Bill Would Jumpstart Small Company M&A By Cutting Red Tape

Jan 17 2014, 11:46am CST | by

Bill Would Jumpstart Small Company M&A By Cutting Red Tape

By Craig Barner

A bill aimed at reducing regulations on the sale of small private businesses is likely to receive approval in Congress.

If adopted, the Small Business Mergers, Acquisitions, Sales and Brokerage Simplification Act of 2013 under the U.S. House version (HR 2274), would grease the wheels for business brokers and investment bankers who focus on small private companies mostly because compliance costs would be sharply reduced.

On January 14, in an extremely rare example of overwhelming bipartisan support, the House approved HR 2274 by a 422-0 vote. That same day, a companion bill, S 1923, was introduced in the Senate by Joseph Manchin III (D-W.Va.) and David Vitter (R-La.).

The Senate bill would amend the Securities Exchange Act of 1934 to exempt from registration brokers who help facilitate the sales of small and medium privately held companies—those with EBITDA of $25 million or less, says Michael Nall, president of the Alliance of Merger & Acquisition Advisors (AMAA), a supporter of the bill.

Under the 1934 act, brokers pay registration fees, which usually range between $5,000 and $75,000 a year, to the Financial Industry Regulatory Authority (FINRA), Nall says. In addition, initial set-up and compliance costs often exceed $150,000, according to testimony before a subcommittee of the House Committee on Financial Services by Shane Hansen, a partner with law firm Warner, Norcross & Judd on behalf of the AMAA.

Brokers generate on average $200,000 to $300,000 in commissions a year. The registration fees paid by brokers to FINRA might not be “back breaking” but they are “significant,” Nall contends.

By lowering compliance costs, which are passed along to business owners, Nall says retiring Baby Boomers may be more likely to sell their businesses than shut them down. And he notes there is already “pent-up demand” for acquisitions among strategic buyers and private-equity firms with “record” amounts of cash to deploy. The bill “will open the flood gates,” Nall predicts.

The Senate has not yet taken up the bill, but Nall expects activity related to it by the end of March. If passed, the bill would be sent to President Obama for his approval or bundled into other legislation.

Regardless of the form it would take, the bill is expected to win the president’s approval, Nall says. In April 2012, he notes, Obama signed the JOBS Act, short for Jumpstart Our Business Startups Act, a law intended to encourage funding of small businesses by easing regulations. Now, the JOBS Act 2.0 is being considered in Congress.

Job prospects would likely improve under the measure, Nall says. During the Great Recession, the average large company jettisoned 2,000 jobs, but the average small private employer added 20 jobs, he notes, citing data from a study by Ohio State University. If small companies are kept afloat by selling to larger companies, employment numbers could benefit, he says.

As the Senate sorts through these issues, Nall notes that there is no organized opposition to the bill. FINRA has not taken a position on the legislation, according to a spokesperson.

Also, in October, A. Heath Abshure, a securities commissioner in Arkansas and Immediate Past President of the North American Securities Administrators Association (NASAA), an association of state-based regulators, said state securities administrators “generally” support HR 2274 and that NASAA “welcomes its introduction.”

Craig Barner is based in Chicago and is a reporter for Mergermarket. He can be reached at

Source: Forbes Business


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