Acuity Insight: Re-ARMing – Matthew Byatt on the ramifications of the ARM deal

Japanese internet and telecommunications conglomerate SoftBank Group Corp. took the global chip industry by surprise recently with a $32 billion deal to acquire ARM Holdings PLC, the UK-based designer of microprocessors that power more than 95% of the world’s smartphones. It is SoftBank’s largest ever investment according to data from Dealogic.

Acuity’s Matthew Byatt has a unique insight into the deal, having built his career at ARM. Here, he offers his opinions on this huge UK technology deal…

 

I believe this acquisition to be a great result for ARM’s employees and shareholders. It shows the significant global impact that 4,000 predominantly Cambridge based engineers can have. If the deal goes through it will be the largest acquisition of a technology business in Europe, with a 24.4 x revenue valuation that most tech company owners can only dream about. This should be viewed as the beginning of an exciting new phase for the business.

The deal demonstrates the art of the possible; a town of just over 120,000 people that has an impressive track record of building great businesses. Parallels are often drawn between Silicon Valley and Silicon Fen and it’s worth highlighting that Cambridge is only one sixtieth of the size of the Bay Area. It is a British innovation hub to be proud of but it does lead me to question whether the region and the wider UK can “re-ARM itself”, i.e. can we create another global technology giant that can reach the heights of ARM?

I have been immersed in the Cambridge tech scene for around 20 years, and I clearly see the potential within this small but innovative area. I co-founded Acuity Advisors having had a very successful career at ARM, helping the business to formulate its strategy and execute M&A. I therefore find myself in the privileged position of having a unique and invaluable insight into this deal and the media coverage that surrounds it.

Coverage by both the media and UK tech insiders alike has been mixed, with Hermann Hauser saying it was a “sad day for British tech”. I have a different, largely positive, view although I have been disappointed with how relatively ‘unknown’ ARM is among the general public, despite its size and global success. It is arguably the leading example of an innovative and hugely successful UK technology business. The fact that this transaction has left many people asking “Who is ARM?” has me wondering whether, as a country, the UK would benefit from taking a lot more interest in the tech scene and the successes of its technology stars. This deal is not a detrimental one for the UK; indeed SoftBank are recommitting to Cambridge and this will have broader benefits for the technology ecosystem by attracting yet more engineering talent to the region.

The UK tech sector, and in particular the Cambridge hub, should be extremely proud of the value and interest this deal has created; it has demonstrated the huge potential for home-grown innovation and success.

My opinion is that, as a buyer, SoftBank is by far the best option for both Cambridge and ARM itself. Why? Because the beauty of ARM’s model is in its independence. It corners the market, supplying the entire semiconductor industry. Aggressive competitors such as Samsung, Intel and Qualcomm are hooked on the ARM architecture, this being the precise reason that ARM hasn’t already been bought – the majority of potential buyers would break this model and subsequently render themselves unable to extract value from the ARM platform. SoftBank on the other hand can preserve this model, thus safeguarding ARM’s independence.

Intel and Qualcomm had been mooted as likely buyers but for very understandable reasons they have not acted and instead have been consumed with other transactions such as Altera and CSR (although doubtfully they may now be reconsidering their position).

In conclusion I revert to the one question that is troubling me: Who is going to fill ARM’s shoes as the leading British technology giant? I hope that Cambridge, with its proven ability to produce innovative, forward-thinking, valuable companies such as ARM, CSR and Autonomy, will fulfil its potential by creating “the next ARM”. These are fascinating times, that much is certain.

Matthew Byatt, Partner

 

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