U.S. companies eyeing billions of dollars in initial public offerings to kick off the new year are fast running out of time, as the U.S. government shutdown enters its 35th day.
“Even if the government reopens, the first quarter is likely to be very disappointing for IPOs,” said Michael Zeidel, partner and head of capital markets in the Americas at Skadden Arps Slate Meagher & Flom LLP. “The window to complete an IPO before third-quarter financials go stale is closing.”
U.S. public-market hopefuls must price their IPOs before Feb. 14 to avoid having to provide updated -- and audited -- financial information for all of 2018. Until then, only the first nine months of numbers are required.
The partial government shutdown has left companies, which usually wait for sign off from the Securities and Exchange Commission to start trading, waiting on the sidelines for the furloughed regulator to reopen. Just four companies have raised a total of $72.5 million through listings on U.S. exchanges this year, compared to seven companies that raised $5.5 billion in the same period last year, according to data compiled by Bloomberg.
When the shutdown started on Dec. 22, ride-hailing companies Uber Technologies Inc. and Lyft Inc., as well as General Electric Co.’s health-care unit, had already filed confidential IPO papers with the SEC, people familiar with the matter had said. As of Jan 9., Uber and Lyft hadn’t received any feedback from the agency.
Even as chief executive officers scramble to find ways around the hurdles, IPO advisers are warning they will need to move quickly.
“Friday is the last day that companies looking to get around the shutdown can file with the SEC,” Zeidel said, referring to a workaround that lets companies’ IPO registrations become automatically effective after 20 days. After Jan. 25, the window is too short to complete the listing before the new financial reporting timetable kicks in.
Gossamer Bio Inc. amended its filing Wednesday to move ahead without the SEC’s sign off. The biopharmaceutical firm, which filed in December for an IPO, will sell 14.4 million shares for $16 a piece, skipping the usual price discovery process.
But the move isn’t without risk. Companies must file an amendment if business or market conditions change in a way that materially affects financials -- and that would restart the 20-day clock.
“In no way is it going to save the IPO market,” said John Rudy, an attorney at Mintz Levin Cohn Ferris Glovsky and Popeo PC who represents companies and banks in capital markets transactions. “Even if you get a handful, that’s going to be a fraction of what goes out there ordinarily.”
Even if the shutdown is soon resolved, IPO candidates are unlikely to be able to rush to market. Not only might the SEC struggle to handle the backlog, but auditors -- already busy at this time of year updating listed companies’ numbers -- will also need to find time for all the extra work.
The good news? “It could be a busy second quarter for the IPO market,” said Rudy.
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