Fish and chips, Paddington Bear, James Corden. The UK has given us many things, but never a tech company on the scale of Google or Facebook. And as today’s story shows, that’s only half the problem.

The Long Read

Chip designer Arm is going public again

You’ve probably seen the news. We’ve mentioned it a couple of times recently. But the striking thing is what this says about one of the UK tech sector’s biggest challenges: holding on to its breakout companies.

First, a bit of backstory.

It’s the early 90s, I’m a fetus, and Arm starts designing CPUs – the most important processor in a computer.

Fast forward a decade, I’ve more or less stopped wetting the bed, and Arm is loving life. It’s a public company, listed in London, and most of the mobile phone industry is using its chip designs.

Things really picked up in the late 00s. While I was busy doing keg stands and skipping lectures, Arm-designed chips were going into everything from tablets and computers to smart watches and TVs. There’s probably one about 30cm from your face right now.

Then in 2016, within the space of a few months, the UK voted to leave the EU, the pound tanked, and Japanese conglomerate SoftBank swooped in and bought Arm for $32bn. Arm co-founder Hermann Hauser called it a “sad day” for the UK tech industry.

Now London has been snubbed again.

Surprising? Not really. SoftBank founder Masayoshi Son has said he likes the US because of its deep investor base and attractive valuations. He’s also called the Nasdaq the “center of global hi-tech”.

Disappointing for the UK? Definitely. The Government and the London Stock Exchange had done some intense lobbying. Regulators even reportedly offered to bend the rules to land the deal.

As well as the symbolism of losing one of its tech crown jewels, luring Arm back was also part of wider efforts to revive London’s flailing IPO market, which has slumped below Istanbul and Milan this year. Listings in the UK capital raised just £593m ($748m) in the first half of 2023 compared to £9.4bn ($11.9bn) in the same period two years ago.

Let’s just say weak growth, high inflation, rising interest rates, and government debt above 100% aren’t exactly inspiring companies to take the plunge and sell their shares.

Now Arm is set to boost the US IPO market instead, where things frankly aren’t going brilliantly either. So far this year, it has only raised about a tenth of the capital it did in 2021.

Arm’s IPO may not necessarily open the floodgates, either.

Investors are still burnt from the IPO frenzy of 2020 and 2021 when they plowed billions into companies that are now trading below their offering price. Now they’re being much more cautious.

A recent survey found that almost half of investors want to see companies going public at a 20% to 30% discount to their listed peers before they’d consider buying the stock. So for most companies thinking about going public, the sensible thing to do is simply wait it out until conditions get better.

The timing makes more sense for Arm, though.

The tech market has been pretty tricky lately, and SoftBank has taken a hit on falling valuations. Its tech-focused Vision Fund lost $32bn in the fiscal year ending March. Part of SoftBank’s strategy for navigating that is focusing on the industry’s silver lining: AI.

Arm is increasingly positioning itself as an AI company, which makes sense given the technology’s increased demand for high-power data centers and state-of-the-art chips. It has designed processors for Nvidia, which has made a name for itself as a chipmaker for AI products.

Meanwhile, the UK is finding other ways to become more competitive.

Regulators have proposed simplifying listings, for example making it easier to have two classes of shares. Some entrepreneurs like this because it allows them to keep control of their businesses even after they’ve gone public. But the London Stock Exchange is among voices saying there’s still more that can be done.

Will Arm one day return to the London market? The company says it’s not ruling it out, but don’t hold your breath. Instead, Arm is emphasizing plans to keep its headquarters, operations, and intellectual property in the UK, and increase its presence in the country.

But as far as ownership and listing go, the UK has lost a rare homegrown tech superstar.

Off-balance sheet items

• Bloomberg: US job openings dip, boosting bets that the Fed will pause rate hikes ($).

• Reuters: Nasdaq poaches UBS CFO Sarah Youngwood to be its new finance chief.

• Sifted: Will AI kill the management consultant?

The bottom line