New Omnibus Bill Codifies M&A Broker-Dealer SEC Registration Exemption

January 17, 2023

On December 29, 2022, President Biden signed H.R.2617, the Consolidated Appropriations Act of 2023 (the “Omnibus Bill”), that included a rider in Title V establishing a statutory exemption for certain mergers and acquisitions brokers (“M&A Brokers”) from registering as broker-dealers1 when servicing private company buyers and sellers on qualifying transactions2. This M&A Brokers exemption largely adopts and codifies the longstanding SEC staff’s position in the 2014 M&A Brokers No-Action Letter (the “No-Action Letter”)3 (January 31, 2014, amended February 4, 2014), with the notable difference that the statutory exemption places a size cap on the private company being sold. The legislation becomes effective on March 30, 2023.

Background- M&A Brokers No Action Letter

In January 2014, the SEC’s Division of Trading and Markets granted no-action relief that allowed M&A Brokers in private M&A transactions to avoid registration with the Commission under Section 15(b) of the Exchange Act, provided certain limiting conditions were met. In the No-Action Letter, “M&A Brokers” were defined as an entity or individual engaging 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.”4 The No Action Letter provided relief on the basis that brokers may advertise a privately held company with information such as the description of the business, general location and price range, as long as certain conditions were met, including that the broker not have the ability to bind the parties to the transaction and that the transaction not involve a public offering or a shell company. The conditions did not include a cap on the size of the company.

The No-Action Letter permitted a M&A Broker to engage in the following activities without registering as a broker:

  • Represent buyer, seller or both, but the broker may represent both only if he or she discloses clearly, in writing, to both parties as to which parties he or she represents and obtains written consent from both parties to any joint representation;
  • Facilitate a transaction for any size of privately held company;
  • Advertise a company for sale, so long as there is no public offering of securities;
  • Participate in deal negotiations;
  • Advise the parties to issue securities or otherwise to effect the transfer of the business by means of securities, or assess the value of any securities sold; and
  • Receive transaction-based or other compensation, as agreed by the parties.

The No-Action Letter also included ten conditions for a M&A Broker to qualify for relief, including, among other things, that the broker must not: (i) have the ability to bind a party to a transaction; (ii) directly or indirectly provide financing for the transaction; (iii) have custody, control, or possession of or otherwise handle funds or securities issued; or (iv) have been previously barred from association with a broker-dealer by the SEC, any state or self-regulatory organization or been suspended from association with a broker-dealer, among other things.

Codification of the M&A Broker Exemption

Title V amends Section 15(b) of the Securities Exchange Act of 1934 by adding subsection (13) (the “Statutory Exemption”). The Statutory Exemption keeps intact most aspects of the original No-Action Letter, with a few differences, most notably by placing a size cap on eligible private companies. Now, to be eligible, a private company must have (1) no class of securities registered, or required to be registered, under Section 12 of the Exchange Act and (2) less than $250 million in gross revenue during its last fiscal year or less than $25 million in EBITDA in its last fiscal year.

The Statutory Exemption also defines an “M&A Broker” as a broker, whether acting on behalf of a buyer or seller, that is engaged in the business of effecting securities transactions solely in connection with the transfer of ownership of an eligible privately held company through the purchase, sale, exchange, issuance, repurchase, or redemption of, or a business combination involving, securities or assets of the company. The M&A Broker must reasonably believe that upon consummation of the transaction, any person(s) acquiring securities or assets of the company (a) will control the company5; and (b) directly or indirectly, will be active in the management of the company6.

In addition, the M&A Broker must not have performed certain prohibited activities. These activities generally mirror the prohibitions found in the No-Action Letter and include that the broker shall not: (i) have custody of the funds or securities to be exchanged by the parties, whether directly or indirectly; (ii) provide any financing to the transaction or (iii) engage in a transaction involving a shell company (other than a business combination related shell company). Also like the No-Action Letter, the M&A Broker must not have been previously barred or suspended from association with a broker or dealer.

The Statutory Exemption also narrows the custodial prohibition7 from funds or securities in connection with any M&A transaction to the funds and securities to be exchanged by the parties to the M&A transaction that is the subject of the sale.8

If you have any questions regarding the new statutory M&A Broker exemption, including whether you or your firm may qualify, please contact any of the attorneys listed below or your primary contact person at Seward & Kissel.


1 15 U.S.C. §§ 78a–78pp (2012)

2 Division AA, Title V, Small Business Mergers, Acquisitions, Sales and Brokerage Simplification (H.R.2617, 117th Cong. Div. AA, Title V, 501 (2022).

3 M&A Brokers No-Action Letter (January 31, 2014, amended February 4, 2014).

4 Id.

5 Title V (E) (ii) defines “control” as the power to, directly or indirectly, direct the management or policies of a company, whether through ownership of securities, by contract, or otherwise. There is also the presumption of control, if , upon completion of a transaction, the buyer or group of buyers has (i) 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 mor of a class of voting securities, or (ii) in the case of partnership or limited liability company, the right to receive upon dissolution, or has contributed, 25 percent or more of the capital.

6 Title V (E) (iv)(I)(bb) lists examples, without limitation, of the kinds of management activities that show “active management” in the Company, including electing executive officers, approving the annual budget and serving as an executive or other executive manager.

7 See condition 3 in M&A Brokers No-Action Letter

8 Title V (E) (iv)(II) also prescribes that any person that is offered securities in exchange for securities or assets in the company, prior to being legally bound, receive, or have reasonable access, to the issuer’s most recent fiscal statements and any audited, review or compiled financial statements dated not more than 120 days before the date of the offer, as well as information pertaining to the management, business, operations and material loss contingencies of the issuer.