Hopes that the U.S. IPO market will come straight back to life now that the government shutdown has ended and regulators are back at work have been dampened by worries about a possible second shutdown.
President Donald Trump told The Wall Street Journal overnight there’s a less than 50/50 chance that Congress will deliver a border deal that he can accept and that another shutdown is “certainly an option.” His acting chief of staff Mick Mulvaney told the Associated Press that Trump means it.
That’s bad news for those companies who are waiting to sell shares to the public. The just-ended shutdown had the effect of shutting the IPO market as well, as the Securities and Exchange Commission was unable to provide the feedback and approval of filings that issuers need to move their registration statements forward to launch. As it dragged on through January, there were concerns that it would delay some of the bigger deals expected this year, including ride-sharing services Uber and Lyft, and security company Palantir.
Jay Ritter, a professor at University of Florida and IPO expert, said a reopening of the market now depends on the SEC and its corporate finance division. “If the SEC prioritizes IPO approvals, things can happen very quickly for companies that were already in the queue,” he said. “But if it’s more on a first come/first serve basis, they may have to wait their turn.”
So @realDonaldTrump says at best 50/50 that we don’t shut down again, which means no sane company will proceed w/ IPO plans until at best April, at which point other market forces could well make for far less attractive IPO environment. Dude…you’re killing us on every front!
— Brad Svrluga (@bradsvrluga) January 28, 2019
Between the government shutdown and negative returns in 2018, there have been no IPOs in 2019 so far, compared with 17 deals that were completed in the same time frame in 2018, according to Kathleen Smith, principal at Renaissance Capital, a provider of institutional research and IPO exchange-traded funds.
Smith is expecting two companies that had come up with a workaround to bypass the SEC to revert to the regular way of getting a deal through. New Fortress Energy LLC, an energy infrastructure company, and biotech Gossamer Bio Inc. said last week they would go public by allowing their registration to become automatically effective within 20 days, as The Wall Street Journal reported last week.
The highly unusual move involved changing language in the filing. Nasdaq was initially wary of the move but was becoming more receptive to it, the paper reported. Bypassing the regular process would not be without risk for the companies, as it would involve pricing their shares before marketing them to investors, who they usually rely on for feedback.
Ritter said it was likely the companies would now opt to go through normal channels, but perhaps keep the 20-day plan as a backup, in case of a second shutdown. Launching without a nod from the SEC could expose companies to legal challenges at a later date.
“Other companies will be moving along their filings notably unicorns such as Uber, Lyft, Palantir, and Pinterest,” said Smith. The Renaissance IPO ETF, a basket of recent IPOs, “tracks an index that has significantly outperformed the S&P 500, recovering from very poor returns at the end of 2018,” she said. “When recent IPOs perform well, new IPOs are likely receive a good reception.”
Market data and intelligence firm Ipreo is expecting two small deals to price this week, but both are so-called blank-check companies, meaning they have no fixed business until they acquire one.
Andina Acquisition Corp. III is expected to raise about $100 million in a deal expected to price later Monday, according to Ipreo. Cowen and Craig-Hallum Capital Group are joint book runners on the deal, according to the company’s prospectus. Andina has applied to list on Nasdaq under the ticker symbol “ ANDAU”.
Andina will focus its search for a target on the Americas. The company’s management has most expertise in companies in Latin America, including Brazil, Chile, Colombia, Chile, Mexico and Peru. “We intend to capitalize on opportunities presented by high growth rates within these countries,” says the prospectus.
Pivotal Acquisition Corp. is expected to raise about $200 million in a deal expected to price on Wednesday. Cantor is sole book running manager on that deal with BTIG acting as lead manager, according to the company’s prospectus. The company has applied to list on the New York Stock Exchange under the ticker symbol “PVT.U.”
Pivotal will focus its search for acquisition targets on companies in North America that are ripe for disruption from digital technology.
“Segments we might explore include, but are not limited to, logistics technology and “last mile” delivery services, business technology services, online cybersecurity and offline physical security services, media and entertainment services and franchise businesses,” says the prospectus.
The Renaissance IPO ETF
has gained about 16% in 2019 so far, while the Renaissance International IPO ETF
has gained 6%.
By comparison, the S&P 500
has gained 5% and the Dow Jones Industrial Average
has gained 4.6%.
Source: Ipo Search Results