AI and technology: Arm’s record-breaking $5 Billion IPO

Category: AI

Posted by Lea Hogg Posted: Sep 18, 2023

Arm, the UK-based chip designer backed by SoftBank, made headlines this week with its historic $5 billion initial public offering (IPO). The IPO, which marked a significant milestone for the company, attracted huge attention, not only for its size, but also for the substantial fees it generated. Expensive IPO fees are known for generating massive revenues for professional services firms.

$84 million in fees

Arm’s IPO became very publicized as it is the most expensive in terms of fees in the past five years. The IPO advisory and professional services firms, including Deloitte, reaped record fees of $84 million from this dea.

Breaking Down the Costs

A Financial Times analysis of SEC filings for companies that raised over US$1 billion in an IPO indicated that Arm’s non-underwriting costs were the highest since the 2018 flotation of insurance group Axa’s US arm. The bulk of Arm’s expenses, approximately US$51 million, were attributed to accounting fees, primarily to auditor Deloitte. Legal fees, primarily benefiting its main legal adviser Morrison & Foerster, accounted for almost US $17 million of the total costs.

Why Arm’s IPO was pricier

Unlike the growth-focused start-ups that have dominated IPO markets in recent years, Arm boasts a more than 30-year history, consistent profitability, and almost two decades of experience as a public company before SoftBank’s acquisition in 2016. Its complex business, which involves licensing its chip designs rather than selling chips directly, contributed to the higher costs. Deloitte’s audit effort was amplified due to the complexity of Arm’s customer contracts. Additionally, the need to convert financial statements from international to US accounting standards added to the expenses.

AI and technology innovation

Arm’s IPO was not only a financial success but also a testament to the company’s pivotal role in the tech industry. While not a household name, Arm’s products are integral to many of the devices people use daily, including smartphones, laptops and video games to give a few examples. Tech giants like Apple, Samsung, Nvidia and Google rely on Arm’s designs and instructions to create their chips.

In an ever-evolving technology sector, Arm’s IPO has reignited hopes of a robust IPO market. However, it’s important to note that Arm’s unique position and long-standing history make it an exceptional case among IPO candidates.

As Arm charts its course in the public market, investors eagerly await the next wave of IPOs, especially in the emerging technology and AI sector. Investors and professional consulting firms view this listing as a potential catalyst, opening the doors for other tech companies waiting in the wings. If successful, Arm’s IPO could be the key to unlocking a flood of new public offerings, providing a positive boost to the stock market.

Raine Securities LLC has been advising Arm in connection with the IPO, while Barclays, Goldman Sachs, J.P. Morgan and Mizuho having been managing the IPO jointly.

Softbank retains majority shareholding

As Arm embarks on this new chapter in its journey, it carries with it the weight of expectations and the promise of future growth. With SoftBank retaining around 90 percent of the company’s shares, the future looks bright for Arm, and its success may pave the way for many others in the tech industry.

This is the largest public offering since 2021.

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