Source: Finance Association
Author: Bian Chun

The US IPO market, which has just shown signs of recovery, is now facing a new obstacle: the possibility that the US government will shut down continues to rise.

Last week, with the US Congress approving a short-term funding bill, the government shutdown crisis was temporarily avoided, but not completely lifted. The bill is only valid for 45 days and provides the federal government with funding to support its operation until November 17. Congress will once again face a dilemma after the short-term funding bill expires.

And Kevin McCarthy's removal as Speaker of the House of Representatives will only increase the possibility that the US government will shut down as early as November 17.

If the US government were to shut down, the US Securities and Exchange Commission (SEC) would have only a handful of staff on duty, and the agency would be unable to review stock sale documents and announce the effective pricing of newly listed stocks.

The IPO market has just recovered

For most of 2023, as US stocks fell sharply, the US IPO market was silent, and it wasn't until last month that it showed signs of a rebound.

In September of this year, the US IPO market saw three notable deals, namely chip design companies$Arm Holdings (ARM.US)$ , grocery delivery companies$Instacart, Inc. (Maplebear Inc.) (CART.US)$and marketing and data automation providers$Klaviyo (KVYO.US)$.

These deals boosted the US IPO financing scale to 21.6 billion US dollars this year, which is almost the same as the 22 billion US dollars as of October 6 last year, but it is still far from the 265 billion US dollars in the same period in 2021.

Facing new trouble

Now, companies that want to go public this year must make a choice: either close the deal within the next month and a half, or wait a little longer.

Although EDGAR, the electronic filing system used to submit IPO documents, will remain open, the company's IPO application still requires close participation from the SEC. It usually takes about 60 days for the SEC to review and comment on the initial draft of the IPO document, financial information, and subsequent revisions, but it is rarely revised only once and is often communicated back and forth many times. This means that for IPOs submitted at the end of October, their pricing is likely to be close to November 17, which is the date the government may shut down, so there is little room for investment bankers and stock issuers to make mistakes.

footwear manufacturer$Birkenstock Holding Ltd. (BIRK.US)$ An IPO roadshow was launched last Monday, and it is proposed to issue 1.6 billion US dollars of shares. The company is one of more than a dozen companies planning an IPO in the fourth quarter. These quasi-IPO companies also include car-sharing companies$Turo Inc (TURO.US)$...

Richard Truesdell Jr., a partner at law firm Davis Polk & Wardwell, pointed out that some companies may choose to postpone their listing. “If people don't see a clear path to complete the deal, which includes publicly submitting transaction documents and undergoing review, and disclosing all required disclosures, then they are reluctant to IPO.” he said.

Kati Penney, head of corporate transactions at management consulting firm CrossCountry Consulting, said,Issuers forced to carefully consider the risk of a government shutdown. While businesses face multiple risks, “more contingency plans are working to deal with a possible government shutdown.”

Paul Christopher, head of global investment strategy at Wells Fargo Investment Research Institute, saidThe process of finding a new Speaker of the House of Representatives may take a long time, which could strain the IPO market and the entire US stock market for weeks.

Not only will the fourth-quarter IPO deal be affected, but if the SEC faces a backlog of transactions after the government shuts down, companies planning to launch an IPO in January may also feel more pressure.

Looking back at history, the longest government shutdown in modern US history was 35 days from 2018 to 2019. No IPOs have been approved during this time.

editor/tolk