US IPO market hacks the government shutdown
The US IPO sector is open for business despite the ongoing government shutdown. Despite the inability of the US SEC to sign-off on IPO registration statements, eight companies have forced their way into the market by dropping a so-called delaying amendment that provides them immediate effectiveness in 20 days.
The IPO market is likely to go dark after the current batch of companies price their deals, assuming the government does not reopen for business, securities lawyers and bankers told IFR.
“It would be prudent to look at the first quarter instead," said one securities lawyer. "The windows for the rest of the year are narrow and interspersed with holidays. If the shutdown doesn't stop by Halloween, our backlog is likely to be pushed to January."
In addition to holidays — October 31, Thanksgiving Day (November 27) and Christmas — second-quarter financial results for companies with a December fiscal year-end go stale on November 12. After that, companies would require the SEC to review third-quarter results to allow them to go public.
The lack of SEC involvement has forced unorthodox means of forced entry onto the public markets, beginning with a trio of IPOs in early October that gained pre-effectiveness prior to the October 1 shutdown and eight companies that have dropped delaying amendments from their IPO registration statements that allow them to go public in 20 days.
The delaying amendment tactic allows for a 20% safe harbour provision to upsize/downsize afforded companies in functioning markets, after the SEC earlier this month relaxed its rules. MapLight, a Phase II biotech, amended its launch filing on October 6 before the new rules went into place at the fixed price required under the rules in place at the time.
Relax
Companies responded to the more relaxed SEC rules for IPOs without the delaying amendment by filing intentionally wide marketing ranges, providing them with flexibility on valuations within the 20% safe harbour.
Typically, in good times and bad, companies are obligated to publicly file their IPOs and then wait 15 days before beginning to market their deals.
Washington DC-based government lobbyist Public Policy accelerated that timeline a bit by filing an amended registration statement on October 21, just 11 days after initially filing. The revised filing outlines the sale of 4.1m shares, including 700,000 by selling shareholders, with the offering price to be set off the company's LSE AIM-listed shares.
Oppenheimer and Canaccord Genuity, the bookrunners on the Public Policy IPO, plan to begin marketing the deal on Monday October 27. The offering gains immediate effectiveness on November 10 trading at £11.05, implying a US$14.80 reference price for the cross listing.
The banks are on track to launch the public roadshow on Monday, October 27, ahead of effectiveness on November 10, just two days before its second-quarter results go stale.
The November 12 staleness date is the key gating item, bankers and lawyers say. The drop-dead deadline to file without the delay amendment was Friday, October 24. Andersen Group, crypto custodian bank BitGo and Jennifer Garner’s packaged fruit and vegetables pouch company Once Upon a Farm are on the clock, having publicly filed more than 15 days ago but yet to soft launch their IPOs.
This all assumes the US government remains in shutdown. Bankers are prepared to accelerate pricing of the current batch of deals in the market should the SEC reopen for business, and reconsider their pipeline for the rest of the year.