The initial public offering (IPO) market, which has shown signs of struggle this year, faces a new threat that could bring it to an abrupt halt—a potential government shutdown.
The Securities and Exchange Commission (SEC) has issued a warning that it will suspend its handling of IPO registrations and other filings that require agency review if Congress fails to pass an appropriations bill by the end of September.
In a contingency plan disclosed in July, the SEC outlined that a funding lapse would cripple its corporate finance division, rendering it unable to process filings, provide interpretive guidance, issue no-action letters, or engage in any typical activities. The agency stated, “As a result, new or pending registration statements or applications for exemptive relief will not be processed, irrespective of the status of any ongoing review.”
Following the lackluster performance of recent IPOs like Arm Holdings (ticker: ARM) and Instacart (CART), officially known as Maplebear, a potential SEC hiatus adds another layer of uncertainty to upcoming deals, including those involving companies like shoemaker Birkenstock, home builder Smith Douglas Homes, or computer game maker VNG Ltd.
If a shutdown were to coincide with the typical holiday season around Thanksgiving and year-end, the IPO window for this year could significantly shrink, according to Mullin.
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Renaissance reports that there have been 78 IPOs priced this year, a notable 22% increase compared to the same period in 2022, considering companies with at least a $50 million market capitalization.
The number of IPO filings in 2023 has reached 130, marking an 18% increase from 2022. Among them, Birkenstock stands out. Barron’s attempted to reach out to the company for comment, but no response was immediately available, and their securities attorneys declined to provide any statements.
Federal securities law does have a provision allowing companies to proceed with an IPO without explicit SEC approval, Mullin noted. However, he expressed skepticism about any firms venturing into those waters, especially given the mixed performance of significant deals like Arm’s, which initially surged 25% above its offering price of $51 per share but later retraced those gains.
