No-Action Relief from BD Registration for M&A Brokers
The staff of the SEC’s Division of Trading and Markets has issued no action relief allowing “M&A Brokers” to avoid broker-dealer registration. The staff defines “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 (as defined below) 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…” The staff imposed several limitations: (a) the M&A Broker “will not have the ability to bind a party to the transaction,” (b) the M&A Broker may not assume “custody, control, or possession” of funds or securities exchanged in a transaction, (c) the transaction does not involve a public offering; and (d) the buyer will “control and actively operate” the private company. The staff has made clear that the no-action letter relief “is limited solely to the transactions described.”
OUR TAKE: One big open issues is whether private equity sponsors may rely on this relief. We recommend that PE firms wait for, or seek, more clarification before deciding not to register as a BD. At this point, we believe that the relief may not help PE firms because of the requirements that an M&A Broker is engaged in the business of effecting securities transaction for private companies, that an M&A Broker may not bind a party to the transaction, and that an M&A Broker may not take custody of funds or securities.