It has closed parks, left hundreds of thousands of people unpaid, and now the US government shutdown is threatening to take the sting out of a key, if not flashy, part of the stock market: IPOs.
For the last few weeks, only 300 of the U.S. Securities and Exchange Commission’s regular 4,500 employees are currently working. The extremely thin staff is there mainly to address emergency matters, with all other tasks such as reviewing IPO papers or other securities filings cut back drastically and, if the shutdown is prolonged, eventually coming to a halt. As a result, corporate leaders are being forced to delay or seek alternatives to certain strategic or financial plans.
“Companies can still file to go public, but the shutdown will effect when they are able to price,” says Michele Pollack, a Korn Ferry senior client partner in the firm’s Global Financial Services practice.
Timing is critical to an IPO, and when shares are able to price could severely impact how much they price at. Now, for instance, might be a good time to list shares, with quarterly earnings off to a good start, a rebound in the stock market, and hopes for a resolution to the trade dispute with China high again. Volatility and uncertainty are so rampant however. A month from now, quarterly earnings could have taken a turn for the worse, the stock market could have swung back to posting losses, and a flare up could torpedo a trade resolution.
Some big names have already filed or are expected to file IPO registration papers this year. Among them are Uber, Lyft, WeWork, Airbnb, Slack, and Palantir. Whether they actually debut or not will depend on “market conditions,” a term executives use describing the overall economic and market picture. Pollack says these large private firms are big enough to delay an IPO. However smaller firms or companies that rely on public market capital to operate, such as biotech firms, are not—and that’s where the shutdown could have a big impact. “Leaders of those firms don’t have the luxury of waiting like some of the bigger names in the tech space,” says Pollack.
The impact of the government shutdown extends beyond IPOs. The lack of official economic data plays into everything from how wealth managers and traders invest to how analysts value entire industries and individual companies. In certain areas, such as home or retail sales, investors can obtain data from non-government sources.
But even when put together, those private reports provide a less complete picture than government data. Pollack points to new data and analytics companies like Gro Intelligence as trying to help forecasting firms and traders come up with their own crop estimates to fill the information void in the Department of Agriculture’s data resulting from the shutdown.
Navigating the current interplay between government and markets requires organizations have a clear and consistent public policy approach, says Chad Astmann, co-head and global sector leader for asset management and alternative investments at Korn Ferry, “Having a strong government relations team is critical to both having relevant and timely information flow,” says Astmann. Leaders can also help calm investors by communicating that the shutdown and uncertainty are baked into their strategic plans, he says.