Chip designer Arm has recently entered into discussions with Nvidia, the world’s most valuable semiconductor company, to bring them in as an anchor investor while the SoftBank-owned company prepares for its New York listing as soon as September. Nvidia had originally attempted to purchase Arm outright last year, but the deal was challenged and eventually rejected by regulators.
The aim of bringing in large anchor investors as Arm heads for its initial public offering is to create a stable stock performance on the market and to reassure potential investors. According to an article by Financial Times, Nvidia could be the company to take one of the long-term stakes Arm is hoping to acquire. But the deal is still at an early stage and the amount Nvidia would invest would value Arm at $35 billion to $40 billion, which is a far cry from what SoftBank was hoping for—a valuation of about double that.
According to a person familiar with the plans, Arm was keen to bring in Nvidia in its bid as a way to position AI as central to the group’s growth plans. “AI will be every third word in the offering document” the person said. “Nvidia is so important as its involvement implies AI.”
Originally, SoftBank had been planning to sell Arm to Nvidia in a $80 billion deal, but that had to be dismissed due to antitrust regulations from the US and European governments. A lot hinges on the outcome of the talks, as Arm’s IPO is expected to boost the fortunes of the Japanese conglomerate and provide a way to turn around its giant Vision Fund, which has recently undergone losses from declining valuations.
Meanwhile, Reuters reported that Arm was in discussions with at least ten potential investors, including Intel, Alphabet, and TSMC, who could take a long-term stake at the IPO stage. In April, Arm filed paperwork with regulators for its US stock market listing.
A discussion between an Unknown and Unknown further expands on this situation. The Unknown states, “There’s a big discussion now and big implications for what’s going to happen with tech dealmaking. There’s one deal that got rejected last year. Nvidia was trying to buy Arm. Now, according to the Financial Times, Nvidia is reportedly holding talks with Arm, the British chip designer, to perhaps be an anchor investor on Arm’s IPO. Arm now controlled by SoftBank, which has been planning to spin it out in an IPO. And there’s now this talk of anchor investors who might take a big stake in the company as part of that initial public offering. And it is interesting given Nvidia’s history here of trying to outright buy Arm, and then getting rejected by regulators.”
The Unknown continued, “Yeah, and there’s a long history of companies who if they don’t feel like there’s a pathway for them to be able to acquire a company, to have that type of either anchor position or some type of outsized shareholder or stakeholder position in a company that’s getting ready to go public, even if they do play in the same space. I think back to when Trivago went public even, Expedia was one of the major shareholders in that company at the time of their IPO. You can look at some of the other examples, especially within the ERP landscape where there have been either early angel investments– I think back to none other than salesforce. com. When they went public, of course Marc Benioff, given his position that he had had previously at Oracle and the relationship with Larry Ellison, Larry Ellison was a major investor in Salesforce, as well. And so there are all these different examples, and this could perhaps be one of the latest where in the face of regulators pushing back on a deal being able to go through where there would be a stakeholder position that’s taken on in the advancement of an IPO as well, and entry into the public market.”
It looks like far from giving up, Nvidia is taking another shot at being a part of the chipmaker by investing in Arm’s planned New York listing. For its part, Arm is looking to raise up to $10 billion from the offering, and the talks with Nvidia point to bigger ambitions to expand from its core business in ‘graphics processing units’ into the ‘central processing units’.
We will have to wait and see what happens in the following days as Arm and Nvidia contact regulators in the US in order to smooth over any potential issues around the investment. But one thing is for certain: Nvidia’s decision to invest in Arm is indicative of a larger trend of tech firms looking for ways to acquire companies they initially planned to buy, a trend that could continue to shape tech deals in the near future.