The purchase of ARM Holdings by Softbank poses questions for the future of Britain’s technology sector. How will analysts adapt to the new landscape? What impact will the move have on recruitment and employer brand? Brittany Golob analyses the acquisition

On 18 July, one of Britain’s biggest, most prominent and most successful technology companies, ARM Holdings announced that it had been acquired by Japanese telecommunications company SoftBank. The initial reaction to and speculation about the news faded. Yet, the impact of this move will be longlasting on the technology sector in the UK and on the employees of the former ARM Holdings.

The first thing the acquisition impacted was tech investment in the UK. As one of only two FTSE 100-listed British tech firms, ARM’s sudden disappearance from the market caused more than just ripples across the investment and analyst landscape.
For analysts following technology, ARM Holdings may have been the primary focus. Without it, analysts will have to follow alternate sectors or organisations.

Gareth Jenkins, managing director of technology research at UBS, points to the situation with the sale of O2 to Telefónica in 2006 which caused a gap in the market for analysts. In this case, other companies were able to achieve cut-through with analysts that they previously had trouble achieving. “There was definitely an increased focus on the remaining stocks when O2 was acquired. All of a sudden, the focus just poured into Vodafone because they were the only remaining listed UK mobile company. Another beneficiary was Carphone Warehouse, they definitely got more focus from the analyst community. That would be no different on any deal, but it depends what’s left.”

Following that sale, Jenkins says he had to look for other businesses to cover. “When you lose a large, important stock in your sector, you have to repoint your skillset and look at other things. Hypothetically, if a company like SAP was acquired, I don’t know what software analysts would do. Same thing where there’s one or two large stocks in that sector. You’d have to reengineer your skillset pretty quickly.”

For those following ARM Holdings, the lack of such a huge player will both pave the way for other companies – Sage, possibly, as it is the only remaining tech company in the FTSE 100 – and it will force tech analysts to shift their work to other sectors.
Without ARM Holdings, the British technology industry is now comprised largely of SMEs. The vibrant community in east London is complemented by digital hubs across Great Britain. The question remains if one of those companies can grow into the space left by ARM’s acquisition. But there is also hope that SoftBank’s interest in ARM Holdings will be a benefit to the international reputation of the sector as a whole and thus encourage future investment.

“This is a company that has attracted the best of world talent. Drawn to a feeling of belonging to something very special that has grown out of a small, perfectly-formed idea, in a uniquely British cocktail for innovation”

“There are a lot of reasons for optimism for technology companies and the communications services companies that support them,” CEO of tech communications company Whiteoaks, James Kelliher, says. “There is a very clear correlation between business having a good, strong profile internationally and the price that they get on exit.” But, he says, technology companies that are past the startup phase and are looking to increase investment or encourage acquisition should be thinking about their reputational communications earlier. He says a long-term focus of two or three years will help raise the profile of a business looking to expand. Anthony D’Alton, associate director at tech PR specialist Fieldhouse Associates, adds that the sale of ARM Holdings is somewhat contentious because it was one of Britain’s only homegrown tech giants while the sector in the UK is now seemingly unable to scale companies up consistently.

Guy Walsingham, managing director at Red Lorry Yellow Lorry, a B2B technology PR specialist, also expresses his optimism for the British tech industry. “Tech is a global business, whether you’re a startup who invested everything you have or an organisation like ARM with hundreds of thousands of customers worldwide.” He says that global footprint will allow companies to be more resilient, even in times of economic uncertainty.

The tech sector is also the recipient of governmental and non-profit interest and support over the past few years to help it grow – financially and in terms of infrastructure and employment. Programmes designed to encourage schoolchildren to learn technological skills have been backed by the government. BIMA,
the professional body representing Britain’s digital communications industry, also runs Digital-Day every year in which it takes tech firms into schools to give digital careers more exposure among schoolchildren.

“Technology companies operating in an environment in a country where governments are known to be supportive, financially and creatively, and creating a trading environment for them, is a very positive thing,” Kelliher adds. He says, however, that the primary thing tech companies need to grow is employees.

Encouraging digital skills like programming and technology is important in an educational context, but Kelliher says, companies are looking to universities and secondary schools to encourage students to build up non-technology based skillsets that can work in a tech environment.

That may be easier said than done for educational institutions seeking to keep up with the fast-paced industry. But the other consideration regarding ARM Holdings’ acquisition is to do with the employer brand of ARM itself and British tech in general. D’Alton says, “The immediate impacts will be small scale, perhaps a movement of talent or a reshuffling of ARM itself as it seeks to settle into its new ownership. However, in the long term, it might set the tone for the way British technology businesses define success, seeing them charge towards acquisition in the hope of collecting a big one-off payment. This is good for a small, select group of investors, but doesn’t help build a sustainable sector.”

For the company itself, there may be some challenges as the previously, British-owned and bred business is incorporated into the much larger SoftBank corporation. Isabel Collins, founder of Belonging Space, an agency that focuses on developing corporate culture, says, mergers and acquisitions are a challenging time in terms of culture. “In times of change, it’s very easy for culture to be an afterthought,” she says. “The shift from ‘help’ to ‘harm’ can be rapid if you don’t know what to protect and what to evolve. If [culture and belonging] are not built into the change process, they are remarkably easy to lose.”

ARM Holdings has a deep-rooted origin story dating back to a chicken coop in a Cambridge back alley. Building the company alongside Apple and the mobile phone industry, ARM Holdings was able to become the most prominent provider of intellectual property and products for technology manufacturers. Its now 4,000 or so employees – mostly engineers – are still largely based in Cambridge, in a large, airy and interconnected building. Staff congregate at central atria across the campus and whiteboards line the walls, inspiring brainstorming and creative thinking.

SoftBank has pledged to keep the company in Cambridge but expand the employee base. That growth may affect the close-knit community. “Creative businesses like this tend to have a strong sense of belonging,” Collins says. “Partly from the intimacy of collaboration in early stages of development. This creates a strong sense of shared ownership that is invaluable in a business.”

She says it will be important for SoftBank to outline its cultural framework at the outset to avoid the disruption that can result from poorly-managed internal communications during a merger. Leadership will have to take a strong role in ensuring cultural inclusion throughout the company. But, there is a risk of losing long-time employees and senior managers, which Collins says is a, “Common symptom post-acquisition.”

There are also questions about the tech sector’s ability to recruit and sustain a capable workforce. If shining examples like ARM and Autonomy are no longer, potential employees may have less aspiration for a career in British technology. Collins says ARM’s British heritage and ownership has been an important aspect in its ability to recruit quality employees. “This is a company that has attracted the best of world talent. [Drawn to] a feeling of belonging to something very special that has grown out of a small, perfectly-formed idea, in a uniquely British cocktail for innovation: ingenuity, quirk and rigour.” There may be some uncertainty at ARM Holdings and beyond about the realities of working in the sector.

SoftBank has a tough transition to manage, both in terms of the internal audience and in maintaining the reputation and world-class quality produced in Cambridge. But the bigger challenge lies with the British technology sector. It will need to maintain growth to encourage further investment and fill the gap left by ARM Holdings’ acquisition and, for analysts and investors in technology, the future is wide open.