Arm shares soar by 25% in the first trading day

The Nasdaq-listed shares of chip designer Arm rose by a quarter on its first trading day, Thursday. This valued the SoftBank-backed firm at over $65bn.

Arm closed Thursday at $63.59 per share, a significant increase from the $51 agreed upon on Wednesday.

On a fully-diluted basis, the closing price gives the chip designer an estimated market capitalisation value of $65.2bn.

The IPO raised nearly $5bn for SoftBank. This is the largest US listing since almost two years. Ten “cornerstone investors” — a group of large Arm partners and customers, including Apple and Nvidia – bought $735mn of Arm stock in the listing.

Rene Haas said that discussions with investors at the IPO Roadshow gave him the opportunity to show “just how much different a company we are today”, since SoftBank bought the Cambridge-based chip manufacturer for $32bn back in 2016.

Arm has worked to diversify their business, moving away from the mobile market which is in decline to include automotive and data center chips. Haas stated that “we are much more diversified”.

SoftBank and underwriters discussed whether or not to price Arm’s shares at a higher level than the initial range of $52, but chose the lower amount in the hope that shares would rise in value, boosting confidence in the overall market after nearly two years.

One person who was close to the Arm listing said, “So many people including SoftBank, and all of the underwriters have so much riding upon the overall health the IPO market.”

Haas stated that despite selling 10 percent of Arm’s shares in the IPO SoftBank was a “net purchaser” of its shares. SoftBank last month purchased from Vision Fund the 25 percent of Arm it didn’t already own. The investment firm is managed by the Japanese conglomerate.

Haas said that “[SoftBank CEO Masayoshi Son] now owns more Arm than he did several weeks ago. This should indicate that he’s very, very confident about the future.”

He added, “If you take a look at how few shares they’ve sold, they will be a major shareholder in Arm moving forward. They share my vision that the best days are still ahead for our company.”

The positive reception to Arm’s listing is likely to fuel confidence in the broader IPO market. This has slowly been reopening following one of the worst downturns for fundraising in decades.

“Just because Arm is able to come and perform a successful IPO, that’s not enough. . . Does that mean anyone can do it? “Probably not,” said a banker involved in this deal. “But is the situation improving?” Yes.”

Next week, the IPOs of grocery-delivery app Instacart as well as marketing software group Klaviyo will test investor interest.

The fact that a company’s initial listing has a large “pop” on the first day can be disappointing to both existing shareholders and executives, as it shows they could have raised tens of millions more in cash.

Arm announced a price range of $51 to $101. The $51 offered price was the highest price in that range. The deal was discussed by bankers as being priced even higher due to the high demand.

But several people who were involved in the listing said that SoftBank and Son was more interested in ensuring the stock traded well than maximising the initial payout.

One person involved in the deal said, “This will be their largest asset moving forward. Every decision they make should focus on protecting the value [of the 90% of Arm that SoftBank owns] and not optimizing the value for the 10%.”

The person who worked on the IPO said: “It’s in everyone’s best interest for the IPO to return.” SoftBank, which has a portfolio of startup investments that it hopes will be listed, was the person’s statement. “So the thinking was, let’s stay patient and not get greedy.

Barclays acted as the lead bookrunners for this deal. JPMorgan, Goldman Sachs and Mizuho were also involved as underwriters.