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NVIDIA Acquires Arm For $40B

M&A | ANNOUNCEMENT DATE: 13 SEP 2020
WRITTEN BY | 16 Sep 2020
NVIDIA Acquires Arm For $40B
M&A

💵 Acquisition

  • California-based gaming tech provider NVIDIA has entered into a definitive agreement to acquire Cambridge-based hardware and software design company Arm from multinational conglomerate SoftBank for up to $40B (excluding Arm’s IoT Service Group business)

  • The total consideration of $40B includes

    • $21.5B of NVIDIA common stock

    • $12B of cash, which includes $2B paid at signing

    • $1.5B in equity to Arm employees, with 44.3m of its shares to be issued post-closing

    • $5B earn-out to SoftBank paid in cash or shares based on Arm’s performance after the acquisition

  • The transaction has already been approved by boards of directors of NVIDIA, SoftBank, and Arm. However, the deal is still subjected to various customary closing conditions and is expected to close in ~18 months

  • Arm excluding IoT Products Group generated $1.8B TTM Revenue and $0.6B TTM EBITDA (35% EBITDA margin) as of March, 2020

    • To compare with NVIDIA results: $10.9B Revenue and ~$3.3B EBITDA (30%) for FY2020

  • The deal is expected to be immediately accretive to NVIDIA’s non-GAAP gross margin (62% vs +90%) and non-GAAP earnings per share

  • According to NVIDIA, the strategic rationale behind the deal includes:

    • cross-selling opportunities — offer Arm’s customer’s network access to NVIDIA’s products in mobile and PCs space

    • building data center platform based on Arm technology

    • knowledge sharing — bringing NVIDIA’s investment in software and technology to the benefit of Arm

Valuation multiples w/o Earn-Out with Earn-Out
EV / Revenue 19.4x 22.2x
EV / EBITDA 55.6x 63.5x

📈 Arm Financial Performance

  • Arm’s revenue for the first quarter of the financial year 2021 accounted for $457m, demonstrating a 9.3% increase compared to the $418m in the first quarter of the financial year 2020

  • In the first quarter of the financial year 2021, Technology licensing revenue decreased from $125m to $122m (-2.4%) year on year. Arm expects that if economic conditions improve, most of these customers will resume licensing Arm technology

  • Technology royalty revenue increased to $42m (17.5%) year on year. The main reason for that is the increase of shipments of 5G smartphones and networking equipment by the licensees

🎲 Products

  • The arm is a tech company that creates mobile processors’ architecture and design, which could then be licensed by other chips producing companies

    • Most mobile and handheld manufacturers use Arm’s processors as CPU, including Apple, HTC, Nokia, Sony Ericsson, and Samsung

    • Arm’s designed processors are also used in such consoles as Nintendo Switch, PlayStation Vita, and Nintendo 3DS

  • The deal with NVIDIA will allow Arm to increase its business output and expand its library with NVIDIA’s technology, as well as venture into AI research

    • At the same time, Arm’s general business model of open-licensing and customer neutrality would remain intact, as well as its branding and name

  • As for NVIDIA, the transaction will help the company to establish its presence in the UK and also venture into AI research

📈 NVIDIA Financial Performance

  • Currently, NVIDIA is a leading GPU vendor for PC gaming, with 200 million games run on GeForce GPUs. The company is also actively expanding through gaming laptops production and cloud gaming solutions

  • During NVIDIA’s second quarter of FY’21, which ended on August 24:

    • The company’s total revenue reached $3.87B, up 50% year over year, surpassing the $3.65B projections

    • Its gaming segment went up 26% year over year, reaching $1.65B

  • In FY’20, gaming made up 51% of NVIDIA’s total revenue, bringing $5.52B to the company — a three-year CAGR of 11%

Source: NVIDIA quarterly presentation Q2 FY’21

SOURCE: ARM, VENTUREBEAT, NVIDIA

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LATER VENTURE
SoftBank
  • Established in 1981

  • Headquarters — Tokyo, Japan

  • Team of 80,000+ employees

  • Founded by —  Masayoshi Son

  • Technology-focused multinational conglomerate holding company

  • Latest annual report

NVIDIA
  • Established in 1993

  • Headquarters — Santa Clara, California, United States

  • Team of 13,000+ employees

  • Founded by —  Jensen Huang, Curtis Priem and Chris Malachowsky

  • Multinational technology company

  • Annual Revenue’20 is $10.92B with Adjusted EBITDA of $4.11B

  • Latest quarterly presentation

Arm
  • Established in 1990

  • Headquarters — Cambridge, UK

  • Team of 6,000+ employees

  • Founded by Jamie Urquhart, Mike Muller, Tudor Brown, Lee Smith, John Biggs, Harry Oldham, Dave Howard, Pete Harrod, Harry Meekings, Al Thomas, Andy Merritt and David Seal

  • Semiconductor and software design company

  • The deal presentation