As the federal government shutdown drags on, so does the risk of screwing up companies' IPO plans.
The shutdown, now in its 20th day, is the second-longest in U.S. history so far. And experts say it's created an unprecedented situation in the public markets, as a crop of 2019 IPO candidates -- which include Uber, Lyft, Pinterest and others -- face the possibility of delays in their offerings.
"We may have had a very slow start to 2019 anyway due to very poor market conditions at the end of 2018," said Kathleen Smith, principal at Renaissance Capital, adding that January and February are normally a slow period for IPOs because of the timing of end-of-year audits.
Still, with Donald Trump and Democrats seemingly dug in and no clear resolution in sight, some companies might have to wait until the SEC re-opens to undergo the comment period that follows a filing -- a process that can take a month or two. And if there's a significant backlog of work for the agency to get through, they could be waiting much longer.
"If the shutdown ended tomorrow, I think the impact wouldn't be terribly significant," said Steve London of Pepper Hamilton LLP, who specializes in securities law. "If it continues into February, then what will happen, potentially, is there could be a dramatic increase in filings all at once, and then the SEC is going to be really backed up."
If the shutdown continues into February and the agency has a major backlog to clear, a scenario could emerge in which there are no IPOs at all during the first quarter of the year. And in the meantime, the companies and their advisers must grapple with the added layer of complexity in considering the optimal time line for an IPO.
"The issue that the lawyers and bankers are wrestling with is how to think about these time lines in a situation where the SEC, when it resumes operations, will have several weeks worth of filings by way of backlog," added Paul Tropp, an attorney at Ropes and Gray. "We're in uncharted territory with the amount of time the SEC has been shut down."
For the companies with hopes of going public this year, the shaky stock market is another complicating factor. Companies with strong balance sheets or easy access to private capital source have more flexibility in deciding when to go public, London noted, whereas those whose only option for raising money is an IPO may be forced to dive in at a lower valuation.
"That's a judgment call that a company needs to make for itself: How critical is their need for the capital they were hoping to raise?" he added. "For those that have a healthy balance sheet and have access to other capital, they might delay because they prefer to wait for a stronger valuation."
Smith added that in the event that the government re-opens and market conditions improve, investors' appetite for risk could recover in the spring.
"It may be a blessing in disguise that companies cannot get IPOs done during this time," added Smith. "As the stock market repairs itself over the next several months, the issuance environment will be much better in the spring than now."