Consolidated Appropriations Act of 2023 Provides Security for M&A Brokers

Consolidated Appropriations Act of 2023 Provides Security for M&A Brokers

2023 M&A Broker Regulation Update

Requirements and eligibility for broker-dealer registration exemption

Mergers and acquisitions (M&A) brokers have experienced a record number of transactions over the past few years with over 65,000 deals made in 2021. While the number of deals has decreased since 2021, the outlook is still bright as baby boomers continue to explore succession plans and as private equity entities continue to enter new markets. Regulation plays a key role in the operation and trajectory of the M&A industry.

The Securities and Exchange Commission (“SEC”) refers to an M&A broker 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.”

Overview of 2014 SEC no-action letter impacting M&A brokers

An important regulation that impacted M&A brokers was the exemption of certain M&A brokers registering as broker-dealers. In January 2014, the SEC provided a no-action letter regarding Section 15(b) of the Securities and Exchange Act of 1934 (the “Exchange Act”). This allowed for certain M&A brokers to operate as buy-side and sell-side brokers without registering as a broker-dealer.

Requirements for M&A broker exemption

The no-action letter provided the following list of requirements for M&A brokers to be exempt from registering as a broker-dealer:

  1. “The M&A broker will not have the ability to bind a party to an M&A transaction
  2. An M&A broker will not directly, or indirectly through any of its affiliates, provide financing for an M&A transaction.” M&A brokers are allowed to assist purchasers to obtain financing from an unaffiliated third party but must comply with all applicable legal requirements.
  3. “Under no circumstances will an M&A broker have custody, control, or possession of or otherwise handle funds or securities issued or exchanged in connection with an M&A transaction.
  4. No M&A transaction will involve a public offering.
  5. To the extent an M&A broker represents both buyers and sellers, it will provide clear written disclosure as to the parties it represents and obtain written consent from both parties to the join representation.
  6. An M&A broker will 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. The buyer, or group of buyers, in any M&A transaction will, upon completion of the M&A transaction, control and actively operate the company or the business conducted with the assets of the business.
  8. No M&A transaction will result in the transfer of interests to a passive buyer or group of passive buyers.
  9. 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 because the securities would have been issued in a transaction not involving a public offering.
  10. The M&A broker (i) has not been barred from association with a broker-dealer by the Commission, any state or any self-regulatory organization; and (ii) is not suspended from association with a broker-dealer.”

While no indication was made of the no-action letter being revoked, M&A brokers continued to operate with the uncertainty of the status of the letter. However, the uncertainty was put to ease with the passing of the Consolidated Appropriations Act of 2023 by Congress. The Act put the no-action letter into codification, creating a new exemption from broker-dealer registration (Section 15(b)(13)), and caused the SEC to withdraw their response to the no-action letter.

Key difference in the Consolidated Appropriations Act

There is one key difference between the no-action letter and the Consolidated Appropriations Act that M&A brokers need to be aware of going forward. This major difference is related to the definition of eligible privately held companies. Previously, there was no EBITDA or revenue threshold for an eligible privately held company.

The codification created two additional conditions for a private company to be an eligible company including:
  1. “The earnings of the company before interest, taxes, depreciation, and amortization (“EBITDA”) are less than $25,000,000.
  2. The gross revenues of the company are less than $250,000,000.”

Both conditions are for the fiscal year leading up to the year an M&A broker is engaged with respect to the securities transaction. The numbers will be adjusted with inflation every five years. If the M&A broker provides buy-side or sell-side advisory services to a privately held company with EBITDA or revenue above the thresholds above, the M&A broker must consider registering as a broker-dealer as they may no longer be an exempt M&A broker.

The Keiter Financial Service industry team closely monitors new and changing regulations that impact financial services firms, including broker-dealers. Questions on this topic or other broker-dealer regulations? Contact your Keiter Opportunity Advisor today. Email | Call: 804.747.0000



SEC's No Action Letter for M&A Brokers

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About the Author

Overton Ragland

Overton is focused on developing a thorough understanding of his clients’ businesses and delivering high quality client service. He primarily provides assurance services in the form of audit and review engagements, but also enjoys partnering with his clients to complete quality of earnings and working on the buy-side and sell-side of transactions to assist with appropriate pricing and overall strategy of the business. Overton is a member of the Firm’s Private Equity services team, Financial Services team, and Transaction and Turnaround Services team.


The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.


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