PA ANALYSIS: Expect more UK deals but not quite like ARM

Added 18th July 2016

A vote of confidence in the UK is how a number of commentators, including new prime minister, Theresa May referred to SoftBank’s bid for microchip manufacturer, ARM Holdings.

PA ANALYSIS: Expect more UK deals but not quite like ARM

But, as IG market analyst, Joshua Mahony, pointed out, it also highlights the risk that “there may not be much left by the time the pound resurfaces”.

The questions on investors’ minds now though are twofold: how much of this is Brexit-related and is there more M&A is to come?

First ARM then the rest

Before trying to extrapolate any lines from the deal between SoftBank and ARM, it is useful to place it in a broader context.

As Alliance Trust analyst, Adrian Bommelaer explained, there has been a significant amount of M&A activity within the global semiconductor space and, in this regard, the deal is an understandable continuation of that trend.

Also, while the 43% premium offered for the shares looks a very good price, valuing the firm at around 20 times next year’s EV sales and 50 times next year’s earnings, Bommelaer continued, it is not a fantastic deal as the firm’s prospects were already pretty strong.

“It has a very strong presence within the mobile phone market, but it has been making inroads into the internet of things. It is a de facto standard within the industry and the ecosystem is very strong.”

As for the Brexit point, as Hargreaves Lansdown Senior Analyst, Laith Khalaf pointed out, because only 1% of ARM’s revenues come from the UK, the falling pound has been accompanied by a strongly rising share price.

Indeed, he said: “As of close of play on Friday 18th July, ARM was 2% more expensive in Japanese Yen terms than on 23rd June, the day of the referendum.”

This is all a slightly long winded way of saying that SoftBank’s acquisition is likely less a vote of confidence in the UK and more a very strong vote of confidence in a high quality company with very good long term prospects.

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About Author

Geoff Candy

Group digital editor

Geoff Candy joined Portfolio Adviser as News Editor in May 2014. He has been a financial journalist and broadcaster since 2005 and, in that time has worked in both South Africa and the Netherlands, covering everything from high street retailers and construction companies to mining and insurance.



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