During 2014, Congress has gained momentum toward creating an exemption from federal broker-dealer registration for “M&A brokers” who facilitate mergers, acquisitions, sales and similar transactions involving privately held companies.

H.R. 2274 unanimously passed the U.S. House of Representatives, but the U.S. Senate did act on the bill. If passed, the measure would have permitted M&A brokers to be involved with the sale of certain privately held companies without being registered as a broker-dealer. A number of limitations apply to the type of transaction addressed in the bill, including:

  • The size of the privately held company
  • Company leadership; the buyer would need to be actively involved, directly or indirectly, in operating the business after closing
  • Client funds; the bill forbids the M&A broker to have custody of client funds

Observers expect the bill to be reintroduced in 2015.

Shortly after H.R. 2274 passed the U.S. House, the Securities and Exchange Commission issued the M&A broker no-action letter, which concluded that the staff of the SEC Division of Trading and Markets would not recommend enforcement action if, without registering as a broker-dealer, an M&A broker engaged in M&A activities if all of the no-action letter’s conditions were satisfied. Among those conditions are that the target company must be an operating company that is a “going concern,” the buyer must be involved in operating the business after closing, and an M&A broker cannot bind a party to an M&A transaction or provide financing for an M&A transaction.

State regulators, in collaboration with the North American Securities Administrators Association, are developing a complementary model rule under state securities laws that would allow M&A brokers to be engaged in certain M&A transactions under state registration exemptions.