Successful Arm IPO Generates Lucrative $84mn Adviser Fees Windfall

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Arm’s $5bn initial public offering this week was the most expensive in fees for five years, earning a $84mn windfall for the professional services firms that advised it, including Deloitte.

The SoftBank-backed chip designer spent the most on IPO-related non-underwriting costs since the flotation of insurance group Axa’s US arm in 2018, according to a Financial Times analysis of SEC filings for companies which raised over $1bn in an IPO.

The $84mn total is seven times more than the average large listing, making it the third most costly in the past decade.

The bulk of Arm’s total — around $51mn — went on accounting fees, particularly to auditor Deloitte. It also spent almost $17mn on legal fees, primarily benefiting its main legal adviser Morrison & Foerster.

While bank fees tend to be directly tied to the amount of money raised in a deal, spending on other costs from consultants to event planners can vary widely between different companies.

Unlike the growth-focused start-ups that have dominated IPO markets for most of the past decade, Arm is more than 30 years old, consistently profitable and had already spent almost two decades as a public company before SoftBank agreed to buy it in 2016.

“If you’re a garden-variety biotech start-up with little revenue, the auditing isn’t that complicated,” said Jay Ritter, an IPO expert at the University of Florida. “Arm has got a complicated business.”

One person close to Arm said its costs were inflated by the need to convert its financial statements from international to US accounting standards.

Deloitte also noted in the prospectus that its audit required “increased extent of effort” because of the complexity of Arm’s customer contracts. Arm does not build and sell chips directly, but earns licence fees and royalties by letting other companies use its designs.

Deloitte did not respond to requests for comment. Arm declined to comment.

On average, companies that raised more than $1bn in IPOs over the past decade spent around $11.5mn on non-underwriting costs, according to the FT analysis.

Alibaba, which raised $25bn in the largest-ever US listing in 2014, spent just over half as much as Arm, with $46mn in non-underwriting fees.

The Arm flotation was closely watched as a test of the health of the broader IPO market, and its warm reception — shares jumped 25 per cent on the first day of trading — has bolstered investors’ hopes of a further wave of new listings, particularly in the tech sector.

However, its unusually high costs provide a reminder that the Cambridge-based business is not a close comparison for most IPO candidates.

One banker who worked on the listing said it was a good sign, but noted that “it’s important everyone tempers the exuberance a little bit”, adding that investors had been focused on “big transactions in big companies” rather than smaller groups.

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The initial public offering (IPO) by Arm Ltd this week amounted to $5bn in fees, making it the most expensive IPO in the last five years. Deloitte and other professional services firms advising Arm earned a windfall of $84mn from this IPO. The $84mn total is seven times higher than the average large listing in the past decade, ranking it as the third most costly. Arm allocated a significant portion, around $51mn, to accounting fees, primarily for Deloitte’s auditing services. Additionally, Arm incurred legal fees of nearly $17mn, with Morrison & Foerster as its main legal advisor.

The expenses related to IPOs can vary widely between different companies, with bank fees typically determined by the amount of money raised. Arm, unlike many start-ups in recent years, is an established and profitable company with more than 30 years of experience as a public entity. Its complex business operations resulted in higher costs, including the need to convert financial statements to US accounting standards and the intricate nature of its customer contracts.

Companies that raised over $1bn in IPOs during the past decade spent an average of $11.5mn on non-underwriting costs, as per Financial Times analysis. Comparatively, Alibaba, which had the largest-ever US listing in 2014 and raised $25bn, spent less than half of Arm’s expenses with $46mn in non-underwriting fees.

The success of Arm’s IPO was closely monitored as an indicator of the broader IPO market’s health. The first day of trading saw a 25 per cent increase in share value, instilling hope amongst investors for more new listings, particularly in the technology sector. However, it is essential to note that Arm’s unusually high costs do not align with the average IPO candidate, reminding investors to temper their exuberance. Investment focus has primarily been on significant transactions involving large companies rather than smaller groups.

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