As a result of SoftBank Group's influence on underwriters asking for a position, chip manufacturer Arm signed up a total of 28 banks for its massive IPO without providing them with details on fees, according to individuals familiar with the situation.
However, it is rare for a firm to fail to inform underwriters of an approximate proportion of the offering they would get as they're cut, according to the sources. Usually, the fees banks will get in an IPO are decided at its conclusion, the sources added.
SoftBank intends to withhold information about the fee arrangement untill one or several days prior to the pricing of Arm's anticipated September IPO. Before outlining their fee structure, SoftBank can have a clearer understanding of how well the banks are handling the IPO's investor road show by that time, based on the sources.
The lead underwriters of the IPO, Goldman Sachs, Barclays, JPMorgan Chase, and Mizuho Financial Group, along with other banks making up the IPO syndicate, agreed to it because they want to play a part in the biggest US stock market listing ever since Rivian Automotive, the electric vehicle maker, was listed in 2021, which raised 13.7 billion dollars.
Based on the sources, the banks anticipate receiving fees on Arm from 1.5 to 2.5 percent of the 6 to 7 billion dollars' offering, and a smaller portion of the incentive fees, in accordance with prevailing market rates. Also predicted is that the four main underwriters will receive around 60% of the fees.
SoftBank has in the past withheld information about fees in famous capital market deals that draw underwriters' attention, so this type of pricing structure is not unheard of. It also kept the fee details ambiguous about its stock sales of $21 billion at US wireless provider T-Mobile in 2020 until the very end.
Undoubtedly, the banks involved in Arm's IPO see their task as a component of a larger relationship with the company that benefits them in several ways. Additionally, some of them helped SoftBank get an 8.5 billion dollars margin loan, which was secured by a 75-percent stake in Arm. It was impossible to instantly know how much the banks would gain from that loan.
Broadly speaking, SoftBank frequently uses investment banking services since it invests in startups and acquires and sells firms.
In general, the market for fresh listings has been muted for most of the time during the past two years, but banks are now clamoring for IPO work in the wake of the Russian invasion of Ukraine and also the rise in rates of interest.
According to data source Dealogic, banks have made around 3.4 billion dollars of IPO fees worldwide so far this year, a decrease of 21.3% compared to the same period of last year.