IPOs were supposed to boom. The government shutdown puts them in limbo

The partial shutdown leaves SEC Chairman Jay Clayton, right, hamstrung in fulfilling two of President Trump’s pro-business priorities: softening rules and enticing more companies to go public.
(Manuel Balce Ceneta / Associated Press)

Just a few weeks ago, 2019 was being touted as the biggest year for flashy public stock debuts in a decade. Now the U.S. government’s partial shutdown could ruin the fun before it even gets started.

Uber Technologies Inc. and Lyft Inc., both of which have filed confidentially with regulators for initial public offerings, say the shutdown could slow the timelines of their listings, according to people familiar with the matter. Although the final outcome depends on how long it takes for the Securities and Exchange Commission to reopen and how substantial the feedback is when it does, neither company has gotten any comments from the agency, said the people, who asked not to be identified as the details weren’t public.

Uber and Lyft had been targeting their IPOs for the first half of the year. Spokesmen for each company declined to comment.

The San Francisco-based ride-hailing giants, among the year’s most hotly anticipated IPOs, aren’t the only ones likely to face delays. With thousands of SEC employees furloughed until the shutdown ends, the agency can perform only the most basic of market functions. There’s limited staff available to “respond to emergency situations involving market integrity and investor protection,” a notice on its website says.

Bond-trading platform Tradeweb Markets has also filed confidentially for an IPO that could value it at more than $4 billion, but the timing may be delayed by the shutdown, people with knowledge of the matter said Wednesday. Meanwhile, some companies involved in active mergers and acquisitions have signaled to investors that their pending takeovers could drag on.


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Delays loom

“Another couple weeks and you’ll have serious IPO delays,” said Carter Mack, the president and co-founder of JMP Group. “Even if the shutdown ends and the SEC gets back to work, there’s going to be a backlog of deals filed in the interim that haven’t been assigned to examiners.”

After the market volatility that marked the end of 2018, some companies had been waiting to see whether 2019 would start with a rebound, Mack said.

“Normally you’d see companies taking advantage now, but they’re not,” he said.

In an emailed statement, the SEC said: “Prior to the shutdown taking effect, we encouraged filers to reach out to us to ask for acceleration of the effectiveness of pending registration statements, and we declared approximately a dozen registration statements effective.”

Two priorities

The shutdown leaves Jay Clayton, the Wall Street deals lawyer picked by President Trump to run the SEC, hamstrung in fulfilling two of the president’s pro-business priorities: softening rules and enticing more companies to go public.

As more firms blame the shuttered SEC for delaying their plans to raise capital, evidence is growing that the shutdown is starting to take a toll on corporate America, an ominous sign for a president who relishes touting economic growth as evidence his policies are working.

Although Trump is known for publicly lambasting and praising officials he’s nominated for jobs, Clayton has largely stayed off the president’s radar. But when Clayton interviewed for the SEC job, Trump made no secret about what he thought the independent agency should focus on: boosting IPOs.

During a meeting more than two years ago at Trump’s Mar-a-Lago resort in Florida, the then-president-elect cited statistics showing that U.S. stock sales had fallen off a cliff, people familiar with their discussion said at the time.

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Confidential filings

Clayton had come to Trump’s attention because the former Sullivan & Cromwell law partner had written a policy paper for Trump’s transition team arguing that smaller companies should be exempt from some rules when they go public.

When Trump nominated Clayton in January 2017, he said Clayton would “play an important role in unleashing the job-creating power of our economy by encouraging investment in American companies.”

During Clayton’s tenure, IPOs have started to reverse a two-decade decline. The ability for any company to file documents confidentially — as used by Uber, Lyft, Tradeweb and others — was one of the key changes Clayton has made, giving executives a chance to get feedback from the SEC and iron out any issues before publicly announcing a stock sale.

Now there’s no one at work to provide that feedback.

“The president has been a strong advocate for, and made significant progress in, improving our capital formation regulatory regime,” White House spokeswoman Lindsay Walters said in a statement. “So far there is no evidence that the shutdown has had a material impact on IPOs.”

Feb. 14 deadline

David Hirschmann, president of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness, said his lobbying group has started to hear from companies concerned about delayed IPOs.

“Timing is everything, and these are issues that for particular companies come at a critical time,” said Hirschmann, whose group called on Congress and the Trump administration to end the shutdown this week. “You need government to work.”

With no end to the shutdown in sight, companies still aiming to list in the first quarter will probably be marking one key date in their diaries: Feb. 14. That’s the deadline to price an IPO without having to provide updated financial information based on a 2018 audit, said David Goldschmidt, global head of capital markets at Skadden, Arps, Slate, Meagher & Flom.

“If people aren’t able to do their deals by then, there’s a chance we could lose a good part of the first quarter for IPOs,” he said.

Newcomer, Bain, Schmidt and Monks write for Bloomberg.