‘A very problematic market’: As Arm shuns London, tech investors question UK as an IPO destination
Billionaire Masayoshi Son, chairman and chief executive officer of SoftBank Group Corp., speaks in front of a screen displaying the ARM Holdings logo during a news conference in Tokyo on July 28, 2016.
Tomohiro Ohsumi | Bloomberg | Getty Images
The U.K. may be a great place to build a tech company — but when it comes to taking the crucial step of floating your business, the picture isn’t so rosy.
That’s the lesson several high-growth tech businesses have come to learn in London.
When Deliveroo went public in 2021, at the height of a pandemic-driven boom in food delivery, the company’s stock quickly tanked 30%.
Investors largely blamed the legally uncertain nature of Deliveroo’s business — the company relies on couriers on gig contracts to deliver meals and groceries to customers. That has been the subject of concern as these workers look to gain recognition as staffers with a minimum wage and other benefits.
But to many tech investors, there was another, much more systemic, reason at play — and it’s been cited as a factor behind chip design giant Arm’s decision to shun a listing in the U.K. in favor of a market debut in the U.S.
The institutional investors that dominate the London market lack a good understanding of tech, according to several venture capitalists.
“It’s not the exchange, it’s the people who trade on the exchange,” Hussein Kanji, founding partner at London VC firm Hoxton Ventures, told CNBC. “I think they’re looking for dividend-yielding stocks, not looking for high-growth stocks.”
“Two years ago, you could have said, you know what, it might be different, or just take a chance. Now a bunch of people have taken a chance and the answers have come back. It’s not the right decision.”
Numerous tech firms listed on the London Stock Exchange in 2021, in moves that buoyed investor hopes for more major tech names to start appearing in the blue-chip FTSE 100 benchmark.
However, firms that have taken this route have seen their shares punished as a result. Since Deliveroo’s March 2021 IPO, the firm’s stock has plummeted dramatically, slumping over 70% from the £3.90 it priced its shares at.
Wise, the U.K. money transfer business, has fallen more than 40% since its 2021 direct listing.
There have been some outliers, such as cybersecurity firm Darktrace, whose stock has climbed nearly 16% from its listing price.
However, the broad consensus is that London is failing to attract some of the massive tech companies that have become household names on major U.S. stock indexes like the Nasdaq — and with Arm opting to make its debut in the U.S. rather than the U.K., some fear that this trend may continue.
“It’s a known fact that London is a very problematic market,” Harry Nelis, general partner at VC firm Accel, told CNBC.
“London is creating, and the U.K. is creating, globally important businesses — Arm is a globally important business. The issue is that the London capital market is not efficient, essentially.”
A London Stock Exchange spokesperson told CNBC: “Arm is a great British company and a world leader in their field which we continue to believe can be very well served by the U.K. capital markets.”
“The announcement demonstrates the need for the U.K. to make rapid progress in its regulatory and market reform agenda, including addressing the amount of risk capital available to drive growth. We are working with regulators, Government and wider market participants to ensure U.K. capital markets provide the best possible funding environment for U.K. and global companies.”
The ‘B’ word
Brexit, too, has clouded the outlook for tech listings.
Funds raised by companies listing in London plunged by more than 90% in 2022, according to research from KPMG, with the market cooling due to slowing economic growth, rising interest rates, and wariness around the performance of British firms.
Previously-published figures for the first nine months of 2022 place the fall in European funds raised at between 76% and 80% annually, indicating a less severe decline than the U.K.’s 93%.
Hermann Hauser, who was instrumental in the development of the first Arm processor, blamed the firm’s decision to list in the U.S. rather than U.K. on Brexit “idiocy.”
“The fact is that New York of course is a much deeper market than London, partially because of the Brexit idiocy the image of London has suffered a lot in the international community,” he told the BBC.
Cambridge-headquartered Arm is often referred to as the “crown jewel” of U.K. tech. Its chip architectures are used in 95% of the world’s smartphones.
SoftBank, which acquired Arm for $32 billion in 2016, is now looking to float the company in New York after failing to sell it to U.S. chip-making giant Nvidia for $40 billion.
Despite three British prime ministers lobbying for it to list in London, Arm has opted to pursue a U.S. stock market listing. Last week it registered confidentially for a U.S. stock market listing.
Developing research and development for cutting-edge chips is a costly endeavor, and Japan’s SoftBank is hoping to recoup its seismic investment in Arm through the listing.
Arm is expecting to fetch roughly $8 billion in proceeds and a valuation of between $30 billion and $70 billion, Reuters reported, citing people familiar with the matter.
Arm has said it would like to eventually pursue a secondary listing, where it lists its shares in the U.K. following a U.S. listing.
Is an IPO everything?
Still, regulators have sought to attract tech companies to the U.K. market.
In December, the government rolled out a set of reforms aimed at enticing high-growth tech firms. Measures included allowing firms to issue dual-class shares — which are attractive to founders as they grant them more control over their business — on the main market.
Last week, the Financial Conduct Authority also proposed simplifying the standard and premium equity listing segments as one single category for shares in commercial companies.
This would remove eligibility requirements that can deter early-stage firms, allow for more dual-class share structures, and remove mandatory shareholder votes on acquisitions, the regulator said.
Despite the negative implications of Arm’s decision, investors largely remain upbeat about London’s prospects as a global tech hub.
“Fortunately for us, it doesn’t mean that the UK is not attractive to investors,” Nelis told CNBC. “It just means that where you IPO is just a financing event. It’s just a place, a venue where you get more money to grow.”
Artificial intelligence chipmaker Cerebras Systems said on Friday that it’s withdrawing plans for an IPO, days after announcing that it raised over $1 billion in a fundraising round.
In a filing with the SEC, Cerebras said it does not intend to conduct a proposed offering “at this time,” but didn’t provide a reason. A spokesperson told CNBC on Friday that the company still hopes to go public as soon as possible.
Cerebras filed for an IPO just over a year ago, as it was ramping up to take on Nvidia in an effort to create processors for running generative AI models. The filing revealed a heavy reliance on a single customer in the United Arab Emirates, Microsoft-backed G42, which is also a Cerebras investor.
In its prospectus, Cerebras said it had given voluntary notice to the Committee on Foreign Investment in the United States about selling shares to G42. In March, the company announced that the committee had provided clearance.
Since its initial filing to go public on the Nasdaq, Cerebras has shifted its focus away from selling systems and more toward providing a cloud service for accepting incoming queries to models that use its chips underneath.
The announced withdrawal comes three days into a U.S. government shutdown that’s left agencies like the SEC operating with a small staff. In a plan for a shutdown published in August, the SEC said its electronic system EDGAR “is operated pursuant to a contract and thus will remain fully functional as long as funding for the contractor remains available through permitted means.”
On Tuesday, Cerebras said it had raised $1.1 billion at a valuation of $8.1 billion in a private funding round. At the time, CEO Andrew Feldman said that the company still wanted to go public, rather than continue to raise venture capital.
“I don’t think this is an indication of a preference for one or the other,” he told CNBC in an interview. “I think we have tremendous opportunities in front of us, and I think it’s good practice, when you have enormous opportunities, not to let them fall by the wayside for lack of capital.”
Feldman thought the original prospectus from last year was out of date, especially considering developments in AI, the spokesperson said on Friday.
Well heeled technology companies have been quickly signing up for additional infrastructure to handle demand. On Tuesday CoreWeave, which rents out Nvidia chips through a cloud service, said it had signed a $14.2 billion agreement with Meta. ChatGPT operator OpenAI said last week that it had committed to spending $300 billion on cloud services from Oracle.
The government shutdown did not factor into Cerebras’ decision, the spokesperson said.
An employee arranges a salad dressing display at an Amazon Fresh grocery store on December 12, 2024 in Federal Way, Washington.
David Ryder | Getty Images
Amazon is closing four more Fresh supermarkets in Southern California as the e-commerce giant continues to focus its grocery strategy around Whole Foods and delivery.
The closures will take place in the coming weeks, Amazon confirmed to CNBC. They follow the shuttering of four other U.S. locations in recent months, in Washington, Virginia, New York and a Los Angeles suburb.
“Certain locations work better than others, and after an assessment, we’ve made the decision to close these Amazon Fresh locations,” Amazon spokesperson Griffin Buch said in a statement. “We’re working closely with affected employees to help them find new roles within Amazon wherever possible.”
At one Fresh supermarket in La Verne, California, employees were told to gather for an all-hands meeting on Wednesday, according to an internal message viewed by CNBC. They learned at the meeting that the store would close in mid-November, and that employees would receive a severance package, according to a person familiar with the matter who asked not to be named because the details were confidential.
The other three stores that are closing are in cities of Mission Viejo, La Habra and Whittier.
Last week, Amazon said it intends to close 14 Fresh grocery stores in the U.K. and convert its five other locations there into Whole Foods markets.
Amazon said it regularly evaluates its store portfolio, which can lead to opening, reopening, relocating or closing certain locations. In the U.S., the company has more than 60 remaining Fresh stores. Last year, the company removed its “Just Walk Out” cashierless technology from the stores. It’s also been culling its footprint of Go cashierless convenience stores.
Amazon has been determined to become a major grocery player for nearly two decades. The company launched Amazon Fresh in 2007, then a pilot project for fresh food delivery, before acquiring upscale chain Whole Foods for $13.7 billion in 2017, its biggest purchase on record.
Amazon debuted its Fresh grocery chain in 2020, with an eye toward mass-market shoppers. The rollout has been turbulent since its early days.
The company opened a flurry of Fresh locations by 2022, but the expansion plans ran into CEO Andy Jassy’s widespread cost-cutting efforts as the company reckoned with the impact of rising interest rates and soaring inflation. In 2023, Amazon announced it would shut some Fresh stores and halt further openings temporarily as it evaluated how to make the chain stand out for shoppers.
While it’s closing Fresh stores, Amazon continues to “innovate and invest in making grocery shopping easier, faster, and more affordable,” Buch said. The company still maintains 500 Whole Foods locations and has opened mini “daily shop” Whole Foods stores in New York City.
On Wednesday, Amazon also launched a new “price-conscious” grocery brand that will be offered online and in its physical stores. And last month, Amazon expanded same-day delivery of fresh foods to more pockets of the U.S.
Jassy and other company executives have touted the success of sales of “everyday essentials” within its online grocery business, which refers to items such as canned goods, paper towels, dish soap and snacks. Jassy told investors at the company’s annual shareholder meeting in May that he remains “bullish” on grocery, calling it a “significant business” for Amazon.
WATCH: Amazon grocery could be a trojan horse to more revenue
Technology
Quantum stocks Rigetti Computing and D-Wave surged double-digits this week. Here’s what’s driving the big move
Inside Google’s quantum computing lab in Santa Barbara, California.
CNBC
Quantum computing stocks are wrapping up a big week of double-digit gains.
Shares of Rigetti Computing, D-Wave Quantum and Quantum Computing have surged more than 20%. Rigetti and D-Wave Quantum have more than doubled and tripled, respectively, since the start of the year. Arqit Quantum skyrocketed more than 32% this week.
The jump in shares followed a wave of positive news in the quantum space.
Rigetti said it had purchase orders totalling $5.7 million for two of its 9-qubit Novera quantum computing systems. The owner of drugmaker Novo Nordisk and the Danish government also invested 300 million euros in a quantum venture fund.
In a blog post earlier this week, Nvidia also highlighted accelerated computing, which it argues can make “quantum computing breakthroughs of today and tomorrow possible.”
Investors have piled into quantum computing technology this year, as tech giants Microsoft, Nvidia and Amazon have embraced the technology with a wave of new chip announcements, multi-million dollar investments and research plans.
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