July 18, 2016

Brexit cannot stop M&A activity in the semiconductor industry

Despite the U.K.'s market volatility following the Brexit vote, Japan-based SoftBank will acquire Cambridge-based ARM Holdings.

In the wake of the Brexit vote and subsequent decline of the pound in the U.K., many international investors wondered how this event will impact future merger and acquisition activity. Despite this worldwide concern, the Japan-based SoftBank Group announced it will acquire Cambridge-based ARM Holdings in an estimated $31 billion deal, pending regulatory approval.

Is this deal a sign that the U.K. economy will survive, despite the Brexit setback?
SoftBank, a multinational telecommunications and internet corporation, explained that ARM, an international semiconductor and software design company, offers a technology-oriented culture and long-term vision that will work well with its own. With these shared values and broad industry reach, the combined company will continue to drive the next wave of innovation in the U.K. and beyond.

Masayoshi Son, chairman and chief executive of SoftBank, told reports that he has admired ARM for the past decade and is overjoyed to welcome the company to SoftBank. ARM designs microchips used by Apple, Samsung and Huawei smartphones, making it an excellent addition to Son's organization. In light of the deal's announcement, ARM's stock surged by 45 percent on the London Stock Exchange, which is a hopeful sign for future foreign investors, according to BBC News.

Following this announcement, Britain's Treasury even explained that this deal shows that "Britain has lost none of its allure to international investors" and that the U.K. is truly ready for any M&A activity coming its way in the next few months, despite the market volatility surround the recent referendum, according to CNBC.

"The strategic importance of the ARM technology and model in our view is one which may attract additional suitors. It is not merely a deal reflective of sterling weakness in our view," Neil Campling, head of global TMT research at Northern Trust Securities, wrote in a note Monday. "ARM is the disrupter in our view. With its dominance in mobile processors at the foundation, all things connected should drive significant growth in its total addressable market – ARM has legs for years."

Some skeptical about the timing of the deal?
A few industry analysts are critical that this deal is timed too closely to the current devaluation of the pound against the Japanese yen. While Son insisted that this was not the case, he did state that he first met with the ARM chairmen to make his bid following the Brexit vote. To show his commitment to the deal and ARM, Son explained that he will double the company's current headcount in the next few years, even going so far as to make this proposition "legally binding" should he not hold up this end of the deal. ARM currently employs an estimated 4,000 employees.