The once-thriving initial public offering (IPO) market has experienced significant challenges this year, and now it faces the imminent risk of being brought to a sudden halt due to a potential government shutdown.
The Securities and Exchange Commission (SEC), the regulatory body responsible for overseeing IPO registrations and other filings, has announced that it will suspend its processing of such applications if Congress fails to pass an appropriations bill by the end of September.
According to the SEC’s contingency plan, if a government shutdown occurs, its corporate finance division will be unable to handle various tasks such as processing filings, offering interpretive advice, issuing no-action letters, or conducting any routine activities. Consequently, the agency states that “new or pending registration statements or applications for exemptive relief will not be processed regardless of the status of any review of those filings.”
This disruption comes at a time when the IPO market has already been facing challenges. Disappointing performances from companies like Arm Holdings (ticker: ARM) and Instacart (CART), officially known as Maplebear, have dampened investor enthusiasm. Now, with the potential SEC hiatus, anticipated deals involving companies like shoemaker Birkenstock, home builder Smith Douglas Homes, and computer game maker VNG Ltd. face additional hurdles.
Riley Mullin, an equity analyst at the renowned IPO research firm Renaissance Capital, emphasizes the futility of pursuing an IPO under such circumstances. He rightfully points out that no companies successfully completed IPOs during the monthlong government shutdown that took place in December 2018.
The future of the IPO market hangs in the balance as investors and companies alike brace themselves for the consequences of a potential government shutdown. The uncertainty surrounding this situation creates a challenging landscape for businesses seeking to go public.
The Potential Impact of a Shutdown on the IPO Market
The IPO market for this year may be at risk of shrinking if a shutdown occurs during the traditional holiday season around Thanksgiving and year-end. According to Renaissance, there has been a 22% increase in the number of IPOs priced this year, with a market capitalization of at least $50 million. In comparison to the same period in 2022, this is an impressive growth rate.
Alongside the number of IPOs priced, there have been 130 IPO filings so far this year, representing an 18% increase from the previous year. Birkenstock is among the companies planning to go public, although no official comment could be obtained from the company at this time.
While federal securities law allows firms to proceed with an IPO without explicit signoff from the SEC, it is unlikely that many companies will take this route. This caution is largely due to the uncertain performance of recent large deals, such as Arm’s IPO, which initially saw a 25% boost above its offering price but later lost those gains.
Even without the potential impact of a government shutdown, the IPO market has already shown signs of instability. The performance of these prominent deals has contributed to the overall uncertainty surrounding IPOs.