Over the last 24 hours, news reports have surfaced claiming that the $40 billion Nvidia-Arm merger, which is one of the most expensive tech deals ever, is in jeopardy. Due to regulatory pressures, Nvidia is reportedly poised to exit the market. What would it mean for technology M&A if this deal falls through?
Let’s not forget that Visa recently canceled a $5.3 billion plan to buy Plaid after the US Justice Department conducted a more thorough investigation that found the bank card to be too tight. Last month, the United Kingdom’s antitrust authority said that Microsoft’s proposed $20 billion acquisition of Nuance Communications had been halted. That contract is still in limbo while the company determines what to do with it, and the country’s Competition and Markets Authority (CMA) may launch a probe as well.
It’s worth remembering that EU officials approved the contract last month with no issues.
Now, Nvidia is under far closer regulatory examination, as global regulators are concerned that the combined company could disrupt the chip market’s aggressive stability.
According to Geoff Blaber, Chief Government Officer at analysis firm CCS Perception, this merger has faced significant regulatory hurdles since it was announced, and it’s not surprising that Nvidia has decided to walk away.
“From the start, the Nvidia–Arm transaction has been subjected to great scrutiny and stress, so it’s no surprise that it’s on the verge of collapsing. Finding a way to placate regulators while maintaining the value and justifying the $40 billion price tag has proven incredibly tough,” Blaber said.
He went on to say that the company might try another exit, but that it wouldn’t offer the same rate of return to investors as the Nvidia sale. “It has also proven to be disruptive to Arm and its ecosystem in the process.” An IPO is another option, but it is unlikely to provide a comparable return to Softbank (Arm’s largest investor).”
Patrick Moorhead, founder and chief analyst at Moor Perception & Methods, agrees that it puts Arm in a more difficult financial position, but he believes Nvidia would emerge relatively undamaged, even if it was unable to acquire the company it need.
“Without Nvidia’s capitalization, Arm will have to file for an IPO and will be a marginally weaker company.” It’s enterprise as standard for Nvidia. If the sale falls through, Nvidia will receive an architectural license, which means it will be able to design its own customized CPUs without paying a license fee, putting the company in good shape regardless of what happens with the deal.
That could be a big part of why Nvidia decided 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 putting the $40 billion into other areas of investment to drive development sooner or later.
It’s possible that this is a one-off circumstance 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 large tech, it appears as if there’s more at stake than one firm becoming dissatisfied with a bureaucratic process.
There has been talk of governments scrutinizing tech deals more closely than they have in the past, but with the EU all but rubber stamping the Microsoft-Nuance deal, it may come down to the mechanics of each deal, the companies involved, and, most importantly, the perceived impact on competitive stability.