Traditionally, early winter is usually a slow time for IPOs. Companies use the end of the year to finish up year-end audits and as a result, few, if any are ready to “go public” at the start of the New Year.
At least, that’s usually how things go. This time, two highly anticipated IPOs are getting swept up in the mess that is the latest government shutdown, leaving investors with anxiety. The ride-sharing services Lyft and Uber are ready for the next step. They have all their ducks in a row and want to go public ASAP.
The bad news is, because the SEC is a division of the government, and the government is currently powered down, these two companies can’t get approval to enter the stock market. And they aren’t alone. The commission’s office is currently experiencing a backlog of work that they can’t do anything about:
“We think that it probably didn’t matter much during the holidays, but as the government shutdown continues into 2019, a backlog is building that will delay the IPO process for companies of all sizes, including the large tech deals such as Uber, Lyft, Slack, Pinterest, etc., that are on file confidentially,” said Kathleen Smith, principal at Renaissance Capital, a manager of IPO exchange-traded funds.
She went on to say that the shutdown “is beginning to gum up the IPO process.”
Smith is not alone in her sentiments. Timothy Smith, an SEC national assurance manager had this to say:
“Until the government reopens and the SEC resumes work, there won’t be any deals. They will need to clear the backlog and then start processing.”
There’s a ticking clock on this situation, as companies awaiting approval now have to worry about the relevance of the documents they submitted. Should the shutdown continue, and the backlog becomes substantial enough, then by the time the SEC gets back to work the documents pending review may be several quarters out of date. The companies up for review would have to resubmit more up to date documents, bogging down the SEC even further.
While there are many problems associated with this shutdown, it might actually work in the favor of companies like Lyft and Uber, and by extension, their potential investors. Due to the shiny new Bull Market, the issuing of a new stock could artificially de-value newly listed companies.
It’s a pain at the moment, especially for the SEC, but a delay now could be ultimately rewarding in the long run.