited IPO at $51.00 – the high end of its $47.00-to-$51.00 range – to raise $4.87 billion on Wednesday night (Sept.13, 2023). The British chip CPU designer, a unit of Japan’s SoftBank Group Corp., sold 95.5 million American Depositary Shares (ADS) – the same number as in the prospectus – in the IPO. That figure represents about 9.5 percent of Arm’s outstanding shares. SoftBank Group’s Chairman and CEO Masayoshi Son had made it clear that he did not want more than 10 percent of Arm’s stock to be sold in the IPO, according to The Wall Street Journal and Bloomberg.
This is the biggest U.S. IPO since November 2021, when EV maker Rivian (RIVN) went public.
Barclays, Goldman Sachs, J.P. Morgan and Mizuho led the team of 14 joint book-runners. BofA Securities, Citigroup, Deutsche Bank Securities, Jefferies, BNP Paribas, Credit Agricole CIB, MUFG, Natixis, Santander and SMBC Nikko also served as joint book-runners for Arm’s IPO.
The high-end pricing at $51.00 gave Arm a valuation of about $54.5 billion on a fully diluted basis, Bloomberg reported. That’s considerably less than Arm’s $64 billion valuation that was reported when SoftBank Group recently bought the remaining 25 percent stake in Arm from SoftBank’s Vision Fund.
A ‘Must Play’ IPO
Wall Street viewed the Arm IPO as a test of whether the IPO market can support big deals from tech unicorns. Those deals have been scarce during the two challenging years that followed the IPO boom in 2020 and 2021.
“This is a ‘must play’ deal,” a seasoned IPO trader says. “This is the first big tech IPO in more than two years. Portfolio managers want to play it. Everyone wants to play it.”
Ten cornerstone investors, mostly Arm clients, had indicated an interest in buying up to $735 million of stock – or about 16 percent of the IPO, based on pricing at the deal’s $49.00 mid-point. TSMC Partners, Ltd., Apple, Google, Nvidia and Samsung Electronics were among the cornerstone investors, according to the prospectus.
Arm Holdings, based in Cambridge, England, designs the chip CPUs used in most of the world’s smartphones, as well as in PCs, tablets, cameras, digital TVs, other “smart” consumer electronics and the safety features in most new vehicles.
Arm executives told potential investors at an IPO roadshow luncheon last week that demand for chips to drive data centers and AI (artificial intelligence) would increase Arm’s revenue by 11 percent during the current fiscal year and by more than 20 percent in fiscal 2024, according to Bloomberg.
For the 12 months that ended March 31, 2023, Arm reported net income of $524 million on revenue of $2.68 billion, according to the prospectus.