The US government shutdown could disrupt the IPO market momentum
The U.S. shutdown could stall the long-awaited return of the IPO market, even though strong investor demand and successful debuts have boosted new listings.
Deep partisan differences prevented Congress and White House from reaching an agreement on funding.
The Securities and Exchange Commission will no longer process IPO documents. This includes companies such as Jennifer Garner's Once Upon a Farm, a baby food company, and Beta Technologies, a maker of electric aircraft.
With a wave successful debuts in the fall window, there are hopes that 2025 will be a breakthrough year for IPOs. High interest rates and volatility have stalled this market for almost three years.
Michael Ashley Schulman is the partner and CIO of Running Point Capital Advisors.
Schulman continued, "It is a bureaucratic purgatory that has come at the worst time possible. Just as the IPO markets were beginning to thaw out from a deep freezing,"
According to Dealogic, the U.S. has raised $52,94 billion in IPOs from 263 listings since September 29, which is the highest amount since 2021. The biggest listings in the past year were LNG giant Venture Global, buy-now, pay-later lender Klarna and AI cloud company CoreWeave.
Ethos Technologies, a life insurance company, was among the largest companies to have filed for an IPO in recent times. The three companies' representatives did not respond to comments on Tuesday.
In the pipeline for 2025, there are several other prominent would-be-issuers including SoftBank-backed PayPay and corporate travel management platform Navan.
Matt Kennedy, senior analyst at Renaissance Capital, a provider IPO research and ETFs, said: "This is already shifting timelines for deals that had been on the fence."
If it continues for more than a few days, the IPO markets will grind to a halt and cut short the recovery we had anticipated.
SETBACK TEMPORARY
The longest government shutdown in history, 35 days from December 2018 to January 2019, occurred during the previous administration of President Donald Trump.
The IPO market was virtually stopped at the time. Several companies managed to avoid the SEC's shutdown by locking in IPO prices in advance.
The IPO freeze may have a ripple effect on Wall Street while the shutdown continues. This could delay deals for banks, and limit listing fees for exchanges.
Some market watchers believe that listings will bounce back in 2019, just as they did last year. Lukas Mühlbauer, research analyst for IPOX, says that strong investor demand, hefty flows into IPO funds, and the best performance after-market in years, will continue to attract companies to the market.
According to Anthony Saglimbene of Ameriprise Financial, a weeks-long shut down could dampen the market sentiment and cause volatility. However, the fall window is generally the best for IPOs, and it would be able to shrug off a short-term shutdown blip.
"IPO activity will be solid in the near term and should dominate any hiccups that may arise around a shutdown," Saglimbene said.
(source: Reuters)
