Arm’s move to New York is a bitter pill to swallow -- London must learn a vital lesson

(ES Composte)

Britain’s flagship tech company - Arm - has opted for an initial public offering on New York’s Nasdaq . The news is a blow to the UK tech sector and the City - but in truth, the odds were never in London’s favour.

Arm’s decision has also been coming since 2016, when then-Chancellor Phillip Hammond allowed Arm to be sold to SoftBank – a sale which faced virtually no scrutiny and allowed an important national asset to be sold.

Arm’s story does not sit in isolation. Many UK-based chip companies have been sold to foreign organisations - Dialog Semiconductor, Dynex and Wolfson - and all have been to Britain’s loss.

The UK’s shortcomings are even starker when compared to approaches taken by the largest tech ecosystems in the world. There is no way that China or the US - particularly following the passage of the 2022 CHIPS Act - would allow for a similar sell-off of assets of such critical significance to their national economies.

Arm’s decision adds urgency to the need for the UK government to publish its long-awaited semiconductor strategy - in January, I and other tech industry leaders set out the importance of this matter in an open letter to the Prime Minister.

There is no denying the Arm story is a blow to the industry. A single Arm listing would have been a game-changer. Given the size and scale of the company, more research and technology analysts would begin to focus more on the London markets.  With some successful tech IPOs over the past year on the public markets, the momentum behind an Arm listing would have been considerable.

But this is more than a story of losing one semiconductor firm to the US market. Irish building materials supplier CRH also opted to move its primary listing from London to New York last week.

There are reasons to be optimistic. London still represents a prime offering to investors and IPO hopefuls. But business and government alike must move with pace and intention if its fortunes are to turn around.

More than 18 months ago, Lord Hill put forward his recommendations to review the UK listing regime. Proposals were tangible and some have been implemented – such as relaxing rules around SPACs to encourage a more competitive environment – but the government, in tandem with the FCA, must go further, faster.

Arm was supposedly deterred by a rule that forces UK-listed companies to disclose all related-party transactions - a requirement meaning SoftBank would have had to reveal dealings with other companies they have a stake in.

While the FCA has a commendable reputation for encouraging transparency, this must not come at the price of discouraging innovation and growth. On top of the implementation of Lord Hill’s recommendations, readdressing the risk averse investment psyche of British investors will go a long way to enhancing the LSE’s status as an attractive listings destination. This will take time to evolve, but, in the meantime, there will be disappointments like Arm.

With the Prime Minister set on a new ‘innovation agenda’ that puts tech at the heart of UK economic growth, the public markets – and the tech sector at large –- can’t afford to keep missing out.

Russ Shaw is founder of Tech London Advocates and Global Tech Advocates and co-founder of London Tech Week