Warner Norcross + Judd LLP Partner Shane Hansen provided insight into a change in federal securities law that clarifies and simplifies the regulation of merger and acquisition (M&A) advisors and business brokers (M&A brokers) serving sellers and buyers of private companies. The new law exempts private company M&A brokers from regulation like investment bankers in public company M&A transactions. In the Grand Rapids Business Journal article “Local expert weighs in on new M&A legislation,” Hansen discusses the new exemption which amends the Securities Exchange Act of 1934, and its impact in private company M&A transactions.
Hansen served as principal draftsman of the legislation as securities counsel for the three leading national associations of M&A professionals: the Alliance of Merger and Acquisition Advisors, the International Business Brokers Association and the M&A Source and the Business Intermediary Education Fund in bringing this to Congress. “The purpose for this whole effort started with the ambiguity created when our ‘one-size-fits-all’ federal system of securities regulation is applied to private company merger and acquisitions transactions,” said Hansen.
Private company sellers and buyers negotiate the legal structure for their M&A transactions — usually the sale of its assets but sometimes the sale or exchange of its stock — turning an M&A broker into a “stockbroker.” Without this change in the law, to sell or exchange a private company’s stock in an M&A transaction required the M&A broker’s extensive and expensive registration as a “broker” with the Securities and Exchange Commission (SEC) and regulation by Financial Industry Regulatory Authority (FINRA) — just like Wall Street investment banking firms brokering public company M&A transactions. Impacting private company M&A transactions, the failure to be properly registered and regulated put the M&A transaction at risk.
“It’s helpful for small business owners to have the assurance that the M&A broker they’re using need not be securities licensed and regulated, and this legal change allows M&A brokers to provide their professional services at a more cost-effective price point,” said Hansen. Minimum engagement fees charged by registered and regulated investment bankers limited the affordability and availability of M&A brokerage services to smaller privately owned business sellers and buyers.
Read the full Grand Rapids Business Journal article here.
Hansen’s 40-year law practice concentrates on financial services regulation, primarily involving federal and state securities and banking laws, and FINRA regulation of member broker-dealers and their registered professionals. He advises broker-dealers, investment advisers, private fund advisers, M&A brokers, banks and family offices about a wide range of business, corporate, contract, compliance and regulatory topics. . Learn more about his practice here.
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