• KCL M&A Society

NVIDIA acquires Arm for $40bn, creating a premier computing company


By Guala Avogadro di Vigliano, Head of TMT at KCL Mergers and Acquisitions


NVIDIA acquires Arm for $40bn, creating the premier computing company for the age of Artificial Intelligence.


NVIDIA (NASDAQ: NVDA). It is an American multinational tech company mainly focused in designing “graphics processing units” (GPUs) used in AI and it has announced that it will acquire Arm Limited from SoftBank Vision Fund (TYO: SFTBY) for $40bn paid by $21.5bn in stock and $12bn in cash. An additional $5bn cash payment will occur if Arm hits specific financial performance targets. Moreover, Nvidia will issue $1.5bn in equity to Arm employees. The combination of NVIDIA’s leading AI computing platform with Arm’s vast ecosystem will give birth to the premier computing company in the age of AI. 


The main drive for this acquisition is the desire to take the Artificial Intelligence to a next level. Huang, NVIDIA’s CEO, is looking to expand onto new markets, from self-driving vehicles to smart meters. Taking control of some of the most widely used electronics technology, this desire becomes more tangible. SoftBank will remain committed to Arm’s long-term success through its ownership stake in NVIDIA, expected to be under 10 percent. 


Acquirer: NVIDIA

Target: Arm Limited

Date of Announcement: 13 Sept. 2020

Acquirer Advisors: Morgan Stanley

Target Advisors: Goldman Sachs and Morgan Stanley


Acquirer company overview

Source: https://www.nvidia.com/en-gb/about-nvidia/


NVIDIA is an American multinational technology company that designs “graphics processing units” (GPUs) for gaming, professional markets and Artificial Intelligence, and “system on a chip units” (SoCs) for mobile computing and automotive market. It has a very strong presence in the gaming market.


Founded by: Jensen Huang, Curtis Priem and Chris Malachowsky in 1993

CEO: Jensen Huang

Headquarters: Santa Clara, California, US

Number of Employees: 13,775 (2020)

Ticker: NVDA

Share Price at the time of writing: 503,23 USD

Market Cap at the time of writing: 310.85 B USD

Key shareholders: 

  • The Vanguard Group, Inc. (7.46%) 

  • Fidelity Management and Research Co (7.30%) 

  • BlackRock Fund Advisors (4.77%) 

  • SSgA Funds Management, Inc. (4.15%)


EV: 321.73 B USD

LTM Revenue: 10.92 B USD 

LTM EBITDA: 3.23 B USD 

LTM EV/Revenue: 29.46x 

LTM EV/EBITDA: 99.61x


Target company overview

Arm is a British semiconductor and software design company focused in designing ARM processors (CPUs) and software development tools. It dominates the market for processors in mobile phones and PCs owned by SoftBank Group.


SoftBank financial information:

Founded by: Masayoshi Son in 1981

CEO: Masayoshi Son

Headquarters: Tokyo, Japan

Number of Employees: 80,909 (2020) 

Ticker: SFTBY

Share Price at the time of writing: 32,18 USD

Market Cap at the time of writing: 120.71 B USD

Key shareholders: 

  • Masayoshi Son (21.25%)

  • The Master Trust Bank of Japan, Ltd. (Trust Account) (10.25%)

  • Japan Trustee Services Bank, Ltd. (Trust Account) (5.87%)


EV: 222.61 B USD

LTM Revenue: 56.90 B USD 

LTM EBITDA: 6.32 B USD 

LTM EV/Revenue: 3.91x 

LTM EV/EBITDA: 35.22x


Deal Motivations

NVIDIA started working closely with Arm over 2019 to enable GPU-accelerated Arm-based servers. On the one hand, the American Company can benefit from this acquisition as Arm is a leading designer of CPUs (central processing units) that would enable them to gain the ability to field high-end CPUs as well as Arm sensors in the automotive space. On the other hand, Arm will largely benefit from a greater revenue play in the Internet of Things (IoT) and mobile field. This acquisition would enable NVIDIA to become a ‘one stop shop’ for customers, since every GPU sold requires another processor chip produced by Arm, a CPU. 


In addition, SoftBank is looking for additional funding for a $41 billion share buyback and debt reduction plan. This acquisition would give enough financial gain to the Japanese company which is seeking to reduce the gap between the net asset value and its enterprise value, avoiding a deal that may get the attention for regulatory scrutiny. Moreover, some of the emerging technologies in which SoftBank invests have had a hard time since the beginning the COVID-19 pandemic. Thus, the Japanese company is in need of additional cash to cover its $100 billion investment vehicle that supports such firms.


Short Term 

The vast ecosystem of Arm’s CPU unified with NVIDIA’s AI computing capabilities, creates the perfect platform for expansion and advance in new markets, from the self-driving cars, robotics and smartphones to PCs and Internet-of-Things all over the world. This acquisition will increase Arm’s R&D capacity, together with its IP portfolio, powered by NVIDIA’s GPUs and IA technology that boast global recognition. Arm’s headquarter and intellectual property will remain in Cambridge, where expansion is expected under a world-class AI facility. The latter will support new developments in many fields, from the healthcare to the robotics. Moreover, NVIDIA is expected to build a ground-breaking AI supercomputer powered by Arm processor chips that will attract many researchers from around the globe to conduct innovative investigations. After the acquisition, Arm partners are expected to benefit from both companies’ offerings and innovations. At the same time though, the UK based company will continue to operate in its CPU business that counts 180 billion chips shipped to-date. Arm’s Cambridge Campus will become one of leading world centres of excellence in AI innovation 


Long Term

“In the years ahead, trillions of computers running AI will create a new internet-of-things that is thousands of times larger than today’s internet-of-people. Our combination will create a company fabulously positioned for the age of AI.” says Huang, CEO of NVIDIA. Its Long-Term goal is to be a leading firm with in the market of the new internet-of-things. Both companies believe in energy-efficient computing in addressing some of the most persistent problems from healthcare and education, to climate change. This dream can come true only committing to long-term R&D and a global ecosystem of innovators which both companies are striving to attain.


Risks/Uncertainties

There may be problems regarding regulatory approvals. As a matter of fact, sign-offs are needed from China, U.K., E.U. and U.S. authorities and could take up to 18 months. Rising tensions between China and the U.S. may further challenge China’s approval. Huang said that his team fully expects to spend some time dealing with China’s regulatory bodies, but is confident about the approval of the acquisition.


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