H.R. 2274, the Small Business Mergers, Acquisitions, Sales and Brokerage Simplification Act of 2013, was introduced in the U.S. House of Representatives by Rep. Bill Huizenga on June 6, 2013.  The bill is intended to reduce the regulatory costs incurred by buyers and sellers of smaller privately held companies for professional business brokerage services.  The legislation would create a simplified system for registration through a public notice filing with the Securities and Exchange Commission ("SEC") and would require appropriate client disclosures, pertaining to “M&A brokers” and their associates.  An M&A broker relying on this legislation would not be permitted to (i) receive, hold, transmit or have custody of the funds or securities to be exchanged in the transfer of ownership of an “eligible privately held company,” or (ii) engage on behalf of an issuer in a public offering of securities.

An “M&A broker” means a broker engaged in the business of effecting the transfer of ownership of an eligible privately held business , whether acting for the seller or buyer, through the purchase, sale, exchange, issuance, repurchase, or redemption of, or a business combination involving, securities or assets of the eligible privately held company, if the broker reasonably believes that (i) upon consummation of the transaction, the acquirer, acting alone or in concert with, will control and, directly or indirectly, will be active in the management of the eligible privately held company or the business conducted with the assets of the eligible privately held company; and (ii) if the person is offered securities in exchange for securities or assets of the eligible privately held company, such person will, prior to being bound to close the transaction, receive or have access to the most recent year-end balance sheet, income statement, statement of changes in financial position and statement of owner’s equity of the issuer of the securities to be offered in exchange, and, if the financial statements are audited, the related report of the independent auditor, a balance sheet dated not more than 120 days before the date of the offer, and information pertaining to the management, business, results of operations for the period covered by the financial statements and material loss contingencies of the issuer.

An “eligible privately held company” means a company that (i) is privately held and not required to file periodic information, documents or reports with the SEC, and (ii) in the fiscal year immediately preceding the fiscal year in which the business broker is initially engaged with respect to the securities transaction, the company meets either or both of the following conditions:

  • EBITDA is less than $25 million;
  • gross revenues are less than $250 million

We expect that SEC registered broker dealers and their associates will have an opinion on this legislation.