Call up just about any IPO backed by SoftBank Group Corp. over the past couple years and it’ll invariably look grim.
(Bloomberg) — Call up just about any IPO backed by SoftBank Group Corp. over the past couple years and it’ll invariably look grim.
How grim?
One stock, SenseTime Group Inc. is down 61% since its debut; another, DiDi Global Inc., is down 75%; and another called Exscientia — all of them are technology firms of some kind — has lost 74%. (Throw in the ill-fated de-SPACs that counted SoftBank as big investors — names like WeWork Inc. and Better Home & Finance Holding Co. — and the losses can climb above 90%.)
There are exceptions, of course, that have eked out stock gains for investors, and in fairness the IPO market has been rough for all companies after a pandemic-fueled boom in deals came to an abrupt halt. But the list of flops delivered by SoftBank CEO Masayoshi Son is so long and the losses so large that investors everywhere will be watching how he handles this week’s sale of Arm Holdings, the biggest IPO of the year.
The losses showcase the risks of investing in mostly later-stage technology companies. While SoftBank bought in to the majority at far lower valuations, the price that public shareholders paid was steep.
A representative for SoftBank declined to comment.
Read more: SoftBank Vision Fund Loses $7.2 Billion on Tech Writedowns (2)
Arm is slated to sell as much as $4.87 billion in an initial public offering on Wednesday. At the top end of the price range, it would be worth $54.5 billion. That valuation would net SoftBank a 70% return since it took Arm private in 2016, marking a much-needed win for Son after a series of bad investments saddled his Vision Fund with a $30 billion loss last year. For public investors, though, what matters is how Arm trades.
A key part of the market’s reception will be how much they value the company’s potential to ride the artificial intelligence wave that’s been carved out by Nvidia Corp., one of Arm’s biggest customers, which has more than tripled this year to add $756 billion in market value. At its investor roadshow the company talked up expectations for revenue growth of 11% in its current fiscal year and an increase in the mid-20% range in fiscal 2025, boosted by artificial intelligence and demand for chips that power data centers, Bloomberg News reported.
With SoftBank planning to sell just 9% of Arm’s shares — including a portion to strategic investors like customers Apple Inc. and Nvidia — the deal is “manufactured” to have a strong opening, according to Josef Schuster, founder and chief executive officer of IPOX Schuster.
The small pool of shares available for trading can force money managers to bid up firms to get exposure to the business. That’s bearing fruit as Arm’s offering is already oversubscribed by 10 times, a signal that investors want in on the action, though nothing is finalized and IPO orders could always change.
For SoftBank, Arm is set to mark its first sizable sale of shares on the public markets after a busy stretch at the height of the market’s mania. In 2021, global venture capital and private equity exits that counted SoftBank and its affiliates as investors saw total exit valuations top $335 billion, according to PitchBook data. A more than three-fold increase from a busy 2019, the data show.
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