(Bloomberg) — Masayoshi Son was determined to change the tide.
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SoftBank Group Corp.’s Vision Fund has had a dismal record on tech investments after losing $32 billion a year on firebrands like WeWork and DoorDash Inc. At Arm Holdings Pvt. Ltd., the focus was to ensure that the sale went off without a hitch.
They didn’t want last-minute buyers dragging their heels, they feared a push on the valuation, and most of all, they wanted to set a price that would ensure the shares would pop on the first trading day.
By that measure, the first public offering was a resounding success. Shares are up 25% since the company raised $4.87 billion in its biggest U.S. IPO in two years. After bringing companies to the market in recent years, only to see the shares fall 50%, 60% or 70% in the following months, this was a victory.
But with a pat on the back and congratulations to all, the list, made from Midtown Manhattan to Tokyo, showed the downside of playing it safe. The company left a lot on the table: Paying just $1 more per share for an IPO — an idea Son rejected — would have raised about $100 million more. At the extreme, if the shares had traded where they were on the first day, the number would have been over a billion dollars.
Offsetting that past opportunity, the SoftBank arm was worth about $12 billion more at the end of the day due to the increase in stock price.
SoftBank took an unusual approach to marketing the sale. He did not appoint an underwriter, and allowed Arm CEO Rene Haas and Chief Financial Officer Jason Child, both experienced operators, to have more conversations with investors on the road show, according to people familiar with the matter.
An unusual choice
Son, the billionaire founder and CEO of SoftBank, began engaging in price negotiations Wednesday afternoon, according to Bloomberg News. He made a conference call and signaled that he didn’t want to ask for an exorbitant price, even if it meant leaving a little money on the table.
It was an unusual choice as the supply was 12 times oversubscribed, indicating strong demand.
But Son needed to bounce back after a disastrous run of IPO flops like SoftBank’s domestic telecom business, which lost more than 14% on its first day of trading in 2018. Pandemic has crashed the tech rally amid higher interest rates and declining valuations. But the boy was hit especially hard. SenseTime Group Inc. Down 62% since its inception, DiDi Global Inc. Three-quarters have lost their value. The list goes on.
Read more: Softbank-backed firms were good for him, not for IPO buyers
The bankers who worked on the arm’s deal think they’ve botched that start.
Tom Swerling, global head of equity capital markets at Barclays Plc, one of the four major banks in the IPO, said: “The way we think about ARM is that we have acquired a unique asset that has achieved outstanding transaction results in an improved market environment. , said in an interview.
SoftBank kept a tight lid on the number of shares to help justify its interest, eventually floating just 10% of the company. Softbank cited its broad reach in Silicon Valley to raise more than $700 million from some of the world’s biggest tech investors, including Apple Inc., Nvidia Corp., Intel Corp., Samsung Electronics Co. and others.
The IPO book has attracted many investors, according to people familiar with the matter, who asked not to be identified while discussing confidential information. The top 10 received 50% of the shares, and the top 25 investors received about 70%. He said that there were more than 650 investors in total.
Representatives for Arm and SoftBank declined to comment.
The price meeting that Son called was held at the Manhattan offices of Rain Securities. Raine, who counts SoftBank as an investor, was a financial adviser on the listing and Jeff Sean, Raine’s co-founder and Son’s friend, was in the room, the people said. Barclays officials and the other major underwriters — Goldman Sachs Group Inc., JPMorgan Chase & Co. and Mizuho Financial Group Inc. – And they were there.
During the meeting, an article from the Wall Street Journal had a headline that the price would be 52 dollars, which surprised the bankers and managers, finally at 51 dollars.
Graduation, Bar Mitzvah
After agreeing on the price, the bankers congratulated the team with applause and some of the underwriters went out to cheer.
“It’s a combination of a wedding, a graduation and a bar mitzvah in terms of how people feel about the day,” Haas said in an interview.
The CEO added that the deal has been in the works since last year, when Arm canceled a $40 billion deal to sell itself to Nvidia. The slower market has given the company more time to plan.
“In terms of where the plane landed, compared to where we thought we were six to nine months ago,” he said.
While Arm is now a public company, it still answers to SoftBank, its largest investor, with a 90% stake.
But boy has he moved on to other matters. Even before the stock went public on Thursday, Son said he was texting him about matters unrelated to the IPO.
“He and I are very similar in terms of long-term thinking,” Haas said.
–With assistance from Bailey Lipschultz, Gillian Tan and Min Jeong Lee.
(Updates with company response on paragraph 15.)
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