Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act - H.R.477

Summary

H.R. 477 creates a simplified registration system with the U.S. Securities and Exchange Commission for certain brokers known as merger and acquisition (M&A) brokers that perform services in connection with the transfer of ownership of smaller privately held companies.

Specifically the bill, would exempt certain M&A brokers from Federal registration under section 15 of the Securities Exchange Act and would apply to M&A transactions involving the sale of privately owned business with annual earnings of less than $25,000,000 or annual gross revenue of $250,000,000. The exemption, however, does not extend to transactions involving shell companies or to M&A brokers who handle or have custody of the funds or securities to be exchanged by the parties in the transaction. Further, any broker or associated person who is a “bad actor,” or subject to suspension or revocation of registration, is disqualified from relying on the exemption.

Background

M&A brokers provide important services to small businesses who want to sell or merge with other businesses. The brokers provide education on the selling process, help prepare businesses for sale, analyze the company’s financials and business, perform or coordinate valuation, advise on potential capital sources and structure, prepare business offering information packages, identify, screen, and market the business to qualified potential buyers, assist in organizing and facilitating the buyer’s due diligence, and coordinate with the parties’ lawyers, accountants and consultants. M&A brokers that serve as intermediaries and provide these services in small private company transactions face substantial cost burdens for complying with regulations due to the one-size-fits-all regulations associated with broker-dealer registration—costs that eventually get passed down to the companies that hire the brokers.

A similar provision was included in Title IV, Section 401, of H.R. 10, the “Financial CHOICE Act of 2017”, which passed the House on June 8, 2017 by a vote of 233-186, and in the 113th  Congress, the same bill  passed the House by a vote of 422 to 0. The legislation is similar to a model rule that has been adopted by the North American Securities Administrators Association (NASAA), which would exempt M&A brokers from registration in the states that adopt the model.

Amendments

1. Rep. Brad Sherman (D-CA) – This amendment makes several changes that provide additional protections for investors and small businesses, which will align the bill with a Securities and Exchange Commission no-action letter issued January 31, 2014. 

Cost

 The Congressional Budget Office (CBO) estimate is unavailable for this legislation.

Democratic Whip Steny Hoyer:

This bill would exempt merger and acquisition brokers from registering with the Securities and Exchange Commission (SEC) as broker-dealers, and exempt them from the 1970 Securities Investor Protection Act.  This legislation specifies the exemption applies to brokers that facilitate the transfer of ownership of privately held companies with earnings of less than $25 million or revenues of less than $250 million annually.
 
House Republicans are bringing H.R. 477 to the Floor simply to fill time.  Republicans are trying to find legislation to debate on the Floor while a Conference Committee works at a feverish pace to pass tax cuts for the wealthy, at the expense of the middle-class.
 
The Rule provides for one hour of general debate and makes in order 1 amendment, debatable for 10 minutes, equally divided between the offeror and an opponent.  The amendment is: 

Sherman/Huizenga Amendment. Makes several changes that provide additional protections for investors and small businesses, which will align the bill with a Securities and Exchange Commission no-action letter issued January 31, 2014. Specifically the amendment includes provisions that would prohibit passive buyers in the M&A transaction, prohibit M&A brokers from binding a party to a transfer of ownership, prohibit M&A brokers from providing financing for the transfer, and require M&A brokers who represent both the buyer and seller to disclose that to both parties and receive written consent.