By: Carl Barnes
Since the Supreme Court’s Landreth Timber decision in 1985, the sale of 100% of a company’s stock has been considered a securities transaction, regulated under the federal securities laws, even though the sale of 100% of the same company’s assets is not. Intermediaries who facilitate M&A deals for privately held companies must therefore be registered as broker-dealers under the Securities Exchange Act of 1934 and must be members of FINRA – or limit themselves to working only on asset deals. The initial and ongoing costs of registering as a broker-dealer with the SEC can be significant and it clearly isn’t in the best interests of clients for their intermediaries to try to force all transactions to be structured as asset deals. Consequently, although many intermediaries register, others skirt the law and hope for the best. Still others don’t even realize they are subject to regulation.
But wait – a bill currently before the House of Representatives may provide relief. H.R. 2274, the Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act of 2013, would provide a simplified notice-filing registration procedure for brokers who only facilitate M&A transactions involving the sale of private companies with earnings (EBITDA) of less than $25 million and revenue of less than $250 million. Many registrations would be effective upon filing.
After hearings in October, the House Financial Services Committee marked up the bill on November 14. H.R. 2274 appears to enjoy bi-partisan support and even the North American Securities Administrators Association likes it (read its testimony here) – and NASAA generally isn’t in favor of Washington DC’s recent moves to ease securities regulations. If H.R. 2274 becomes law, it will simplify life and reduce costs for many M&A brokers (costs that would otherwise be passed on to their clients), facilitate more deals and maybe even encourage registration and regulatory compliance by M&A brokers.
And if that happens, everyone wins.
For more information on this topic, please feel free to contact Carl.