Merryn's Blog

ARM deal proves Britain is still a draw – but it’s not all good news

Softbank’s £24bn acquisition of ARM Holdings proves that post-Brexit Britain is just as good a place to do business as it was before the referendum. But the deal’s not all good news, says Merryn Somerset Webb.

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"Since Britain voted to leave the EU, there has been a tendency to be downbeat about the country's economic and industrial prospects," says an article in the FT today.

The article fails to mention that the FT has been one of the most downbeat of all, but it does go on to say that "the decision by the Japanese conglomerate SoftBank to spend £24bn on buying Arm Holdings seems in this light a welcome relief." It is.

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I have lost count of the number of people who have told me over the last few weeks that no one will ever invest in the UK again, that our brand is fatally wounded and that our only future is one of slow decline. The ARM Holdings deal makes it clear that this is hysterical nonsense.

It is true of course that ARM could be cheaper for SoftBank than it might have been before the vote (thanks to sterling weakness). But it isn't the case that it is picking up a trophy asset on the cheap; SoftBank is paying a 43% premium over last week's closing price for the firm (a whopping 24 times revenues) and in doing so is making what it calls a "big bet' on the UK.

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It also isn't the case that SoftBank will be stripping the good bits of the firm and whisking them abroad; SoftBank has promised to keep the head office here and to double employment.

Still, this isn't all good. This deal clearly isn't a Brexit baby as analysts at Hargreaves Lansdown point out (ARM's share price had already risen 20% since the vote so even in yen has never looked like a bargain). But it could be the starting gun for more M&A activity in the UK.

It is now clear that the UK is politically stable and just as open for business and as good a place to do business as it was before the referendum (maybe better... we will see). It is also effectively on sale.

But the problem with this kind of M&A is, as Equitile fund manager Andrew McNally reminds us, that it comes with "de-equitisation" the ARM/SoftBank deal cuts the size of our equity market by £24bn and cuts UK investors off from yet another path to technology growth.

It may be that the money shareholders (and ARM staff in particular) get is reinvested in fabulous new technology businesses, but, if those businesses don't need capital and they aren't listed, growth isn't shared. And in the end nor is wealth. That's not good for capitalism.

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