In the current business and political environment, we think the Softbank-ARM type of rapid-fire deal making may become a much more common occurrence.
As we wrote in a recent blog post, there is no shortage of cross-border investment opportunity out there, although it is not always easy to see thanks to an upsurge in political risk and financial market volatility. But Softbank’s recent acquisition of British chipmaker ARM for $32 billion illustrates how when these factors are properly aligned, the logic of a mega deal quite suddenly can look incredibly compelling.
According to a report in the Wall Street Journal, the Softbank-ARM tie up came together in less than two weeks, after Softbank swooped in with an unsolicited offer. Whatever the business strategy underlying Softbank’s move, the financial logic apparently became overwhelming as the British pound collapsed to a thirty-year low in the immediate aftermath of the U.K. vote to exit the European Union.
Not surprisingly, the Tory government, still reeling from the fallout of the Brexit vote, hailed the takeover as a sign of returning confidence in the British economy. The ARM acquisition is the largest ever acquisition of a British company by an Asian-based acquirer and it comes at a time when in bound takeovers in the U.K. are running well behind the pace in recent years. According to Dealogic, the volume of UK targeted M&A in the first half of 2016 had fallen to the lowest level since 2011, in large part on the climate of political uncertainty and economic risk surrounding Brexit.
But sizeable as the ARM acquisition is, and inviting as the collapsing British pound may be, it does not necessarily signal that the floodgates are about to open on cross-border transactions involving U.K. companies. Digging into the details of ARM’s business, as the world’s largest designer of microprocessors for cell phones, serving customers around the world such as Apple and Samsung, ARM’s customer base is far-flung and not so likely to be deterred by the Brexit decision. Taking the low level of Brexit-related risk going forward together with the sudden drop in the British pound, the business case for the acquisition, which had been under consideration by Softbank for a few years, suddenly became irresistible.
In the current business and political environment, we think this type of rapid-fire deal making may become a much more common occurrence. Political and currency risk are often seen as a deterrent to making large cross border investments. But just as often they may work to create tremendous opportunities. For investors and acquirers ready to explore the wide world cross border opportunities, the Aurigin (formerly BankerBay) platform presents an ideal place to begin your search.