Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act of 2021
Floor Speech
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Mr. GARCIA of Illinois. Madam Speaker, I move to suspend the rules and pass the bill (H.R. 935) to amend the Securities Exchange Act of 1934 to exempt from registration brokers performing services in connection with the transfer of ownership of smaller privately held companies, as amended.
The Clerk read the title of the bill.
The text of the bill is as follows: H.R. 935
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. SHORT TITLE.
This Act may be cited as the ``Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act of 2021''. SEC. 2. REGISTRATION EXEMPTION FOR MERGER AND ACQUISITION BROKERS.
Section 15(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(b)) is amended by adding at the end the following:
``(13) Registration exemption for merger and acquisition brokers.--
``(A) In general.--Except as provided in subparagraphs (B) and (C), an M&A broker shall be exempt from registration under this section.
``(B) Excluded activities.--An M&A broker is not exempt from registration under this paragraph if such broker does any of the following:
``(i) Directly or indirectly, in connection with the transfer of ownership of an eligible privately held company, receives, holds, transmits, or has custody of the funds or securities to be exchanged by the parties to the transaction.
``(ii) Engages on behalf of an issuer in a public offering of any class of securities that is registered, or is required to be registered, with the Commission under section 12 or with respect to which the issuer files, or is required to file, period information, documents, and reports under subsection (d).
``(iii) Engages on behalf of any party in a transaction involving a shell company, other than a business combination related shell company.
``(iv) Directly, or indirectly through any of its affiliates, provides financing related to the transfer of ownership of an eligible privately held company.
``(v) Assists any party to obtain financing from an unaffiliated third party without--
``(I) complying with all other applicable laws in connection with such assistance, including, if applicable, Regulation T (12 C.F.R. 220 et seq.); and
``(II) disclosing any compensation in writing to the party.
``(vi) Represents both the buyer and the seller in the same transaction without providing clear written disclosure as to the parties the broker represents and obtaining written consent from both parties to the joint representation.
``(vii) Facilitates a transaction with a group of buyers formed with the assistance of the M&A broker to acquire the eligible privately held company.
``(viii) Engages in a transaction involving the transfer of ownership of an eligible privately held company to a passive buyer or group of passive buyers.
``(ix) Binds a party to a transfer of ownership of an eligible privately held company.
``(C) Disqualification.--An M&A broker is not exempt from registration under this paragraph if such broker (and if and as applicable, including any officer, director, member, manager, partner, or employee of such broker)--
``(i) has been barred from association with a broker or dealer by the Commission, any State, or any self-regulatory organization; or
``(ii) is suspended from association with a broker or dealer
``(D) Rule of construction.--Nothing in this paragraph shall be construed to limit any other authority of the Commission to exempt any person, or any class of persons, from any provision of this title, or from any provision of any rule or regulation thereunder.
``(E) Definitions.--In this paragraph:
``(i) Business combination related shell company.--The term `business combination related shell company' means a shell company that is formed by an entity that is not a shell company--
``(I) solely for the purpose of changing the corporate domicile of that entity solely within the United States; or
``(II) solely for the purpose of completing a business combination transaction (as defined under section 230.165(f) of title 17, Code of Federal Regulations) among one or more entities other than the company itself, none of which is a shell company.
``(ii) Control.--The term `control' means the power, directly or indirectly, to direct the management or policies of a company, whether through ownership of securities, by contract, or otherwise. There is a presumption of control if, upon completion of a transaction, the buyer or group of buyers--
``(I) has the right to vote 25 percent or more of a class of voting securities or the power to sell or direct the sale of 25 percent or more of a class of voting securities; or
``(II) in the case of a partnership or limited liability company, has the right to receive upon dissolution, or has contributed, 25 percent or more of the capital.
``(iii) Eligible privately held company.--The term `eligible privately held company' means a privately held company that meets both of the following conditions:
``(I) The company does not have any class of securities registered, or required to be registered, with the Commission under section 12 or with respect to which the company files, or is required to file, periodic information, documents, and reports under subsection (d).
``(II) In the fiscal year ending immediately before the fiscal year in which the services of the M&A broker are initially engaged with respect to the securities transaction, the company meets either or both of the following conditions (determined in accordance with the historical financial accounting records of the company):
``(aa) The earnings of the company before interest, taxes, depreciation, and amortization are less than $25,000,000.
``(bb) The gross revenues of the company are less than $250,000,000. For purposes of this subclause, the Commission may by rule modify the dollar figures if the Commission determines that such a modification is necessary or appropriate in the public interest or for the protection of investors.
``(iv) M&A broker.--The term `M&A broker' means a broker, and any person associated with a broker, engaged in the business of effecting securities transactions solely in connection with the transfer of ownership of an eligible privately held company, regardless of whether the broker acts on behalf of a seller or buyer, through the purchase, sale, exchange, issuance, repurchase, or redemption of, or a business combination involving, securities or assets of the eligible privately held company, if the broker reasonably believes that--
``(I) upon consummation of the transaction, any person acquiring securities or assets of the eligible privately held company, acting alone or in concert--
``(aa) will control the eligible privately held company or the business conducted with the assets of the eligible privately held company; and
``(bb) directly or indirectly, will be active in the management of the eligible privately held company or the business conducted with the assets of the eligible privately held company, including without limitation, for example, by--
``(AA) electing executive officers;
``(BB) approving the annual budget;
``(CC) serving as an executive or other executive manager; or
``(DD) carrying out such other activities as the Commission may, by rule, determine to be in the public interest; and
``(II) if any person is offered securities in exchange for securities or assets of the eligible privately held company, such person will, prior to becoming legally bound to consummate the transaction, receive or have reasonable access to the most recent fiscal year-end financial statements of the issuer of the securities as customarily prepared by the management of the issuer in the normal course of operations and, if the financial statements of the issuer are audited, reviewed, or compiled, any related statement by the independent accountant, a balance sheet dated not more than 120 days before the date of the offer, and information pertaining to the management, business, results of operations for the period covered by the foregoing financial statements, and material loss contingencies of the issuer.
``(v) Shell company.--The term `shell company' means a company that at the time of a transaction with an eligible privately held company--
``(I) has no or nominal operations; and
``(II) has--
``(aa) no or nominal assets;
``(bb) assets consisting solely of cash and cash equivalents; or
``(cc) assets consisting of any amount of cash and cash equivalents and nominal other assets.
``(F) Inflation adjustment.--
``(i) In general.--On the date that is 5 years after the date of the enactment of this paragraph, and every 5 years thereafter, each dollar amount in subparagraph (E)(iii)(II) shall be adjusted by--
``(I) dividing the annual value of the Employment Cost Index For Wages and Salaries, Private Industry Workers (or any successor index), as published by the Bureau of Labor Statistics, for the calendar year preceding the calendar year in which the adjustment is being made by the annual value of such index (or successor) for the calendar year ending December 31, 2021; and
``(II) multiplying such dollar amount by the quotient obtained under subclause (I).
``(ii) Rounding.--Each dollar amount determined under clause (i) shall be rounded to the nearest multiple of $100,000.''. SEC. 3. EFFECTIVE DATE.
This Act and any amendment made by this Act shall take effect on the date that is 90 days after the date of the enactment of this Act.
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Mr. GARCIA of Illinois. Madam Speaker, I yield myself such time as I may consume.
Madam Speaker, I rise today to urge passage of H.R. 935, the Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act of 2021. I thank its lead sponsors, Congressman Huizenga, who serves as the ranking member of the Subcommittee on Investor Protection, Entrepreneurship and Capital Markets, as well as Congresswoman Maloney who served as the chairwoman of the same subcommittee last Congress.
Congressman Huizenga and Congresswoman Maloney have come together to put forth a commonsense bill, which provides relief for small and midsize businesses who are looking to merge or sell their companies.
Generally, mergers and acquisitions brokers act as intermediaries who conduct negotiated sales of privately held small- and medium-sized companies. These so-called M&A brokers essentially help facilitate the transfer of ownership and control of such companies to a buyer.
The Securities and Exchange Commission, which oversees brokers, can become involved in these transactions because M&A brokers facilitate securities transactions when they connect a selling company to a buyer.
In 2014, the SEC, via a no-action letter, permitted M&A brokers to effect securities transactions with the transfer of ownership of privately held companies without registering as a broker-dealer. This no-action letter helps to account for the fact that small and midsize businesses have fewer resources to pay for the services of registered broker-dealers, and ultimately do not pose the kinds of potentially systemic risks that larger companies may pose.
H.R. 935 would codify the SEC 2014 no-action letter and will further clarify and simplify the registration regime for M&A brokers, which will reduce costs for buyers and sellers.
H.R. 935 is consistent with the North American Securities Administrators Association's model State regulation for M&A brokers, which exempts M&A brokers from State securities legislation.
Madam Speaker, I again thank Members on both sides for coming together on this bill, and I urge its passage, and I reserve the balance of my time.
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Mr. GARCIA of Illinois. Madam Speaker, I have no further speakers and I am prepared to close.
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Mr. GARCIA of Illinois. Madam Speaker, I reserve the balance of my time.
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Mr. GARCIA of Illinois. Madam Speaker, I yield myself the balance of my time.
Madam Speaker, I certainly hope the third time is the charm, as the sponsor of the bill has reiterated. H.R. 935 will provide legal certainty to certain financial intermediaries who serve and support small business owners and buyers.
The bill would codify a longstanding no-action letter by the Securities and Exchange Commission. I thank its sponsors, Mr. Huizenga and Mrs. Maloney.
Madam Speaker, I urge the speedy passage by the House, and I yield back the balance of my time.
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