With a massive tech deal under scrutiny in the U.S. and Europe, two financial advisory firms risk seeing a big pay day canceled.
Morgan Stanley and Raine Group LLC stand to lose millions in fees if regulators scuttle NVIDIA Corp.'s $38.59 billion semiconductor acquisition of Arm Ltd. from Japanese information technology conglomerate SoftBank Group Corp. The U.S. Federal Trade Commission filed suit to block the transaction on Dec. 2, noting Arm's market position as a chip designer for many firms and alleging that the deal risked stifling innovation in next-generation technologies. The deal already faced scrutiny by European regulators.
Although advisory fees have not been disclosed for the transaction, Mizuho Financial Group Inc. collected $146.3 million from Softbank in 2016 when the Japanese company acquired U.K.-based Arm for $31.49 billion. Mizuho was the only firm to report fees for that transaction, which included six other advisers consulting between Softbank, Arm and Softbank's UK subsidiary SVF HoldCo (UK) Ltd.
M&A adviser fees related to information technology deals typically do not exceed the $100-million mark. For example, Slack Technologies Inc. paid The Goldman Sachs Group Inc. $38.9 million in fees for advising on its $29.35 billion sale to salesforce.com inc., which closed in July. Meanwhile, Nuance Communications Inc. is paying Evercore Inc. $63.0 million in fees and $7.0 million for a fairness opinion for advising on Nuance's pending $19.80 billion sale to Microsoft Corp.
According to S&P Capital IQ data, Softbank has worked with Raine Group on eight deals, including Softbank's 2016 acquisition of Arm and its canceled $28.50 billion bid for WeWork Inc., which was terminated in April 2020.
Regulators challenging the Arm deal fear it would lead to the U.K. chipmaker losing its unique market position as the designer of tech used by many other companies, including Apple Inc., which began using custom Arm chips in its Mac computers in 2020.
Unlike Nvidia and other hardware companies that sell chips and devices, Arm makes money by licensing patented designs for chips and electronic components to hardware-makers that pay a licensing fee and royalties on Arm designs they build into their own products.
Should regulators block Arm's sale to Nvidia, both Apple and Qualcomm Inc. could be interested in the company, analysts previously told S&P Global Market Intelligence. Qualcomm CEO Cristiano Amon in September indicated that his company would be interested in an Arm investment if it helped to forestall an Nvidia transaction.