A Bill that would largely deregulate the M&A business for smaller private companies (defined as those with EBITDA of $25 million or less) has passed the House and is now before the Senate.
The proposed rule change would enable unregistered advisors to assist the owner of a smaller private company to sell the owner’s business.
In a coincident development, the SEC has issued a “no action letter” permitting unregistered advisors to assist private companies in M&A transactions. As is pointed out in the linked post from Faegre Baker Daniels, however, state laws may conflict with this new SEC position (and the pending legislation).
The M&A business for smaller private companies has, in my opinion, always been a bit “the wild west” where unregulated advisers could operate openly for years without penalty. This proposed rule change, therefore, may not trigger a fundamental change in behavior. Rather, it may formally permit what is effectively the “status quo”.
What this proposed change would not permit, however, is for an unregistered advisor to assist in an increasingly common engagement structure in which the adviser pursues both capital and M&A options. Often business owners will pursue parallel deal paths to determine the relative values to them of each alternative before making a decision. The rules surrounding registration of advisors who are raising capital for smaller private businesses is unchanged under this proposed legislation.
Click here to read a Forbes article for more background.
Click here to read a post on this topic by the law firm, Faegre Baker Daniels.