Monday 18 July 2016

ARM is gone - sometimes M&A is a good thing

Softbank bought ARM today £24 billion.


It is a great price, but as ever the UK model is to build and sell. It is almost impossible in the UK to become the dominating player in an industry - it makes Vodafone and GSK almost unique.


It also shows, whatever the naysayers in the city tell everyone, that M&A works. If you are a small company and growing, you need to bet the farm on overseas growth and acquisitions; just like Softbank have done.


If you remain an organic growth focused business the chances of you dominating your chosen sector(s) globally is tiny.


Yet the same people who bemoan that Brits sell-out to the world all the time (this is true, Brits have a life view very different to Yanks or others in that a few millions is enough, no need for billions); also bemoan that M&A is only for the Banksters and serves no purpose.


The counter-factual here is what if ARM had used its shareprice to buy into a new business that really scaled it - but it never did. Instead it made a whole host of small acquisitions in businesses aligned with itself.


SO, like many before it, it is gone to the Japanese. Hopefully they can keep the mainstay of the business in the UK for the foreseeable.

25 comments:

Anonymous said...

I've always wondered why British companies (generally at least - BP being an exception that comes to mind) aren't the ones buying other companies to create British based mega conglomerates.

Reminds me of the uproar when Kraft announced it's intentions to purchase Cadbury. I guess it's just the British way to just moan a bit and let life happen.

James Higham said...

You didn't consider placing a bid, CuS?

andrew said...

I would point out that BP / Shell / GSK are all organisations that are quite 'old'

I am not aware of the uk equivalent of Tesla / Facebook / Google even on a national never mind eu scale - i.e. a co that has grown over the last 10-15 years.

Having said that I cannot think of a european co either.

Nick Drew said...

Hammond has been on the Beeb, saying what a wonderful endorsement this deal is for the attractiveness of doing biz in post-Brexit Britain

I am guessing that's why he is 'supporting' Hinkley, too

CityUnslicker said...

Andrew - well RBS tried it!

Prudcential is old too but grew rapidly in the last 20 years. WPP I guess is old but grew to conquer the world.

They are few and far between through, British management just sell out early doors (and quite right in many respects, if you have £50 million what difference is that really to £500 million if that is going to take you another 10 years of hard labour to amass?)

Blue Eyes said...

Comparative advantage;
Comparative advantage;
Comparative advantage.

Brits are good at innovating. Japanese are good at managing huge megacorps. Sounds like a good match. Notice that Softbank have said that ARM will continue to be in Cambridge and will be expanded.

Good news all round, I just hope I had decent exposure to this via the various funds I invest it!

dearieme said...

"Brits have a life view very different to Yanks or others in that a few millions is enough, no need for billions": that's an interesting insight. Why don't you write a whole post on it someday?

P.S. One thing I don't understand about Yanks is that so many of them claim to be Christian, and yet so wholeheartedly ignore much that Jesus reportedly said. Eye of the needle and all that.

Nick Drew said...

so wholeheartedly ignore much that Jesus reportedly said

but they find plenty else they like: e.g. that everything on earth was put there for mankind to exploit

as an old oilman, I used to have a quiet chuckle at those of my Texas colleagues who were fundamentalists/creationists, but whose everyday geology & geophysics depended upon a rather different explanation ...

(mark you, so did several others of my US colleagues)

Anonymous said...

"Brits have a life view very different to Yanks or others in that a few millions is enough, no need for billions"

That's native or aboriginal Brits. I've not noticed Philip Green or the Candy brothers take that view.

DJK said...

BE: Read Ricardo's original paper. Comparative advantage works on the assumption that trade is balanced, which is clearly not the case.

The point about ARM is that it was the one example of a successful world class technology company. Compared to other European countries, the UK has a dearth of world class companies. Right now, there's really only Rolls-Royce and GSK left.

And as for Brits being poor at managing complex organisations, the fact that ARM could grow from the dregs of the BBC micro to powering most of the world's smart devices shows that that is not true.

Blue Eyes said...

In what way is "trade" "not balanced" in this case?

All you economic nationalists need to explain why a company's owners should not sell their company to whomever they should like to, and tell us what business it is of your to object. Then explain what the downside is of a successful company being owned by "foreigners" is.

My guess is that the people who are most cross are those who feel like they missed out on a tidy profit.

Steven_L said...

I do wonder about foreign companies buying up assets with printed money. Give it a few months and the BofJ will be buying the paper used to fund this deal.

Maybe we should get the BofE to hoover up all our corporate bonds, then our boys can go and buy all the decent IP up in the cash strapped EU?

Blue Eyes said...

Do you mean the cash-strapped Eurozone which is printing so much money that it has run out of bonds to buy?

Anonymous said...

Hoping the jobs stay in the UK is about all that we can do.The French wouldn't allow it, but then the French haven't got a company like ARM. And neither have we - the intellectual property is now owned by Japan.

Let's throw my favourite US-is-dooomed pundit Fingleton in the mix again :

http://www.forbes.com/sites/eamonnfingleton/2015/04/01/this-is-no-april-fool-japan-is-beating-the-pants-off-the-united-states/3/#2615f2317986

"Examples of Japanese manufacturing leadership run the gamut. They are particularly important where they are least visible – in so-called producers’ goods. A notable example is Tokyo-based Minebea’s lock on miniature bearings, which are essential in everything from miniature disk drives to dentists’ hyper-fast drills. Meanwhile at the other end of the scale IHI Corporation monopolizes the world supply of giant, highly precisely engineered spindles for the largest jet engines. In short it is now Japan not America that boasts the most capital-intensive, knowhow-intensive manufacturing.

In many industries Japan has achieved layer-upon-layer of dominance. Take telecommunications hardware. Not only does Japan dominate the manufacture of optical fibers but it enjoys a near monopoly in laser diodes, which are signal-emitting devices required in optical fiber systems. At an even more fundamental level, Japan enjoys a monopoly on gallium arsenide, a crucial semiconductor material essential in making laser diodes. (In a useful bonus point, laser diodes have countless other uses, such as in barcode readers, camera rangefinders, and DVD players.)

One final question: if the Japanese economy is doing so well, why has Prime Minister Shinzo Abe been working so hard to “reflate” the economy? Essentially, like so much of the surface of Japanese life, his Abenomics program is theater. By definition if Japan is trying to feign illness, it also has to pretend to be trying to get well."

Blue Eyes said...

Japan's main problem is population decline. Anyone who has been there will know that the Japanese are well ahead on living standards. A very comfortable lost two decades...

The ARM deal is not so much about existing "IP" directly, but more that ARM is an IP factory. Which is why they cannot and will not move production, and will not faff about too much with the structure.

So can anyone now tell me why we should be upset about this?

CityUnslicker said...

well I am not upset BE, just noting that if they had been a bit more ambitious they could have been the aggregator, not the aggregated.

Blue Eyes said...

I got that CU, I was challenging the readership :)

Roderick said...

Do we know who the current shareholders of ARM are? I had the idea they were venture capitalists, ie those whose natural instinct is to grow the target company and then sell it. ARM is not exactly a British company in that case.

Electro-Kevin said...

Japan has the right idea on population. It is gearing up (down) for the march of the robots.

We could have been doing the same instead of inviting millions of uber drivers who are going to be displaced by automation.

Electro-Kevin said...

ARM is a product of Cambridge University, which, along with Oxford, UCL, Imperial and other research centres such as Southampton and Warwick have created this business.

The taxpayer has contributed to this and deserves a fair deal, if not a good say in the matter.

As always with these things I am concerned about where the corporation tax is paid and that future jobs and projects are nurtured.

Anonymous said...

@BE - Japan's main problem is NOT population decline. (Main problem is China, which will also be the USA's main problem quicker than most think).

From the linked Fingleton piece:

"What Western observers have not understood is the population decline is a fundamental national policy. That policy can be traced back to the Eugenic Protection Acts of the late 1940s, which initiated a program of population reduction. That program arose out of a concern that, shorn of empire, Japan faced a major food security problem. At a stroke Japanese officials stopped dead in its tracks a huge baby boom which took hold between 1946 and 1948. Ever afterwards Japan has enjoyed – yes, that is the appropriate word – a low birthrate. Although the program’s rationale and workings may not have been recognized in the West, they are fully understood in the East and both Singapore and China went on to formulate similar policies."

China's done pretty well economically with severe population control. We can keep "growing our economy" with Polish baristas (while per capita GDP is static), but in a country which only produces 60% of the food we need, that's not a good idea.

A nation is more than the sum of its GDP, BE, and human beings are not fungible units of production - as Germany is finding out, and as the last 50 years of UK history should have taught us.

Blue Eyes said...

Anon, China is demographically shafted. You need to understand basic arithmetic to get this, so I won't expect you to understand.

The question that economists ask is whether China will get rich before it gets old. Japan managed, but can China do the same? Wait and see.

This thread was not about population control, and is certainly not about racial supremicism. Please go and find another rock to slither under.

Steven_L said...

Do you mean the cash-strapped Eurozone which is printing so much money that it has run out of bonds to buy?

Has it? I must admit I haven't kept up with the bailouts and money printing for a while now.

I'm perhaps confusing all those unemployed Greeks and Spanish youths with the EZ as a whole when I say cash strapped.

Are they buying car loans yet? I note Ford's APR is a lot cheaper than VAG / BMW etc.

Anonymous said...

That's very original, BE. Insults usually imply lack of an argument.

"this thread was not about population control"

You're the one bringing up population and demography. I merely respond. If you don't like debate don't post about population, or turn comments off.

"and is certainly not about racial supremicism"

Where do you see that? Do tell. (I'll ignore the typo/spelling)

Wildgoose said...

Anon, Blue Eyes always responds with insults when anything challenges his rigid point of view.

As for China, it has far less of a demographic problem than Japan, or especially, South Korea. They may have had a one-child "policy", (actually only for those in Cities and who were not single children themselves), but there were so many such exceptions that most couples actually have two children - China's population is stabilising, not crashing. But of course, you'd have to under basic arithmetic to understand this....