News & Insights

Mergers and Acquisitions – Brokers

By Paul Evelius

The SEC’s Division of Trading and Markets has issued a “no action” letter which should reduce the cost of brokered merger and acquisition (“M&A”) transactions involving private businesses. The letter provides assurance that, assuming certain conditions exist, the Division will not recommend that the SEC take enforcement action under the Securities Exchange Act of 1934 against a broker who facilitates an M&A transaction without registering as a broker-dealer.

Several of the conditions which must exist are: (i) The broker must not have the ability to bind parties to the M&A transaction and must not finance the transaction; (ii) the broker must not have possession, custody, or control of funds or securities issued or exchanged in connection with the transaction; (iii) the transaction must not be a public offering; and (iv) the buyer must be the person or entity that will actively operate the target company after the transaction.

Because the costs of registering as a broker-dealer are significant and M&A brokers often pass those costs on to their clients, the letter is welcome news for businesses as well as brokers.