The longest US government shutdown in history is starting to worry the IPO market because of the negative ramifications the closure could have on the markets and the process for companies wanting to float.
Until the shutdown 160 companies filed to go public with the SEC, according to research company Argus. This includes big names like the ride-hailing companies Uber – with its targeted $120 bn listing – and Lyft, which hoped to float in March or April with a $15.1 bn valuation.
Patrick Healy, founder and CEO of the Washington, DC-based IPO advisory firm Issuer Network, tells IR Magazine: ‘It is a problem that will grow exponentially if not soon resolved. This problem will not be resolved by simply turning on the light switch. There is now a month-long backlog that needs to be worked off. The impact is real and growing.’
Charles Dolan, managing member of New York-based boutique advisory company Global Markets Advisory Group, tells IR Magazine that the shutdown is exacerbating matters because companies want to price their issues when the market is trading near a high but, due to current volatility, they will now wait to price their IPOs, making matters worse.
‘In my opinion, companies will most likely sit on their hands until the market stabilizes, which causes an inherent backlog, regardless of the shutdown,’ Dolan notes. ‘Adding the shutdown into the equation just makes the situation worse.’
The part played by the SEC is vitally important as any company wanting to move forward with an IPO must have a registration statement filed with the commission and declared ‘effective’ – in other words, the SEC must approve the application.
Dolan adds: ‘The commission has a ‘very limited number of staff’ working during the shutdown, so as companies file their registration statements, a logjam is being formed. The knock-on effect of having limited staff reviewing the registration statements is the lack of registrations being declared effective, which is a gating step for an IPO.’
Healy says another important issue is the potential for creating ‘stale data’ from the lack of movement in the process. ‘If a filing does not become effective within a certain period of time, the data needs to be updated. This is a potentially big problem for many companies,’ he explains.
One company is surging ahead regardless of the government shutdown: New Fortress Energy, an integrated gas-to-power company, announced terms for its IPO last week.
Renaissance Capital observes in an IPO research note: ‘New Fortress Energy is alone in braving the IPO market during the government shutdown, which has caused the SEC to operate with very limited staff. IPO investors are watching closely to see if New Fortress can pull it off – and hoping for the government to reopen.’
At the World Economic Forum in Davos-Klosters, Switzerland, Nasdaq president and CEO Adena Friedman accepted, in a statement, that the government shutdown 'is not good for the country'. Speaking to CNBC, she said: ‘With the hope that the government does reopen in the coming days, weeks, then I think we will see that there is certainly less of a time window for these companies to go [public], but they are all ready to go,’ says Friedman. ‘If the shutdown does extend for weeks, we’ll see more and more companies wanting to go public in a shorter window.’
