U.S. Government Shutdown Poses Risks for IPO Market Recovery

The ongoing U.S. government shutdown is raising concerns for private companies eager to enter the public market. As the market for initial public offerings (IPOs) shows signs of recovery after a downturn in 2022, the lack of government oversight could stall this momentum. According to data from Renaissance Capital, there have been 163 deals and $31 billion in proceeds raised in the IPO market so far this year, marking the best performance since 2021.

The Securities and Exchange Commission (SEC), which plays a critical role in reviewing and approving IPO filings, is currently functioning with minimal staff due to the shutdown. This situation has led to significant delays and may halt approvals altogether. The impact extends beyond technicalities; a prolonged shutdown might undermine confidence in U.S. markets and the broader economy.

Investor sentiment has remained relatively resilient throughout 2023, despite a backdrop of uncertainty, including fluctuating trade policies, inflation concerns, and a softening job market. Samuel Kerr, head of global equity capital markets at Mergermarket, noted that the shutdown is a stark reminder of the challenges facing the market. “It reminds you that we’re not operating in normal times,” Kerr commented.

As September progresses, IPO activity tends to remain robust, typically tapering off in the final months of the year. Investors, drawn to IPOs as an alternative amid high stock valuations—particularly in the technology sector—see these offerings as attractive entry points. The recent surge in major IPOs highlights this trend, especially in tech-related fields like cryptocurrency and artificial intelligence.

Circle Internet Group, a prominent player in the cryptocurrency space, made its public debut in June, raising approximately $1.1 billion. The company’s shares initially priced at $31 soared to around $152 on their first trading day. Similarly, cryptocurrency exchange Bullish raised around $1.1 billion in August, while cloud-computing firm CoreWeave garnered about $1.5 billion during its IPO in March.

In September, Klarna, the Swedish buy now, pay later company, entered the public market with a notable IPO that raised $1.37 billion, making it the largest of the year. Pricing at $40, its shares are currently trading around $42.

Despite the challenges posed by the government shutdown, market conditions remain favorable for IPOs, according to Bill Smith, CEO of Renaissance Capital. In a note to investors, he remarked, “The IPO market still has a bit of gas in the tank.”

As private companies navigate these uncertain waters, the shutdown serves as a critical juncture that could reshape the landscape for upcoming IPOs. Investors and market participants will be closely monitoring developments in Washington, as the potential for renewed confidence hinges on a resolution to the ongoing impasse.