Sometimes it is better to move on.
The UK has been wooing tech companies, lowering standards to increase its attractiveness. With chip company Arm, it may be spurned by one of its own. London shouldn’t get too hung up on the rejection.
Six years after it left the London market, Arm’s listing is once again up for grabs. The collapse of its planned sale to Nvidia means SoftBank intends to float the Cambridge-based company instead. But rather than return to London, SoftBank wants to take Arm to Nasdaq.
No question, that hurts. Arm is a global business, with longstanding links to the US. It had a dual listing there before the SoftBank deal. But the UK government insisted that after the sale it remain incorporated with its headquarters in the UK for five years. For Arm to choose to shift its centre of gravity would be seen as a snub.
It hurts all the more for a market that has hung its hat on attracting more tech listings. The London market resisted allowing companies with dual-class shares into the FTSE 100 for years. It clung to a requirement for 25 per cent of shares to be in public investors’ hands for companies to be granted premium listings. It has capitulated on both counts. And it is still not the first choice for a company such as Arm.
But the reality is that London hasn’t made itself the world’s most alluring tech listing venue. No set of rule changes could do that. The US has the capital, the companies and the larger market.
What it has done is reduce its turn-off factor to the next generation of Arms — and that is what matters.
No doubt the UK would like Arm to list there. Unlike the online retailers that the London Stock Exchange trumpets as tech, Arm is a proper tech business. A $30bn-plus valuation would make it a similar size to Tesco. It could be a big fish in a small pond.
Yet the appeal of being a middling-sized fish across the pond may still be greater. Whether Arm would get a better valuation in New York is hotly debated. But the liquidity in the US is an irreplicable advantage.
London’s reforms — reducing the hostility to dual-class shares and dropping the free float — aren’t entirely irrelevant to Arm. US IPOs typically involve listing only 10-15 per cent of a company’s stock. Asking the London market to absorb 25 per cent as the price for FTSE 100 index entry might have been a challenge. Allowing SoftBank to sell first 10 per cent and the rest in stages may increase London’s appeal at the margins.
But dual-class shares are the preserve of founders who want to control their creations, not a mature business being sold by an international investor.
That shows what London’s reforms were designed to do: “grow our own” tech businesses. They encourage companies to start up in the UK, then stay in the UK. Arm was lost in 2016. It may yet return, in the form of a dual-class listing. But the government should not drag it back to market, kicking and screaming.
Better to focus on realising the vision of a flourishing tech ecosystem. That will take time. Venture capitalists, founders and bankers all complain that Europe’s institutional investors and analysts “don’t get” tech. There are signs they don’t want to. Investors had their fingers burnt by the likes of THG and Deliveroo, two dual-class share companies that have traded terribly since listing.
Founders see the London listing experience as an unpleasant one too. Scrutiny of THG’s Matthew Moulding and Deliveroo’s Will Shu has been far more intense than of Alex Chesterman, whose online car retailer Cazoo has performed similarly badly since it went public via a New York special purpose acquisition company last year, but has received little of the same flak.
It will take steadily improving performance from UK tech companies to make the environment less hostile. There are no shortcuts, not even luring a landmark listing such as Arm. London has already lost the war for truly big tech: it is the fight for the next Arm that it can still win.
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