• OceanServer Technology, Inc.
  • Acquisition by L3 Technologies (NYSE:LLL)
  • National Dentex Corporation
  • Public company merger with GeoDigm Corporation
  • BrandMuscle, Inc.
  • Aquisition of Saepio Technologies, Inc.

SEC Provides Registration Relief For M&A Advisors

Thomas Brennan, Michael Andresino, David Barbash February 10, 2013

On January 31, 2014, the staff of the Securities and Exchange Commission (“SEC”) issued a “no action” letter that departs from prior guidance and provides federal exemptive relief to financial advisors (referred to by the SEC as “M&A Brokers”), who facilitate mergers, acquisitions, business sales, and business combinations (“M&A Transactions”) of privately held companies without regard either to the size of such  company or the structure of the transaction, provided that certain conditions are met.  The exemptive relief contemplates that M&A Brokers may engage in activities, including advertising a privately held company for sale (with information such as the description of the business, general location, and price range) and in consideration of such activities receive a transaction-based fee  without registering as broker-dealers under federal securities laws.

Definition of M&A Broker

In the “no action” letter, an “M&A Broker” is defined as a “person engaged in the business of effecting securities transactions solely in connection with the transfer of ownership and control of a privately-held company through the purchase, sale, exchange, issuance, repurchase, or redemption of, or a business combination involving, securities or assets of the company, to a buyer that will actively operate the company or the business conducted with the assets of the company.” 

Conditions and Representations

The SEC staff limited the exemptive relief by highlighting certain assumptions and conditions relied upon in issuing its “no action” letter, including the following:

  1. No ability to bind parties. The M&A Broker may not have the ability to bind a party to an M&A Transaction.
  2. Prohibition on financing. The M&A Broker may not directly, or indirectly through any of its affiliates, provide financing for an M&A Transaction.  However, the M&A Broker may assist purchasers in obtaining financing from unaffiliated third parties in compliance with all applicable legal requirements.
  3. No control of funds or securities. The M&A Broker shall not have custody, control, or possession of or otherwise handle funds or securities issued or exchanged in connection with an M&A Transaction or other securities transaction for the account of others.
  4. No public offerings or shell companies. The relief is not applicable to M&A Transactions involving a public offering or a shell company.  Any offering or sale of securities must be conducted in compliance with an applicable exemption from registration under applicable federal and state securities laws.
  5. Adequate disclosures regarding dual representation. If an M&A Broker represents both the buyer and seller, it must provide clear written disclosure and obtain written consent from both parties to the joint representation.
  6. Prohibition on providing assistance to form a buyer group. An M&A Broker may facilitate an M&A Transaction with a group of buyers only if the group is formed without the assistance of the M&A Broker.
  7. Control of acquired business; Operations. The buyer, upon completion of the M&A Transaction, must control and actively operate the company or the business conducted with the acquired assets.  The requisite control can be demonstrated through the power, directly or indirectly, to direct the management or policies of a company, whether through ownership of securities, by contract, or otherwise.  Further, the SEC indicated that the requisite control will be presumed to exist if, upon completion of the transaction, the buyer has the right to vote or dispose of twenty-five percent (25%) or more of a class of voting securities, or in the case of a partnership or limited liability company, has the right to receive upon dissolution or has contributed twenty-five percent (25%) or more of the capital.  An M&A Transaction is not covered by the relief if it will result in the transfer of interests to a passive buyer or group of passive buyers.
  8. Restricted securities. Any securities received by the buyer or M&A Broker in an M&A Transaction will be restricted securities within the meaning of Rule 144(a)(3) under the Securities Act of 1933.
  9. Barred individuals. The M&A Broker (and, if the M&A Broker is an entity, each officer, director or employee of the M&A Broker) may not: (i) have been barred from association with a broker-dealer by the SEC, any state or any self-regulatory organization; or (ii) be suspended from association with a broker-dealer. 

In addition, the SEC staff limited its analysis to the registration requirements of Section 15(a) of the Exchange Act and expressed no view with respect to any other questions raised by an M&A Transaction, including, but not limited to, the applicability of other federal or state laws to the operations of M&A Brokers.  Further, it is important to note that other provisions of the federal securities laws, including but not limited to, anti-fraud provisions, continue to apply to M&A Transactions and M&A Brokers.


The guidance by the SEC staff in this “no action” letter represents a significant change in the historical view of the SEC regarding the registration requirements of M&A Brokers in transactions involving the sale of securities between privately held buyers and sellers.  However, this exemptive relief applies only to federal broker-dealer registration requirements, and any M&A Broker must still analyze any state registration requirements with respect to its activities in connection with M&A Transactions. 

If you have any questions about this topic, please contact any of the following attorneys in our Securities Group: Thomas S. Brennan, Michael L. Andresino, David M. Barbash and Emily Ladd-Kravitz.

This Alert is provided for information purposes only, and does not constitute legal advice.  According to Mass. SJC Rule 3:07, this material may be considered advertising. ©2014 Posternak Blankstein & Lund LLP.  All rights reserved.

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