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SEC Withdraws M&A Brokers No-Action Letter

Ross Marlin
Ross Marlin
Director, BD Compliance

On March 29, 2023, the Securities and Exchange Commission (SEC) withdrew its 2014 No-Action Letter for M&A Brokers (“M&A Brokers NAL”). The no-action letter allowed certain M&A Brokers to facilitate securities transactions in connection with the transfer and ownership of a privately held company without registering as broker-dealers, if certain conditions were met. However, in early 2022 Congress enacted a new federal exemption for M&A Brokers (“M&A Brokers Exemption”) which effectively rendered the M&A Brokers NAL obsolete. 

M&A Brokers are exempt from registration as broker-dealers under the new statutory exemption if they meet conditions similar to those that were required by the M&A Brokers NAL. However, the statutory exemption also includes some new elements, most notably establishing that the exemption is only available for transactions involving private companies with:

  • EBITDA in their last fiscal year of less than $25 million; and/or
  • Gross revenues in their last fiscal year of less than $250 million. 

For some M&A Brokers, this limitation on the size of eligible private companies will represent a major obstacle. 

In addition to examining the federal requirements for broker-dealer registration, M&A Brokers should continue to consider whether certain M&A activity may trigger state registration requirements. While the NASAA model rule and the federal M&A Brokers Exemption are similar, the majority of states have not adopted the NASAA model rule. Therefore, activities that are permissible under the M&A Brokers Exemption may still be prohibited without registering as a broker-dealer in many states.

SEC Withdraws M&A Brokers NAL
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