The SEC’s Division of Trading and Markets stated that it would not recommend enforcement action if a “mergers and acquisitions broker” were to engage in the sale or purchase of a privately held company without registering as a broker-dealer under Securities Exchange Act of 1934 Section 15(b). Lee M&A Brokers, SEC, No-Action Letter, avail, 1/31/14,

An “M&A broker” is a broker in the business of effecting securities transactions solely in connection with the transfer of control and ownership of a privately held company via transactions involving securities assets of the company, to a buyer that will actively operate the company.  A private company does not have its securities registered with the SEC, and is not subject to Exchange Act reporting requirements.  Further, if the transaction were structured as an asset sale not involving the sale of securities, a person would not be required to register as a broker-dealer.

The Staff granted the request for no-action relief.  The Staff noted in particular, the following representations:

  • the M&A broker will not have the ability to bind a party to an M&A transaction;
  • the M&A broker will not provide financing for an M&A transaction;
  • the M&A broker will not handle funds or securities issued or exchanged in connection with an M&A transaction;
  • no M&A transaction will involve a public-offering and no party to an M&A transaction shall be a shell company, other than a “business combination related shell company”;
  • if an M&A broker represents both buyers and seller, it will provide clear written disclosure and will obtain written consent from both parties;
  • an M&A broker may facilitate an M&A transaction with a group of buyers only if the group is created without the broker’s assistance;
  • the buyer will actively control the company with the assets of the business;
  • an M&A transaction shall not result in the transfer of interests to a passive buyer;
  • any securities received by the M&A broker or the buyer will be “restricted securities” under Securities Act of 1933 Rule 144(a)(3); and
  • the M&A broker has not been barred from association with a broker-dealer; and is not currently suspended.

The staff said its position is limited to the registration requirements of Exchange Act Section 15(a).

In short, this is a very limited departure for the SEC, and is consistent with prior no-action relief.