Over the past 24 hours, there have been reports that the $40 billion Nvidia-Arm deal is in danger. The company is ready to walk away due to regulatory pressure. If this deal falls apart, what does it mean for tech M&A?
Last year at this time, Visa shut down a $5.3 billion deal to acquire Plaid after the U.S. Justice Department gave it a closer look than made the credit card giant comfortable. The U.K.'s antitrust watchdog announced last month that it was holding up Microsoft's proposed acquisition of Nuance Communications. There is a chance that the country's Competition and Markets Authority will open an investigation if the deal is not changed.
The deal was cleared by EU authorities last month.
International regulators worry that the combined companies will shift the competitive balance in the chip market.
The chief executive officer of analyst firm CCS Insight says that it is not surprising that Nvidia would walk away from the deal.
The deal is in danger of collapsing because of intense scrutiny and pressure from the start. Blaber said finding a way to appease regulators while maintaining the value and justifying the $40 billion price tag has been overwhelmingly challenging.
He added that the company could try an alternate exit, but it won't provide the same rate of return for investors. An IPO is not likely to provide a comparable return to Softbank.
2021 will be a calmer year for semiconductors and chips (except for Intel)
Patrick Moorhead, founder and principal analyst at Moor Insight & Strategies, agrees that it puts Arm in a more difficult financial position, but he sees Nvidia coming out pretty much unscathed, even if it was not able to get the company it wanted.
For Arm, it means an IPO and a slightly weaker company. It's business as usual for Nvidia. If the deal falls apart, the company will get an architectural license, which will allow it to create its own custom CPUs, without paying a license fee.
That could be a reason why Nvidia decided it was no longer worth the effort, since it could put that$40 billion into other areas of investment to drive growth in the future.
It could be that this is a unique situation and that it doesn't have much impact on the broader M&A landscape, but as we see more careful oversight of deals and the ongoing antitrust efforts in the U.S. involving big tech, it certainly is.
With the EU all but rubberstamping the Microsoft-Nuance deal, it could depend on the mechanics of each deal, the companies involved and the perceived impact on competitive balance.