Arm race: Juggernaut deal could prompt EMEA chip IPO wave

Data InsightECM Explorer 30 August

Arm race: Juggernaut deal could prompt EMEA chip IPO wave

The benchmark US IPO of Arm in September is likely to be the global ECM highlight of 2023, but it is also a benchmark moment for European semi-conductors in the global battle for sector dominance.

The European semiconductor industry has yet to make a mark in public equity markets. According to Dealogic, European chip makers only generated USD 5.5bn of IPO volume since 2013 across all global exchanges.

The data shows peaks of over USD 1bn of volume in 2017 and most recently in 2021, perhaps signaling the start of a new chapter for European chip IPOs. This year, deal value stands only at USD 170m, but Arm will substantially grow that figure should it successfully list; 2022 closed at USD 873m, with the benchmark event being the EUR 712.5m IPO of Italy’s Technoprobe SpA [BIT: TPRO].

One banker close to the deal compared the Softbank [TYO:9984]-backed Arm IPO to the listing of Porsche [ETR: PAH3] in 2022; a “one-off event” that has few comparables in the market.

However, it will give European semiconductors some momentum amidst a global race, led by the US and China, for dominance, he said.

“Semiconductors power everything from mobiles and computers to full 5G and AI infrastructure,” said another ECM banker. “Europe has less of a foothold at the moment, but there is a growing network of startups addressing discrete phases of the supply chain that will be courted by investors in the coming years,” he added.

The public equity markets could easily suit some companies in their need to grow quickly, he explained.

Arm’s decision to list in the US, while grabbing headlines, is somewhat of an oddity for the sector.

Historically, most European semiconductor firms have listed on their home exchanges. The UK so far is top of the league tables, with a total of USD 2bn from nine deals over the last decade. It is followed by Italy at USD 1.2bn and Germany and France, according to Dealogic data.

The aftermarket performance of some of Europe’s semiconductor IPOs is mixed. The largest deal of the decade, the GBP 856m listing of Alphawave [LON:AWE] in London, has traded poorly since its 2021 IPO, down over 60% from offer price.

Technoprobe has fared better, and is up around 28% from its 2022 IPO price, despite equity market volatility over the last couple of years.

There are not too many Arms waiting in the wing with the European pipeline mostly made up of early-stage prospects.

But there are opportunities, notably Netherlands-based photonic chips producer SMART Photonics, which sees an IPO as an option in its future and has engaged in conversations with banks.

The second ECM banker said the search is on for small to medium enterprises that could make for good IPO candidates in 2025-2026.

He added that banks have made first approaches to companies that deal with chip manufacturing and distribution across Europe, particularly in Germany, France and Belgium.

Just like the tiny microchips that power so much of the world’s technology, sometimes great IPOs can emerge from what originally appear to be small businesses.

Did you see last week’s ECM Explorer EMEA? 

He who humbles himself: In Europe’s IPO market, seller humility leads to long-term success

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