The government shutdown is causing many people and companies a lot of grief. And each day the government stays closed, the worse everything gets.
One thing that has investors concerned is the fate of IPOs. The U.S. Securities and Exchange Commission technically should be shut down right now, but it has funding from the last fiscal year, which is allowing it to continue business operations for a few weeks. This means the reviewing process for IPOs is still operating as normal.
But the money will run out soon, and then the SEC will have to operate at a minimal level. Only basic services such as law enforcement, computer system connections, and market monitoring will run as usual. This means it won’t be processing applications any longer, which would put the review of IPO filings on hold.
This has come at a horrible time for the IPO market. After years of slow growth, this past year has been booming. So far in 2013, 152 companies have been made public. That’s an increase of 54% since 2007, when there were only 213 IPOs for the entire year.
Companies and investors anxiously awaiting IPOs are even more nervous now because they might be put on hold – and this is particularly disconcerting as the highly-awaited Twitter IPO is anticipated soon.
The Wall Street Journal reported that Twitter might make public its S-1 filing this week. This should go off without a hitch, but if the company wants to make amendments, it would have to consult experts.
Should the government stay shut down long enough, the SEC will likely be out of funding by the time Twitter gets everything together. The company will then have to wait on the government.
This isn’t good news for Twitter. The company filed its S-1 confidentially because it wanted to avoid the type of hype that surrounded companies like Pandora and Facebook. Should the government reopen in the next few days, everything should go along smoothly. But if not, the company could run into trouble.
While many people thought the government shutdown was only going to last a day or two, it seems as though this will go on for much longer. Some are now speculating it could run for a week or more. No one wants think about what would happen if it ran any longer than that.
Since it takes a while for IPOs to be opened to the public, shutdown delays would mean it may not be until 2014 before Twitter and other large companies, such as Chrysler Group and the Winklevoss Bitcoin trust, go public.
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How the SEC’s Delay in IPOs Affects Investors
A delay in IPOs would be a disappointment for many investors, but there is still hope for some companies. David Martin, a partner at Covington and Burling LLP, told Reuters that large companies will fair better than smaller to mid-sized companies.
Large companies can file short form registration statements, which get pushed through automatically. Smaller companies likely don’t qualify for the short form, which means they won’t be able to break in.
Make sure to keep an eye on everything going on with Congress. Once the government reopens, be sure to follow all of the news surrounding Twitter, Chrysler, and others because the IPOs should not be too far off.
Keep in mind that if the government is able to reopen before the SEC runs out of funding, it won’t have any problems proceeding as normal. But if the government remains shut down much longer, it could take the SEC a while to get everything moving again.
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