SoftBank takeover of ARM will flood Cambridge with start-up funds

ARM Holdings, probably the biggest UK company in tech you have never heard of, is being bought by Japanese conglomerate, SoftBank for £24.3 billion.

Just days after Theresa May said that foreign companies should not have “unfettered access” to British companies, Cambridge-based ARM has been sold following a mere fortnight’s negotiation.

ARM Holdings, spun out of Acorn Computers in 1990, makes chips for smartphones, tablets and wearable tech. Its big hope for the future is the internet of things – everyday devices that communicate over the web. 

The IOT is supposed to help improve all facets of life from monitoring how full rubbish bins are to alerting technicians when a piece of equipment needs to be repaired. Self-driving cars could be one of the biggest daily lifestyle changes enabled by the internet of things.

But does the £24 billion deal represent a good day for British tech? 

Shareholders who have seen the value of their investments leap by 45 per cent since Friday are the most obvious winners in the ARM deal. And new Chancellor, Philip Hammond, was quick to argue that the Japanese purchase illustrated that Britain was still attractive to foreign investment and was still open for business, despite Brexit. 

However, many in the British tech sector are mourning. ARM was their flagship, the one Brit company with truly global reach that had been built up by years of investment and research. 

Hermann Hauser, partner at Amadeus Capital and a founder of the business called it a "sad day for British technology".

"ARM is the greatest thing I've done, so it's a very sad day for me personally, and for technology in Britain. It was the last remaining British technology company with global reach."

And the fact that the company was 25 per cent cheaper to a Yen buyer must have influenced the sale.

The question now is whether we are at the start of a post-Brexit wave of takeovers of British firms by foreign buyers?  

John Haynes, head of research at Investec Wealth & Investment, says: “The devaluation of sterling will continue to provide interesting investment opportunities for overseas investors to buy UK assets, including central London property, at a discount.”

Haynes goes further: “If the last two weeks has taught us anything, it is that Britain is not as important to the world as the world is to Britain, hence the importance of retaining a global perspective when making investment decisions.”

At least in the ARM case the new owner has been sensitive to British concerns around jobs and investment, pledging to double the number of UK employees in the firm in the next five years, and increase the number of workers overseas. But pledges like that have been made before, not least by Kraft when it took over Cadbury in a hostile takeover in 2010.

Now analysts are already wondering which other company might suddenly be compellingly attractive to an Asian or US buyer. 

Lorne Daniel, an analyst with FinnCap, says: “The pound is low which means our companies are cheap and it looks like Softbank is getting in before Theresa May’s clampdown on foreign buyers of British gems.”

Other technology companies that could find themselves on a shopping list include satellite firm Inmarsat and Imagination Technologies, which, like ARM, licences chip technology.

Nevertheless the tech industry, influenced by its Californian gurus, is brilliant at seeing the silver lining. One positive consequence from the sale of ARM Holdings could be that it inspires the next generation of tech entrepreneurs to build another company with appeal around the globe. 

The financial backwash from the deal will also create a new generation of millionaire investors, who, in this low interest rate world, will be looking for new places in which to put their money.

Silicon Valley’s success has been built on the back of successive generations of billion dollar tech company sales, that keep pumping fresh financial blood through the arteries of the Valleyand its start-ups. The hope is that the Softbank deal will do the same for Silicon Fen, as Cambridge’s tech scene is styled. 

Suranga Chandratillake, a partner at VC investor Balderton Capital and a Cambridge graduate who founded blinkx, a search engine for video,in the university city in 2004, says: "The fact that this incredible talent is remaining in the country is huge, and will trickle down into technology entrepreneurship. Much like the famous PayPal mafia, the talented technologists at ARM are now more likely to found their own technology startups on home shores.” 

“When HP acquired Autonomy, which was the last big acquisition to take place in Cambridge, a similar pattern of employees-becoming-entrepreneurs emerged. So this is not a case of a foreign investor robbing ARM of its independence, but more akin to Japanese money helping to bankroll a European tech boom.”

For the UK’s grieving technology sector, let’s hope that turns out to be the case.

 

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