The U.S. government shutdown, now in its 21st day, is disrupting the initial-public-offering process and may cause delays in some of the bigger deals expected in 2019, including those of ride-sharing services Uber and Lyft.
While January and February are typically slow months for new offerings as companies need to complete calendar-year audits, the shutdown “is beginning to gum up the IPO process,” said Kathleen Smith, principal at Renaissance Capital, a manager of IPO exchange-traded funds.
That is because, during the shutdown, the Securities and Exchange Commission is unable to provide feedback and approval on filings that issuers need to move their registration statements forward ahead of launch, she said.
“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 Smith.
Timothy Kviz, national assurance managing partner for SEC services at BDO, agreed.
“Until the government reopens and the SEC resumes work, there won’t be any deals,” he said. “They will need to clear the backlog and then start processing.”
If the shutdown were to continue for a prolonged period, companies could end up with financial statements that have “gone stale,” said Kviz. That means they have reached a point where the quarterly financials included have become so old that the issuer needs to provide numbers for the subsequent quarter. Those numbers need to be audited to be included in a prospectus, creating another potential holdup.
Still, Renaissance Capital’s Smith said the forced delay may help some companies, given weakness in the stock market at the end of 2018 and into the early days 2019. That weakness has likely reduced investor risk appetite and may force new IPOs to be priced at a discount.
“It may be a blessing in disguise that companies cannot get IPOs done during this time,” she said. “As the stock market repairs itself over the next several months, the issuance environment will be much better in the spring than now.”
Uber and Lyft are two of the “decacorns,” or companies that are valued at more than $10 billion, expected to hit the market as new issues. The term is derived from the handle “unicorn” that’s applied to IPO candidates with a valuation of at least $1 billion.
Uber Chief Executive Dara Khosrowshahi has been signaling his goal of taking the company public this year ever since he took over from Travis Kalanick, when the latter was pushed out in a scandal over allegations of sexual harassment at the company. The company was valued at $72 billion last August, and bankers are reported to have floated a $120 billion IPO valuation.
Uber posted third-quarter losses of $1.07 billion, wider than the $891 million posted in the year-earlier quarter. Revenue rose 38% to $2.95 billion from the year-earlier period, and was up 5% from the second quarter. Lyft posted third-quarter revenue of $563 million, according to the Wall Street Journal, while its losses came to $254 million. Lyft was assigned a private-market valuation of $15.1 billion last year.
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Other potential IPO candidates this year include Airbnb, which was valued at $31 billion in a 2017 funding round, and security firm Palantir Technologies Inc., which was valued at $20 billion in an October 2015 funding round.
Meanwhile, investors are expecting Futu Holdings Ltd., a Hong Kong–based online brokerage that is backed by Chinese internet giant Tencent Holdings Ltd., to be one of the first big Asian initial public offerings of 2019.That company filed for an IPO in late December with the stated aim of raising up to $300 million.
Futu has enjoyed strong growth in recent years, growing its staff to 561 employees at the end of September. The company had revenue of HK$584 million ($74.6 million) in the nine months ending in September, up from HK$178 million in the year-earlier period. It posted its first profit, of HK$100 million, for the period, after a loss of HK$38 million in the year-earlier period.
The Renaissance IPO ETF
was off 0.5% Friday and is down 12.2% in the last 12 months, according to FactSet data. The Renaissance International IPO ETF
was up flat but has fallen 21% in the last 12 months.
The S&P 500
has fallen 6.6% in the same period, while the Dow Jones Industrial Average
has declined 6.7%, while the Nasdaq Composite Index
has given up 3.5% over a 12-month period.