President Biden signed the Consolidated Appropriations Act of 2023 last December. This $1.7 trillion omnibus spending bill funds the federal government’s operations, but amidst the countless details are amendments to the Securities Exchange Act of 1934 on mergers and acquisitions deals.
M&A advisors and brokers helped rewrite the rules. The goal is to make selling, buying or merging closely held companies easier. According to advocates, the new exemptions better provide cost-saving strategies and better facilitate control transactions for closely held or privately held companies with less than $250 million in gross revenue during their last fiscal year—these changes were enacted on March 29, 2023.
Fewer broker and advisor registrations
The SEC now offers exemptions for merger and acquisition broker-dealer registration. These changes address the purchase, sale, repurchase, issuance, redemption, or some combination of assets or securities for privately held companies.
The exemptions apply if the broker or advisor believes the buyer will control one-quarter of the company shares and actively operate the business. The buyer should also receive such disclosure documents as annual fiscal statements, material loss contingencies, details about management, and other business dealings.
Broker and advisor restrictions
The broker or advisor must earn less than $25 million (before taxes, depreciation and amortization). Other restrictions are:
- They cannot help find investors to buy the company.
- They cannot represent buyers and sellers unless they notify both parties in writing and the parties sign the notification.
- They can only work with a shell company if it was explicitly formed to buy the company.
- They cannot directly or indirectly hold, handle or receive funds or securities tied to the deal.
- They cannot facilitate transferring ownership from active to passive.
- Force a party to transfer ownership to an ineligible company.
A long time coming
The concepts behind these much-needed exemptions have appeared in many bills in recent years, but they were only passed now. It should be noted that this change is at the federal level, so state laws on mergers and acquisitions may or may not be impacted. With these changes, working with business law attorneys who handle mergers and acquisition deals is more essential than ever.
