[Congressional Record Volume 160, Number 8 (Tuesday, January 14, 2014)]
[House]
[Pages H192-H196]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SMALL BUSINESS MERGERS, ACQUISITIONS, SALES, AND BROKERAGE
SIMPLIFICATION ACT OF 2013
Mr. GARRETT. Mr. Speaker, I move to suspend the rules and pass the
bill (H.R. 2274) to amend the Securities Exchange Act of 1934 to
provide for a notice-filing registration procedure for brokers
performing services in connection with the transfer of ownership of
smaller privately held companies and to provide for regulation
appropriate to the limited scope of the activities of such brokers, as
amended.
The Clerk read the title of the bill.
The text of the bill is as follows:
H.R. 2274
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Small Business Mergers,
Acquisitions, Sales, and Brokerage Simplification Act of
2013''.
SEC. 2. REGISTRATION EXEMPTION FOR MERGER AND ACQUISITION
BROKERS.
Section 15(b) of the Securities Exchange Act of 1934 (15
U.S.C. 78o(b)) is amended by adding at the end the following:
``(13) Registration exemption for merger and acquisition
brokers.--
``(A) In general.--Except as provided in subparagraph (B),
an M&A broker shall be exempt from registration under this
section.
``(B) Excluded activities.--An M&A broker is not exempt
from registration under this paragraph if such broker does
any of the following:
``(i) Directly or indirectly, in connection with the
transfer of ownership of an eligible privately held company,
receives, holds, transmits, or has custody of the funds or
securities to be exchanged by the parties to the transaction.
``(ii) Engages on behalf of an issuer in a public offering
of any class of securities that is registered, or is required
to be registered, with the Commission under section 12 or
with respect to which the issuer files, or is required to
file, periodic information, documents, and reports under
subsection (d).
``(C) Rule of construction.--Nothing in this paragraph
shall be construed to limit any other authority of the
Commission to exempt any person, or any class of persons,
from any provision of this title, or from any provision of
any rule or regulation thereunder.
``(D) Definitions.--In this paragraph:
``(i) Control.--The term `control' means the power,
directly or indirectly, to direct the management or policies
of a company, whether through ownership of securities, by
contract, or otherwise. There is a presumption of control for
any person who--
``(I) is a director, general partner, member or manager of
a limited liability company, or officer exercising executive
responsibility (or has similar status or functions);
``(II) has the right to vote 20 percent or more of a class
of voting securities or the power to sell or direct the sale
of 20 percent or more of a class of voting securities; or
``(III) in the case of a partnership or limited liability
company, has the right to receive upon dissolution, or has
contributed, 20 percent or more of the capital.
``(ii) Eligible privately held company.--The term `eligible
privately held company' means a company that meets both of
the following conditions:
``(I) The company does not have any class of securities
registered, or required to be registered, with the Commission
under section 12 or with respect to which the company files,
or is required to file, periodic information, documents, and
reports under subsection (d).
``(II) In the fiscal year ending immediately before the
fiscal year in which the services of the M&A broker are
initially engaged with respect to the securities transaction,
the company meets either or both of the following conditions
(determined in accordance with the historical financial
accounting records of the company):
[[Page H193]]
``(aa) The earnings of the company before interest, taxes,
depreciation, and amortization are less than $25,000,000.
``(bb) The gross revenues of the company are less than
$250,000,000.
``(iii) M&A broker.--The term `M&A broker' means a broker,
and any person associated with a broker, engaged in the
business of effecting securities transactions solely in
connection with the transfer of ownership of an eligible
privately held company, regardless of whether the broker acts
on behalf of a seller or buyer, through the purchase, sale,
exchange, issuance, repurchase, or redemption of, or a
business combination involving, securities or assets of the
eligible privately held company, if the broker reasonably
believes that--
``(I) upon consummation of the transaction, any person
acquiring securities or assets of the eligible privately held
company, acting alone or in concert, will control and,
directly or indirectly, will be active in the management of
the eligible privately held company or the business conducted
with the assets of the eligible privately held company; and
``(II) if any person is offered securities in exchange for
securities or assets of the eligible privately held company,
such person will, prior to becoming legally bound to
consummate the transaction, receive or have reasonable access
to the most recent year-end balance sheet, income statement,
statement of changes in financial position, and statement of
owner's equity of the issuer of the securities offered in
exchange, and, if the financial statements of the issuer are
audited, the related report of the independent auditor, a
balance sheet dated not more than 120 days before the date of
the offer, and information pertaining to the management,
business, results of operations for the period covered by the
foregoing financial statements, and material loss
contingencies of the issuer.
``(E) Inflation adjustment.--
``(i) In general.--On the date that is 5 years after the
date of the enactment of the Small Business Mergers,
Acquisitions, Sales, and Brokerage Simplification Act of
2013, and every 5 years thereafter, each dollar amount in
subparagraph (D)(ii)(II) shall be adjusted by--
``(I) dividing the annual value of the Employment Cost
Index For Wages and Salaries, Private Industry Workers (or
any successor index), as published by the Bureau of Labor
Statistics, for the calendar year preceding the calendar year
in which the adjustment is being made by the annual value of
such index (or successor) for the calendar year ending
December 31, 2012; and
``(II) multiplying such dollar amount by the quotient
obtained under subclause (I).
``(ii) Rounding.--Each dollar amount determined under
clause (i) shall be rounded to the nearest multiple of
$100,000.''.
SEC. 3. EFFECTIVE DATE.
This Act and any amendment made by this Act shall take
effect on the date that is 90 days after the date of the
enactment of this Act.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from New
Jersey (Mr. Garrett) and the gentlewoman from Alabama (Ms. Sewell) each
will control 20 minutes.
The Chair recognizes the gentleman from New Jersey.
General Leave
Mr. GARRETT. Mr. Speaker, I ask unanimous consent that all Members
have 5 legislative days within which to revise and extend their remarks
and to submit extraneous materials for the Record on H.R. 2274, as
amended, currently under consideration.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from New Jersey?
There was no objection.
Mr. GARRETT. Mr. Speaker, at this point, I yield myself such time as
I may consume.
I rise in support of this good piece of legislation, H.R. 2274. It is
the Small Business Mergers, Acquisitions, Sales, and Brokerage
Simplification Act. It is introduced by the gentleman from Michigan
(Mr. Huizenga), who will be speaking momentarily.
Mr. Speaker, during the period of overly burdensome Big Government--
of ObamaCare and of Dodd-Frank and thousands and thousands more
regulations costing Americans literally trillions of dollars--it is
really no surprise that the economic growth and job creation in this
country remain sluggish.
America's small businesses are the primary engine of job creation,
for they are the ones who are disproportionately affected by simply a
deluge of new rules and regulations coming out of Washington daily. In
fact, according to a recent survey, small businesses continue to
identify government regulation and red tape as the single most
important problem facing them.
While our colleagues in the Senate appear unwilling these days to
pass any legislation to help create jobs, well, we have H.R. 2274 in
the House that we take up, and it is done in a bipartisan manner. It is
a commonsense piece of legislation that will remove some of these
unnecessary regulations and obstacles to small business development,
growth, and job creation.
What it would do is exempt brokers who perform services in connection
with the transfer of ownership of small, privately held companies--that
are also known as M&A brokers--from the SEC's costly one-size-fits-all
registration requirements that we have right now.
While terms that we sometimes hear in the press and elsewhere--
mergers, acquisitions, brokers--may give you the image of big Wall
Streets and what have you, make no mistake about it, this bill is about
helping Main Street.
M&A brokers play a very, very important role helping small businesses
and small business owners successfully navigate their way through and
transfer their company, or sell their company, to new owners, new
enterprises, instead of simply closing up their shop and going out of
business.
Yet under the current SEC one-size-fits-all registration regime, M&A
brokers face a myriad of costly regulations. Unfortunately, M&A brokers
have to pass these costs on to, well, other small businesses and, of
course, eventually the public.
It is no wonder this legislation has now received widespread and
bipartisan support. In fact, this bill was unanimously approved by the
committee 57-0. Let me get that straight: 57-0.
I would like to thank the sponsor, Mr. Huizenga, for all his hard
work on this legislation and bringing it to the floor at a time like
this when America's small businesses are struggling through a mire of
regulation and red tape. This type of bipartisan pro-small business,
pro-jobs legislation is exactly the type of thing we need.
I urge my colleagues on both sides to pass it, as we did in the
committee, in a bipartisan manner.
Mr. Speaker, I reserve the balance of my time.
Ms. SEWELL of Alabama. Mr. Speaker, I yield myself such time as I may
consume.
Today, I rise in support of H.R. 2274, the Small Business Mergers,
Acquisitions, Sales, and Brokerage Simplification Act of 2013.
H.R. 2274 provides a much-needed exemption and clarification for
current M&A brokers who perform services in connection with the
transfer and ownership of small- and medium-sized businesses in
privately negotiated transactions.
Small- and medium-sized businesses play a critical role in our
economy. They provide jobs, they spur innovation, and they strengthen
our overall economy. In fact, over the past decade and a half,
America's small businesses and entrepreneurs have created 65 percent of
all new jobs in this country.
As businesses grow, many small- and medium-sized businesses reach a
point where they want to and need to expand their businesses. They turn
to mergers and acquisition professionals to facilitate such sales.
Currently, M&A brokers who facilitate the private sale of small- and
medium-sized privately owned companies must register with the SEC. SEC
registration as a broker also requires membership in FINRA--the
Financial Industry Regulatory Authority.
The burdens and costs of initial broker-dealer registration and
ongoing compliance with both SEC and FINRA requirements are
substantial. These costs adversely impact and unnecessarily increase
the costs that business owners incur to sell, buy, or grow their small-
and medium-sized businesses.
H.R. 2274 is a legislative acknowledgement that one size does not,
indeed, fit all when it comes to transactions. Prior to my election, I
was a securities lawyer with over a decade of experience working in
capital markets for a Wall Street law firm. I had the opportunity to
work on a variety of transactions.
Not all mergers and acquisitions are alike, and so not all require
the same type of registration and requirements. Some transactions are
privately negotiated transmissions of relatively small dollar amounts
with sophisticated investors, not for public sale. By streamlining and
simplifying the regulatory structures of these small- and medium-sized
businesses, we allow them to safely, efficiently, and effectively sell
their companies while preserving growth and protecting jobs in these
companies.
[[Page H194]]
This bill, H.R. 2274, allows smaller privately held companies to save
time and money on the services rendered during the transfer of
ownership allowing for smooth sale and transfer. To qualify for the
exemption, the transaction would have to involve a business with less
than $250 million in gross revenues and/or pre-tax earnings of less
than $25 million with no securities, and the buyer of the business is
someone who will actively manage and control the business, either
directly or indirectly.
I fully support this bipartisan legislation and its efforts to
simplify the regulatory structure in the sale and transfer of ownership
of small- and medium-sized businesses in privately negotiated
transactions.
This reform was welcomed by regulators and passed, as the chairman of
the subcommittee so accurately noted, by a vote of 57-0, unanimously,
with full bipartisan support. The ABA Private Placement Broker-Dealer
Task Force recommended this change in its 2005 report, which is
available on the SEC Web site. Similar recommendations to simplify
broker-dealer registration for M&A brokers were made in the final
report by the advisory committee to the SEC on small business companies
in 2006.
I think appropriately scaling Federal registration of M&A brokers is
a good thing. It is something that I would not only support, but
encourage my colleagues to support as well.
H.R. 2274 would amend the Exchange Act by adding a new subsection,
section 15, which would govern broker-dealer registration. The
amendment would cut regulatory costs incurred by sellers and buyers of
small-and mid-sized privately held companies in privately negotiated
transactions.
Federal law would continue to provide important investor protections
through the SEC registration and SEC regulation of the capital,
custody, margin, recordkeeping, bonding, and operational reporting
requirements applicable to M&A brokers, and existing State security
laws will continue to apply.
{time} 1245
I think that this is sensible legislation that should be supported by
both sides of the aisle. I am indeed honored to stand with my
colleagues in support of H.R. 2274.
Mr. GARRETT. I thank the gentlelady for working with us on this, as
she says, sensible piece of legislation.
And with that, I yield such time as the gentleman may consume to the
gentleman from Michigan (Mr. Huizenga), the sponsor of the legislation
before the House at this time.
Mr. HUIZENGA of Michigan. Mr. Speaker, I rise today to encourage
passage of H.R. 2274, the Small Business Mergers, Acquisitions, Sales,
and Brokerage Simplification Act. Maybe we need to work on the titles
getting a little simpler, too. It is very complex. It is a very complex
set of laws and rules that have been put in place.
I do want to say thank you to my subcommittee chairman, Mr. Garrett,
and Ranking Member Sewell for their work on this, as well as Chairman
Hensarling and Ranking Member Waters, as we have explored this and dove
headfirst, really, into this issue.
It has been estimated, Mr. Speaker, that there are approximately 10
trillion--that's ``trillion'' with a ``t''--privately-owned, small
family-owned type of businesses that will be sold or potentially closed
in the coming years as baby boomers retire.
Now, we want to see one of those things happen. We want people to see
the fruits of their hard work over the years, and we want to see them
be able to sell those companies. We don't want to see them close them
unnecessarily, because we know the impact that happens to small
communities, much like has happened in some of my hometown communities,
when we have seen that happen.
Mergers and acquisitions are also known as M&A. Brokers play a
critical role in facilitating the transfer of ownership of these
smaller privately held companies. Currently, all M&A brokers are
subject to costly, burdensome requirements which adversely impact and
unnecessarily increase the cost that business owners incur when they
buy or sell their businesses. Often we have heard anecdotally and
statistically that they have to make a decision sometimes. They can't
move ahead and can't really afford to sell that small--literally,
sometimes--corner store, mom-and-pop-type operation, and so they end of
closing it because they can't afford to go through the sale.
In fact, the issue has been highlighted by the SEC's Forum on Small
Business Capital Formation, which, for the last 7 years--that is over
the last two administrations, this current administration and the last
administration--has repeatedly recommended that the SEC modernize and
streamline the regulation of M&A brokers. But, unfortunately, the SEC
has never acted on these recommendations.
Well, we think the time is up. We believe that 7 years is long
enough. It is time that this body and hopefully our colleagues in the
Senate, as well, will take this bill and finally put some closure to
this issue. That is why I, along with Representatives Brian Higgins and
Bill Posey, introduced H.R. 2274. This bipartisan bill would create a
simplified system for brokers performing services in connection with
the transfer of ownership of smaller privately held companies.
By simplifying the regulation and reducing the cost of these business
brokerage services, these smaller privately owned companies would be
able to safely, efficiently, and effectively transfer their company,
preserving jobs currently in existence, while also allowing for
continued economic growth and job creation to take place at these
companies.
There is no risk to the public; there is no threat to the safety and
soundness of our economic system; but it is very, very important to
those communities that have those kinds of businesses in them and where
they are located.
In October 2013, a piece in The Hill newspaper, Michael Nall,
president of the Alliance of Merger & Acquisition Advisors, a leading
international organization serving the middle-market M&A industry,
stated:
H.R. 2274, the Small Business Mergers, Acquisitions, Sales,
and Brokerage Simplification Act of 2013 is an excellent
bipartisan bill, one whose time has come. Congress should get
it done before the end of the year.
Sorry, Mr. Nall. We are a little behind schedule, but we are getting
there.
He goes on:
It's not a sexy bill, not one that prime time TV will be
talking about, and not one that will evoke a question in the
next Presidential debates; but it is a bill that does have
teeth, and it is a serious and substantive piece of small
business legislation.
Well, maybe we can inject this into the next Presidential election
because this ultimately is about the foundation of our country. It is
about that ability for entrepreneurs to go out, strike out on their
own, go become successful and then reap the rewards of that and, all
the while, provide jobs to communities like we all represent.
Well, in today's highly charged political environment, it is nice to
show the American people that a positive, effective initiative can be
considered and passed with strong bipartisan support. In fact, this
important legislation, as has been mentioned, overwhelmingly passed the
Financial Services Committee by a bipartisan vote of 57-0. It is
legislation like H.R. 2274 that demonstrates Congress can act in a
bipartisan manner to positively impact the lives of Americans.
Mr. Speaker, with that I urge a ``yes'' vote on this legislation, and
I look forward to working with my Senate colleague to see H.R. 2274
make it to President Obama's desk.
I want to thank Chairman Garrett for his leadership on this issue.
Ms. SEWELL of Alabama. Mr. Speaker, I yield such time as he may
consume to the gentleman from Connecticut (Mr. Himes).
Mr. HIMES. Mr. Speaker, I thank my good friend from Alabama for
yielding me time, and my friend from New Jersey and Mr. Huizenga for
the sponsorship and leadership on this bill.
I rise in strong support of H.R. 2274.
We spend a lot of time in this Chamber talking about the American
Dream, and of course in many cases the apex of the American Dream is
when that entrepreneur who started a bunch of restaurants or car washes
or a local retailer or a local service organization, after working hard
over a period of a lifetime, has the opportunity to reap
[[Page H195]]
the rewards of that labor, to sell that business, and to really achieve
that success an individual worked a lifetime to do.
Of course, if you have run car washes or restaurants or retail
operations, you probably know very little about the very complicated
task of selling a small business. There is no reason in the world why
that transaction, which again is at the very apex of the American
Dream, should be overburdened by regulatory costs that don't make
sense.
At the end of the day, the M&A brokers that we are talking about here
are not selling stocks to retail investors. They are not marketing
mortgages. They are doing a very technical transaction that, again, is
so important to wealth creation in this country.
So I thank my colleagues on the other side.
I don't want to let the moment go by without reminding my good friend
from New Jersey that, as he blanket condemns regulation today on the
floor, there are 300,000 people without drinking water in West Virginia
today, in the greatest country on Earth, not because there is too much
regulation, but because the regulations weren't good enough.
Years ago in west Texas, a fertilizer train blew up, killing 15
people and injuring 160 people, not because there was too much
regulation, but because there was poor regulation.
In the area of our expertise, financial services, this economy was
also devastated, not because there was too much regulation, but because
there was effectively no regulation under derivatives--complicated,
large instruments that brought down institutions like AIG and others
because, before Dodd-Frank, you could go into a neighborhood and sell
somebody a mortgage without asking for their income.
We succeed and the economy succeeds because we do exactly this,
because we find the right balance. We acknowledge that good regulation
can save lives in Texas, drinking water in West Virginia, and prevent
the destruction of $17 trillion of American's wealth as occurred 5
years ago.
Again, I celebrate and thank my good friend from New Jersey and
promise to continue this dialogue on how we don't condemn all
regulation, but seek a balance that allows our economy to thrive as it
always has.
Mr. GARRETT. Mr. Speaker, the gentleman from Connecticut has the
unique ability, in order to come to the floor and work in a manner
where both sides said we had a bipartisan joint piece of legislation, a
jobs-creating legislation, to turn this moment into a partisan attack.
No, I never once said I am against a blanket condemnation of all
regulations. In fact, if the gentleman from Connecticut had listened
closely, he would have heard that we are, I think, in a bipartisan
manner, opposed to overly excessive regulation, regulation that does
not make sense, regulation that hurts jobs. I think that is what his
colleague also said. She is opposed to those unnecessary regulations,
and that is what this bill is about. We are in favor--I think the
gentlelady and I both said this--of smart regulation. That is what this
bill before us is about trying to achieve.
If he wants to take a look at bad regulation, all we need to do is
look at the excessive and the inappropriate regulation that we had
prior to the '08 crisis, the fact that we had examiners and regulators
in each and every one of the major failed institutions that led up to
this crisis, and those individuals failed to do their jobs. Those
individuals failed to find the problems before they came to a head.
Those individuals failed to find situations even when they were told
about them in such cases as Stanford or Madoff or a list of other ones
I could go down here as well.
We had regulators who did not perform their job. Even though they had
the authority, the ability, the financing, the money and everything
else necessary to do it, they turned a blind eye to it and failed to do
so. This is not a time for a partisanship. This a time to commend both
the sponsor of the legislation and the gentlelady who joins with me on
this to say that we can get together; we can find commonality when we
want to have smart legislation and smart regulation. And I think that
is what we should be commending and moving forward on this legislation
today.
With that, I don't believe we have any other speakers; but I reserve
the balance of my time to close, unless the minority have other
speakers.
Ms. SEWELL of Alabama. Mr. Speaker, I yield such time as he may
consume to the gentleman from Illinois (Mr. Schneider).
Mr. SCHNEIDER. Mr. Speaker, I rise in strong support of the Small
Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act
of 2013, H.R. 2274.
I want to thank Congresswoman Sewell and Congressman Huizenga for
bringing this bipartisan bill to the floor.
Small businesses are the fabric of our economy and oftentimes the
fabric of the communities in which we live. Many of these businesses
are family-owned businesses. They provide the wherewithal, the
stability, and the future aspirations for many families. These
businesses frequently are passed from generation to generation, but
sometimes the next generation does not or is not able to take over the
next business.
It is critical for our communities and critical for our economies
that these businesses are able to pass to a new owner to continue to
employ people, to continue to drive our economy, and that is exactly
what this bill does. It allows those businesses to bring in the
expertise, to bring in the knowledge, to bring in the capacity, to move
from generation to generation even outside the family. So that is why I
rise and I encourage my colleagues to support this bill.
Ms. SEWELL of Alabama. Mr. Speaker, I yield myself such time as I may
consume.
Right-sizing Federal regulation on M&A brokers in these small
business transactions I believe makes good sense. All of us have small-
and medium-size business owners in our districts who sooner or later
will want to sell or grow their businesses through acquisition or
transfer of ownership. They will seek advice and hire highly trained
professionals to help them find and screen potential targets. These
buyers and sellers are represented by lawyers and accountants who will
conduct the due diligence. They will rely on written representations
and warranties in these negotiated transactions for their protections.
We should reduce the barriers to capital formation, and this bill is
an important step towards that. This bill, by streamlining small
private transactions, will free up SEC resources to protect the public
against public markets and passive investors.
As baby boomers age, there is a tremendous transfer of wealth and
streamlining that will occur over the next generation. As my colleagues
so aptly said, it is estimated that over $10 trillion of privately
owned businesses will be sold or closed as baby boomers retire.
Jobs are preserved and created when existing businesses are acquired
by entrepreneurs or other companies. In Main Street, typically business
brokers play a vital role in facilitating these private business
mergers and acquisitions. This bill will encourage such business
growth.
Helping our small businesses is not a partisan issue. We all benefit
when small businesses grow and flourish. I look forward to continuing
to work with my colleagues on both sides of the aisle to make strategic
and economically beneficial policy decisions that will be smart
regulations, that will strengthen our economy and create jobs.
I urge my colleagues to vote ``yes'' on H.R. 2274, and I yield back
the balance of my time.
{time} 1300
Mr. GARRETT. Mr. Speaker, I begin by thanking the gentlelady for her
leadership on this legislation, adopting the word I just used, which is
smart regulation is smart legislation, but also the words you used as
well as far as reducing barriers and streamlining, which is really what
the gentleman from Michigan has accomplished in this legislation that
is before us.
The other takeaway I am going to take from the gentlewoman's comment
as well is twofold: A, this is being done in a bipartisan manner; but
B, we need to move this thing forward. By that, I
[[Page H196]]
mean the House of Representatives today, in a bipartisan manner, is
going to be moving a good piece of job-creating legislation.
The next step, we know, of course, is just across the Capitol, in the
U.S. Senate. We want to make sure that this legislation, in a
bipartisan manner, also moves there as well. Hopefully, we can link
arms and join in getting them to move this legislation there as well.
With that, I thank the gentlelady. I thank the gentleman from
Michigan (Mr. Huizenga) for all of his leadership in the committee and
his work on this legislation and the other legislation he is leading on
as well.
With that, I encourage the passage of H.R. 2274, and I yield back the
balance of my time.
The SPEAKER pro tempore. The question is on the motion offered by the
gentleman from New Jersey (Mr. Garrett) that the House suspend the
rules and pass the bill, H.R. 2274, as amended.
The question was taken.
The SPEAKER pro tempore. In the opinion of the Chair, two-thirds
being in the affirmative, the ayes have it.
Mr. GARRETT. Mr. Speaker, on that I demand the yeas and nays.
The yeas and nays were ordered.
The SPEAKER pro tempore. Pursuant to clause 8 of rule XX, further
proceedings on this motion will be postponed.
____________________