The writer is founder of Sifted, an FT-backed site for European start-ups
Not long ago, the British chip designer Arm was trumpeting the benefits of being owned by a private company, SoftBank, led by a visionary founder, Masayoshi Son. Freed from the quarterly reporting distractions of a publicly listed company, Arm’s management could focus on long-term strategy. “Under SoftBank we have a higher degree of freedom to invest,” Rene Haas, then Arm’s head of IP products group, told me in an interview in 2018. “Frankly, it’s been great.”
Haas will urgently have to update his public pitch for two reasons. First, SoftBank, which bought Arm in 2016, said this week that it wants to refloat the company following the collapse of its $66bn sale to the US giant Nvidia in the face of regulatory resistance. Second, Arm has just appointed Haas as its chief executive following the sudden departure of Simon Segars. Haas had better start professing his love for institutional investors before he fronts any roadshow for an initial public offering.
The critical question is where Arm will be refloated. On Tuesday, Son said Arm would head for Nasdaq in New York. But City of London investors and the British government should do everything possible to persuade SoftBank otherwise. The government has held SoftBank to its commitments to strengthen Arm’s UK business when it bought the company. It should now press for a dual listing in London, as well as New York, if the UK capital aspires to have any meaningful presence as a trading venue for global technology stocks.
“It is a sad indictment for the UK if Arm is seeking to do its IPO on the Nasdaq,” says Robert Huggins, a professor at Cardiff University and co-author of a new report on Europe’s semiconductor industry. “It will be a further sign that technological innovation and entrepreneurship is undervalued and unloved in this country.”
SoftBank’s logic in opting for Nasdaq is clear. Arm would achieve a higher valuation in New York because Nasdaq is more friendly to tech IPOs, has a deeper liquidity pool and more knowledgeable analysts and investors. It would be preferable for Arm to rub stock market shoulders with global tech industry leaders rather than the banks, miners and fossil fuel companies that populate the “Jurassic Park” of the London Stock Exchange. Moreover, Arm is arguably just as much a US business as it is a British one. Although it was founded in Cambridge, the company’s most important customers are on the West Coast and Haas is based in San Jose.
But supporters of a London listing can make some telling points. In reality, given the global nature of the industry, most chip companies enjoy similar valuations no matter where they are listed. Two other significant European semiconductor companies, ASML and STMicroelectronics, have both local and US listings. Before 2016, Arm’s shares traded in both New York and London and were among the most highly valued on the LSE. True, the London market might not be able to absorb a full Arm flotation, which could top $40bn. But SoftBank may only be seeking a partial flotation anyway.
At a time when the British government is wooing tech companies to list in London, the loss of Arm would be a bad blow. Re-floating a world-class tech company in London would act as a powerful magnet for others. “There is an enormous opportunity to list tech businesses in the UK over the next five years, especially in fintech,” says Brett Simpson, partner at Arete Research. “Arm would be one of the top companies on the FTSE 100 by market cap. The UK domestic investor would need to understand the business and that would be refreshing.”
A national security dimension is also at play as Britain, and Europe, obsess about technological sovereignty. According to Hermann Hauser, who was involved in Arm’s creation 30 years ago and campaigned against the company’s sale to Nvidia, the world is dividing into three “technological sovereignty circles” — the US, China and Europe. Post-Brexit Britain risks being left out in the cold. His preference would be for Arm to relist in London with the British government taking a strategic stake and a golden share as part of its national security strategy. “Compute is one of the critical technologies we have to have,” he says.
If power in the 20th century was defined by the strength of a country’s military-industrial complex, then power in the 21st century will be determined by the vitality of its technological-financial complex. Britain must decide how badly it wants to keep any sway.