This is what the deal means for SoftBank and the UK post-Brexit
Reuters reported on Monday that the Japanese technology conglomerate SoftBank Group Corp had reached a deal to buy the Cambridge headquartered ARM Holdings for £24.3 billion ($32 billion). While neither company has posted an official release on their website, the deal is said to have come in at a 43% premium over Friday’s closing price, adding up to £17 per share ($22.53).
According to the reports, SoftBank intends to keep the company intact under its current management and branding. There are plans following the deal to expand the workforce significantly, doubling its UK employment as well as growing their hires outside of Britain.
As one of the premier developers of IP in the processor space, ARM marks another interesting strategic investment for the Japanese tech powerhouse. Before the deal was revealed, the UK company had recently made some purchases of their own, including fellow British startup Apical back in May. That company had made advancements in computer vision for use in Internet of Things products, an element that various experts agree will play a crucial role in many of the devices expected to come out over the next few years.
“Computer vision is in the early stages of development and the world of devices powered by this exciting technology can only grow from here,” said Simon Segars, CEO at ARM in his release to the press at the time of the Apical acquisition.
What does this news mean for British business post-Brexit?
As news of the acquisition broke, voices like the recently appointed Chancellor of the Exchequer Philip Hammond came out with statements praising the deal, and trying to downplay fears that the economy will suffer because of the recent Brexit vote.
This would be largest ever Asian investment into the UK & would double size of ARM’s UK workforce.Big vote of confidence in British business
— Philip Hammond (@PHammondMP) July 18, 2016
Decision by SoftBank to invest in @ARMHoldings shows UK has lost none of its allure to global investors – Britain is open for business
— Philip Hammond (@PHammondMP) July 18, 2016
While the buyout of ARM could be considered good news if SoftBank upholds their promise to grow the local team, it might be premature to hail this deal as a “vote of confidence” in the future of Britain‘s economy.
The first and most obvious point that comes to mind is that a deal of this sort was likely in the pipeline long before the vote on whether or not to leave the European Union. SoftBank’s decision was not the result of the Brexit. The outcome of the vote itself was unexpected, so even if there were concerns that the UK might become less competitive following the Brexit, it likely did not factor heavily at the time the decision was made to go forward with the deal.
Second is that SoftBank, like Hammond pointed out above, is an Asian company and therefore less tied to the coming uncertainty that is rising in Europe. While investment — no matter where it comes from — can be a good thing, the question should be asked as to whether Britain is willing to count on investors from Asia over their more natural partners in Europe for their future growth.
It is also worth noting that ARM is primarily an IP-based firm, with R&D offices around the world. They are most certainly not a manufacturer of products, the kind of jobs that many in the UK were hoping would “come back” after the exit. Their ability to work and thrive without issues like tariffs getting in the way means that they will be less impacted by the Brexit and still a safe buy for SoftBank. Similarly, it appears that SoftBank will look to grow the international teams — perhaps at a greater rate — in some of the more competitive countries with highly skilled workers. So even if no jobs are lost and there is some growth in the UK, it still might not come out to as big an accomplishment as some would have hoped.
Finally, SoftBank differs from other Japanese corporates in that they have shown their willingness to avoid the stereotypical Japanese over-cautiousness and take leaps for deals that show real potential. They have been making interesting moves over the past year, including their $50 million investment in the Israeli startup Cybereason back in October. So just because SoftBank bought the British company, it should not be taken as a sign that more are yet to come.
This deal also represents a shift for SoftBank. Two days ago it was reported that the Nikesh Arora, the company’s new president, had plans to end their venture operations and instead invest in more mature companies. If their move on ARM is any kind of indication, then it should make for an interesting year ahead with more strategic acquisitions still to be revealed.