Receive Free Lex Updates
we will send you myFT Daily Digest Email summary of the latest information Lex Every morning there is news.
Arranging a large number of underwriters and cornerstone investors for an IPO does not guarantee success. Just ask Eminem. On Tuesday, the SoftBank-owned chip designer revealed its target price range and valuation for its highly anticipated IPO. The price will disappoint its owners, despite a consortium of 28 banks backing the deal.
Arm seeks to be between $47 and $51 per share. The highest funding round was $4.9 billion, valuing the British company at $52 billion. Arm will be the biggest IPO of the year. But the bar is set low. That’s a sharp drop from the $64 billion valuation SoftBank used in an internal deal less than a month ago.
Deal makers have been known to start their roadshows with a conservative price range and use effective marketing to increase the price range. Arm’s valuation could change between now and final pricing next Wednesday. SoftBank retained about 90% of the shares and would still benefit from any gains in the share price after the listing.
But there’s no reason to expect such a pop to come. A valuation of $52 billion (or 99 times trailing net income) still looks expensive. Because of the central role its chips play in the development of artificial intelligence, Nvidia can justify its 275 times trailing profits. It predicts huge growth in revenue and profits. Based on consensus forecasts for 2025, the company’s market valuation of $1.2 trillion equates to a price-to-earnings ratio of 30 times.
That’s not the case for Arm, whose fortunes are still tied to smartphones, which are in decline. This is reflected in Arm’s flat revenue growth last year and net profit growth of just 6%.
Lex reckons the broader average industry earnings multiple would put Arm’s enterprise value at closer to $32 billion. Arm’s pricing range should change between now and the company’s listing. But things aren’t turning up the way the company’s bankers had hoped.
Svlook
