(Bloomberg) -- Landing Arm Holdings Ltd.’s giant initial public offering is a coup for Mizuho Financial Group Inc., one of the four global investment banks leading this year’s biggest deal. Now the Japanese firm needs to prove that it’s more than just a one-time thing. 

Many within and outside Japan’s third-largest bank see winning the role as a reward by SoftBank Group Corp. founder Masayoshi Son for the decades of loyalty and financing that the lender provided to his telecom-turned-tech investment behemoth, which is selling a stake in chip designer Arm. 

But Mizuho has also been building its dealmaking credentials in the US through its team led by Michal Katz, head of investment and corporate banking at the New York-based unit. Katz was deeply involved in the Arm deal, people with knowledge of the matter said. 

Like its Japanese rivals including Sumitomo Mitsui Financial Group Inc., Mizuho has been expanding its presence in the US to tap the world’s biggest fee pool, even as deals slump globally following the pandemic. Along with Wall Street titans Barclays Plc, Goldman Sachs Group Inc. and JPMorgan Chase & Co. it has top billing to sell the multi-billion dollar IPO to global investors, a challenging task given questions over Arm’s valuation. 

“Mizuho has the capability to do it,” said Michael Makdad, an analyst at Morningstar Inc. in Tokyo. “They will have had a track record as one of the lead underwriters of a major deal, which can be a selling point to try to win future deals.”

Working on the IPO is set to generate as much as $18.3 million in fees for Mizuho as a lead underwriter, according to Bloomberg calculations. That’s based on as much as $5.2 billion that Arm is seeking to raise, including from additional shares, which is lower than the $8 billion to $10 billion it initially sought. 

SoftBank Ties

Mizuho’s relationship with SoftBank goes back to the early days of Son’s company 41 years ago, when it gave a loan to the startup. Since then, the bank has played a key role in bankrolling Son’s ambitions, including the acquisitions of Vodafone’s Japanese business in 2006 and Sprint in 2013. 

In Tokyo, a team of about a dozen bankers covers SoftBank and its group companies, and top executives court Son and other senior managers, according to people with knowledge of the matter, who asked not to be identified discussing private information.

Mizuho declined to comment on individual transactions. SoftBank representatives also declined to comment. 

Among others, Yasuhiro Sato, who was Mizuho’s chief executive officer from 2011 to 2018, has cultivated a close relationship with Son. It was during his tenure as CEO when Mizuho decided to provide a ¥1 trillion ($6.8 billion) bridge loan to finance SoftBank’s acquisition of Arm in 2016. 

Asked about the importance of a “main bank,” the role played by Mizuho, SoftBank Chief Financial Officer Yoshimitsu Goto has said it is the first lender in terms of speed and depth in dealing with various transactions, and always provides answers that the firm appreciates. “This is not a one-day relationship,” Goto said at a Nikkei forum in 2021.

Despite the close ties, there have been concerns within Mizuho about its large exposure to SoftBank, and rival Japanese banks have viewed warily the company’s transformation into one of the world’s largest tech investors, according to people at the lenders.

Still, Mizuho has been steadfast in its support for Son. According to SoftBank’s proxy documents, Mizuho Bank’s loans to the company stood at ¥608.5 billion at the end of March, by far the most among any bank. 

Mizuho was also among lenders that doled out an $8 billion term loan to SoftBank last year, which was secured by Arm shares. It has also accepted Son’s SoftBank shares as collateral. 

Given Mizuho’s commitment to the conglomerate, it would have been a huge disappointment if it didn’t get the marquee role in the Arm IPO, said a person familiar with the lender’s thinking.

The deal is also a win for Mizuho’s investment banking operations in the US, where CEO Masahiro Kihara has been accelerating an expansion, most notably through an agreement to acquire boutique mergers advisory firm Greenhill & Co. earlier this year. 

Katz, who joined Mizuho Securities USA in 2019 from RBC Capital Markets, has been credited with building up the bank’s tech team. Zach Righellis, who joined from Moelis & Co. in 2021, and Richard Gallivan, who was hired from Barclays in 2016, also worked on the Arm deal with help from their Japanese colleagues, people with knowledge of the matter said. 

“Mizuho Securities USA is much stronger in institutional securities business than it was just a few years ago,” said Makdad. The firm has boosted research coverage of US listed stocks and is a rival to Nomura Holdings Inc. on Wall Street, he added.

Rising Rank

The offering will boost Mizuho’s equity capital markets standing in the US at a time when new listings have dried up. 

The bank is ranked 10th among underwriters of US equity and equity-linked offerings this year, heading for its highest ever annual position, according to data compiled by Bloomberg. That’s up from 13th last year and 16th in 2021. As well as Arm, it has also yet to be credited for the debut of Klaviyo Inc., a marketing and data automation provider.

Mizuho is also ranked 10th among managers of US corporate bond sales this year, up from 13th in 2022, the data show. 

“Traditionally, our growth in the Americas has been centered on debt business, driven by primary originations,” Hidekatsu Take, Mizuho’s head of global corporate and investment banking, said at an investor event in June. “The remaining area to strengthen is ECM.”

Japanese banks with smaller roles on the Arm deal are Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui, Daiwa Securities Group Inc. and Nomura. 

The IPO will give Mizuho an opportunity to establish itself as a top player if it can pull it off, said Tomoichiro Kubota, senior market analyst at Matsui Securities Co. in Tokyo. 

“It’s very likely that SoftBank took the relationship with its main lender into consideration, which is a quite rational thing to do,” Kubota said. “This is an event that either boosts or lowers its reputation.” 

--With assistance from Taro Fuse, Nao Sano, Liana Baker, Min Jeong Lee and David Morris.

(Updates with SoftBank CFO comment in the 11th paragraph)

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