SoftBank left millions on the table in Arm IPO in order to get a win for boss Masayoshi Son after a years-long string of losses

His record on tech investing had taken a drubbing after SoftBank Group Corp.’s Vision Fund lost $32 billion in a year on flameouts like WeWork and DoorDash Inc. So as he and other top executives met with bankers to plot this week’s initial public offering for Arm Holdings Plc, the focus was making sure the sale would go off without a hitch.

They didn’t want any last-minute hiccups with buyers pulling out, they dreaded pushback on the valuation, and, most of all, they wanted to set a price that would almost guarantee the shares would pop on their first day of trading.

By that measure, the initial public offering was a smashing success. The shares gained 25% in their debut Thursday after the company raised $4.87 billion to make it the largest US IPO in almost two years. After bringing companies to market in recent years only to see the shares tumble 50%, 60% or 70% in the following months, this was a victory. Arm continued to gain Friday, jumping 11% in pre-market trading.

But for all the back slapping and congratulations the listing produced from Midtown Manhattan to Tokyo, it also showed the downside of playing it safe. The company left a lot on the table: Pricing the IPO just $1 more a share — a notion Son rejected — would have raised about $100 million more. At the extreme, the tally would have been more than $1 billion bigger if the shares had been sold at where they settled the first day.

Offsetting that bypassed opportunity, SoftBank’s stake in Arm was worth about $12 billion more by the end of the day thanks to the share price gain.

SoftBank took an unusual approach to marketing the sale. It didn’t appoint a lead underwriter, and let Arm Chief Executive Officer Rene Haas and Chief Financial Officer Jason Child, both experienced operators, do a lot of the talking with investors on its roadshow, according to people familiar with the matter.

Son, SoftBank’s billionaire founder and CEO, got involved in the pricing negotiations Wednesday afternoon, Bloomberg News reported. Dialed into a conference call, he signaled that he didn’t want to ask for too high a price even if it meant leaving a bit of money on the table. 

It was an unconventional choice given that the offering was 12 times oversubscribed, signaling robust demand. 

But Son needed a win after a horrible run of IPO flops such as SoftBank’s domestic telecom business, which lost more than 14% on its first day of trading in 2018. To be fair, it has been a tough market for everyone after the post-pandemic tech rally crashed amid higher interest rates and shrinking valuations. Son, though, was hit particularly hard. SenseTime Group Inc. has dropped 62% since its debut, while DiDi Global Inc. has lost three-fourths of its value. The list goes on.

Bankers who worked on the Arm deal think they’ve broken that streak.

“The way to think about Arm is that we have a unique asset that has achieved an outstanding transactional outcome in an improving market environment,” Tom Swerling, global head of equity capital markets at Barclays Plc, one of the four lead banks in the IPO, said in an interview.

Tech’s Elite

It helped that SoftBank kept a tight lid on the number of shares to help ensure demand, ultimately floating just 10% of the company. SoftBank also tapped into its wide reach within Silicon Valley to collect more than $700 million from some of the world’s largest technology investors, including Apple Inc., Nvidia Corp., Intel Corp., Samsung Electronics Co. and more. 

The IPO book attracted a broad representation of investors, according to the people familiar with the matter, who asked not to be identified discussing confidential data. The top 10 received 50% of the shares while the top 25 investors took about 70%. There were more than 650 investors total in the deal, they said.

Representatives for Arm and SoftBank declined to comment.

The pricing meeting that Son dialed into took place at Raine Securities’s offices in Manhattan. Raine, which counts SoftBank as an investor, was the financial adviser on the listing and Raine’s co-founder and Son’s friend, Jeff Sine, was in the room, the people said. Officials from Barclays and the other lead underwriters — Goldman Sachs Group Inc., JPMorgan Chase & Co. and Mizuho Financial Group Inc. — were also there. 

During the meeting, a headline hit from the Wall Street Journal that the pricing would be $52 a share, which surprised the bankers and executives, who ended up settling on $51.

Graduation, Bar Mitzvah

Once the price was agreed upon, bankers clapped and congratulated the team and some of the underwriters went out to celebrate. 

“It’s a combination of a wedding, a graduation, and 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’s $40 billion agreement to sell itself to Nvidia was scrapped. The slow market gave the company more time to plan. 

“In terms of where we landed the plane relative to where we thought we were six to nine months ago, we landed in a great place,” he said.

While Arm is now a public company, it will still answer to SoftBank, its largest investor with a 90% stake. 

Son, though, has moved on to other matters. Even before the stock opened on Thursday, Haas said that Son was texting him about business matters unrelated to the IPO. 

“He and I are kind of aligned in terms of thinking much longer term,” Haas said.