By Erika Goodwin-Monteagudo, Liam Smith, Hannah Farrell and Liam Ryan (Trinity College, Dublin) and Vinay Naik (University of Warwick)
Overview of the deal
Acquirer: Nvidia Corporation
Target: Arm Holdings
Estimated Value: $32bn
Total Transaction Size: $32bn+
Closed date: Estimated Q4 2020
Target advisor: Goldman Sachs
Nvidia Corporation is reportedly close to purchasing English-based software design company Arm Holdings from the Japanese conglomerate Softbank, which could be the largest ever deal in semiconductor history. Nvidia, whose IPO with a stock price of $12 a share at the turn of the 21st century, now stands as arguably the biggest giant in the graphics and chip units industry to date. The acquisition would keep Nvidia the leader in a more consolidated semiconductor industry. Arm would enable Nvidia to expand its product range away from its high-end focused chips, as it is estimated that Arm’s chips are in 95% of smartphones globally. The deal is projected to be worth more than $32 billion, depending on the premium Nvidia is willing to pay for the firm, made up in both cash and stocks, if the transaction is to go ahead at all. SoftBank, who have only owned Arm for four years after purchasing the company for $32 billion in 2016, has been in talks with a multitude of potential buyers, Apple being the most notable. However, Nvidia has remained the front-runner in lue of Softbank’s eagerness to sell Arm.
Unfortunately, it is not expected that Nvidia will come to complete this deal with ease, as many experts and analysts have been quick to illustrate the many hurdles and roadblocks the “king of GPUs” will face. Firstly, Arm has a large number of customers due to providing significant technology to the smartphone industry. These customers include two of Nvidia’s rivals, AMD and Intel, where Nvidia’s acquisition of Arm could have many malintentions for the pair. This has led many experts to posit that in order for the deal to move forward towards completion, Nvidia will have to comply with many fairness clauses set out by government and industry regulators. Nevertheless, Nvidia could find itself out of favor with Softbank if the former does not make a concrete offer in the near future, as the latter hopes to sell Arm in order to help cover some lingering debt issues.
As all three parties have declined to comment on the matter, only time will tell the fate of this deal. Investors should stay cautious of Nvidia for the time being, as the likelihood of this deal falling through must be respected, and Nvidia has been trading somewhat above its value, sitting at over two and a half times its 52-week low, opening at $424.40 at the start of August 2020.
“It’s one of the fundamental assumptions of the ARM business model that it can sell to everybody” - Dr. Hauser, co-founder of Arm
Company Details: Nvidia
Nvidia Corporation is a multinational American technology company. Nvidia focuses on personal computer graphics, graphics processing units (GPU) and also on artificial intelligence. It designs GPUs for the gaming and other industries. As well as this, Nvidia produces its own Tegra mobile processors for smartphones and tablets, and is also involved in vehicle navigation and entertainment systems.
Founded in 1993, headquartered in Santa Clara, California, United States.
CEO: Jensen Huang
Number of employees: 13,227
Market Cap: $275.5 bn (as of 08/08/2020)
EV: $268 bn