Congress Passes H.R. 2617 with M&A Broker Registration Exemption

Congress Passes H.R. 2617 with M&A Broker Registration Exemption

There is excellent news in the M&A world with significant benefits for both M&A brokers and business owners who wish to sell their business.

The U.S. Congress recently passed H.R. 2617 or the Consolidated Appropriation Act 2023, and it was signed into law by President Biden. Included in this are many provisions including the Division AA, Title V, Small Business Mergers, Acquisitions, Sales and Brokerage Simplification effective March 29, 2023.

This provision exempts M&A brokers from securities broker registration under the Securities Exchange Act of 1934 by adding a conditional exemption from broker-dealer registration with the SEC for business brokers and M&A advisors in qualifying private company M&A transactions. This allows M&A brokers to legally facilitate private securities transactions involving qualifying privately held businesses or their assets. FINRA membership, registration, regulation, and jurisdiction are not applicable to the M&A broker.

Certain conditions apply including:

  • The buyer must be acquiring at least 25% of the business and will be directly or indirectly involved in managing the business
  • The business must be privately held and not have any class of securities registered or required to be registered with the SEC
  • EBITDA must be less than $25,000,000 or gross revenue must be less than $250,000,000
  • The broker must abide by several conditions such as not having custody of funds, not providing financing, and not transferring ownership to a passive buyer or group of buyers

It is also important to note that this does not preempt similar state-level securities licensing. There are currently 20 states that have granted similar M&A-related exemptions.

What do this mean for business owners? There are significant benefits for business owners who wish to sell their business. Before this exception, a business owner with a $50 million company was advised to hire a licensed investment banker and pay the fees associated with selling their business, such as high retainer and success fees. Now there is increased flexibility in who you can hire to advise you on selling your business. It will also be more affordable to sell your business because of the ability to hire an M&A advisor with lower overhead expenses and no fees associated with maintaining a security license.

This is a great moment in time that will help countless business owners and M&A brokers for many years to come. We must also thank industry leaders who have worked for this change for the last 16 years.

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