SoftBank’s record-breaking $100bn Vision Fund to close soon

By Eduardo Marziale, Andreas Gerckens and Davide Martelozzo

Tech visionary and billionaire Masayoshi Son, head of the Japanese multinational telecommunications and Internet corporation SoftBank Group, has announced his company is creating a $100bn Private Equity fund devoted to tech investments – the largest of its kind so far. With high-profile investors joining the effort, the fund already has a first deal lined up: A 25% stake in chip designer ARM Holdings is set to change hands.

SoftBank Corp. is the third largest in Japan, after Toyota and Mitsubishi UFJ Financial only. Headquartered in Tokyo and listed on the Tokyo Stock Exchange First Section (TSEFS), the group was founded in 1981 and, since then, has always been managed by its founder and CEO Masayoshi Son, the man that lost $70bn in one day when the dot.com bubble burst. He succeeded in rebuilding his company from the scratch. The conglomate he still leads now has operations in broadband, fixed-line telecommunications, e-commerce, Internet, technology services, finance, media and marketing, semiconductor design, and other businesses.

Between 2009 and 2014, SoftBank’s market capitalization increased by 557%. This allowed the group to pursue a wide range of investments, starting from the acquisition DramaFever in 2015, followed by a $1Bn investment in the Korean e-commerce website Coupang and a rebuying of 14.2% of its shares, valued $4.4Bn, to arrive at September 2016, when the Group announced the acquisition of the British chip designer ARM Holdings for more than $32 billion, its biggest deal ever. On October 14, 2016, SoftBankGroup announced the establishment of the biggest tech investment fund in the world, dubbed “Vision Fund”, and after meeting with then U.S. President-elect Donald Trump in December, SoftBank’s CEO announced the investment of $50bn in the United States toward businesses, creating 50.000 new U.S. jobs.

The Fund’s original set up is the partnership of SoftBankGroup and the Saudi Arabia’s Public Investment Fund (PIF), committing to invest in the fund $25bn and $45bn, respectively, over the next 5 years which is also the investment deadline. Given the $100bn, the remaining $30bn will come from major international investors. Among them appear Apple, which announced a $1bn investment in the already oversubscribed Vision Fund on January 4, 2017, and also other tech giants such as the Chinese producer of hardware Foxconn, Qualcomm, an American semiconductor producer, and Oracle’s founder Larry Ellison.

It was revealed that also Abu Dhabi’s sovereign wealth fund Mubadala is in advanced talks to invest $15bn in SoftBank’s tech fund. Despite initial rumors of an almost exclusive startup focus and promises to Donald Trump in this respect, spectators expect that a significant portion of the fund will be devoted to large investments in private and public markets. With the acquisition of Fortress Investment Group in February, SoftBank ensured a team of professionals with experience in private equity that will be vital for the management of the new tech fund, even if the asset manager is set to remain an independent enterprise.

With the closing of the fund drawing near, news on first investments are surfacing. Most prominently, the fund will take over a 25% stake in UK chipmaker ARM Holdings from SoftBank for $8bn. This is in line with Mr Son’s remark that fund investments will typically be minority stakes between 20 and 40%, giving the fund substantial influence, but keeping existing owners or founders in the driving seat. ARM was only acquired by SoftBank itself in mid-2016 at a similar valuation, in hopes of participating in the breakthrough of the Internet of Things  (IoT).

According to the Financial Times, the deal is largely put together to secure the contribution to the fund by Mubadala, but it illustrates a potential path ahead for the fund: The first investments will likely be into technology companies recently acquired by SoftBank in anticipation of the fund’s closing. In particular, two US technology investments recently made by SoftBank are said to be offered to the new investment vehicle and could change hands already this year: A stake in the ownership of the satellite communications upstart OneWeb and the established satellite operator Intelsat, recently acquired by SoftBank for a combined of 2.7bn, as well as SoftBank’s new 3bn stake in the office sharing company WeWork.

Further down the road, the SoftBank Vision Fund will likely close a number of deals, many of them directly in the US tech industry. If Son delivers on his ambitious investment pledges to Donald Trump, the fund is likely the main means to do so: SoftBank itself already carries $128bn of debt – after a host of acquisitions, the company’s financial firepower appears to be exhausted, but Mr Son’s aspiration of assembling a diversified, global technology conglomerate is not quite so.

Hence, the SoftBank Vision Fund will probably never become a traditional, independent Private Equity fund, with only size setting it apart from similar ventures. Instead, it will be a powerful financial tool for Son and SoftBank to drive technology development particularly in the US and deliver on their long-term strategic vision.