The $40 billion Nvidia-Arm merger, which ranks among the most costly tech deals ever, has been reported to be in jeopardy in the last 24 hours. Due to regulatory pressure, Nvidia is reportedly considering exiting the market. What does it signify for tech mergers and acquisitions if this transaction falls through.
Let’s not forget that about this time last year, Visa canceled a $5.3 billion acquisition of Plaid after the US Justice Department gave it a closer look than the credit card giant was comfortable with. Microsoft offered $20 billion acquisition of Nuance Communications was stopped by the United Kingdom’s antitrust authorities. That agreement is still in limbo until the company determines what to do with it, and there is also. It’s worth mentioning that EU officials approved the pact without limitations last month.
Now, Nvidia is under considerably closer examination from international regulators, who are concerned that the combined company would upset the competitive balance in the chip market.
According to Geoff Blaber, CEO of analysis firm CCS Insight, this acquisition has encountered significant regulatory headwinds since it was disclosed, so it’s not a surprise that Nvidia decided to pull out.
“From the beginning, the Nvidia-Arm agreement has been subjected to great scrutiny and criticism, so it’s no wonder that it’s on the verge of collapsing. “Finding a solution to satisfy regulators while keeping value and justifying the $40 billion price tag has proven incredibly difficult,” Blaber added. He went on to say that the company may try another exit, but that it would not give investors the same rate of return as the Nvidia sale. “In the process, it has also proven to be disruptive to Arm and its ecosystem.” An IPO is another option, but it is unlikely to generate a comparable return to Softbank (Arm’s principal investor).”
Patrick Moorhead, founder, and chief analyst at Moor Insight & Strategies agrees that it leaves Arm in a worse financial situation, but he believes Nvidia will emerge relatively undamaged, even if it did not acquire the company it desired.
“For Arm, this implies an IPO and a firm that is bit weak without Nvidia’s capitalization. It’s business as usual for Nvidia. If the transaction falls through, Nvidia will receive an architectural licence, allowing it to “build its own unique CPUs without paying a licence price,” leaving the business in solid shape regardless of the outcome.
That could be a large part of why Nvidia felt it wasn’t worth the effort in the face of so much regulatory scrutiny, especially given it could have its cake and eat it too by investing the $40 billion in other areas to fuel future development.
It’s possible that this is a one-of-a-kind situation with little bearing on the broader M&A landscape, but given the increased scrutiny of deals and ongoing antitrust efforts in the United States involving major tech, it feels like there could be more here than one company fed up with the bureaucracy.
There has been discussion of governments scrutinising tech acquisitions more rigorously than in the past, but with the EU effectively rubber-stamping the Microsoft-Nuance agreement, it may come down to the mechanics of each deal, the firms involved, and, most importantly, the perceived impact on competitive balance.
