[Congressional Record Volume 168, Number 78 (Tuesday, May 10, 2022)]
[House]
[Pages H4746-H4748]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




      SMALL BUSINESS MERGERS, ACQUISITIONS, SALES, AND BROKERAGE 
                       SIMPLIFICATION ACT OF 2021

  Mr. GARCIA of Illinois. Madam Speaker, I move to suspend the rules 
and pass the bill (H.R. 935) to amend the Securities Exchange Act of 
1934 to exempt from registration brokers performing services in 
connection with the transfer of ownership of smaller privately held 
companies, as amended.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

                                H.R. 935

       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 
     2021''.

     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 subparagraphs (B) 
     and (C), 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, period information, documents, and reports under 
     subsection (d).
       ``(iii) Engages on behalf of any party in a transaction 
     involving a shell company, other than a business combination 
     related shell company.
       ``(iv) Directly, or indirectly through any of its 
     affiliates, provides financing related to the transfer of 
     ownership of an eligible privately held company.
       ``(v) Assists any party to obtain financing from an 
     unaffiliated third party without--

       ``(I) complying with all other applicable laws in 
     connection with such assistance, including, if applicable, 
     Regulation T (12 C.F.R. 220 et seq.); and
       ``(II) disclosing any compensation in writing to the party.

       ``(vi) Represents both the buyer and the seller in the same 
     transaction without providing clear written disclosure as to 
     the parties the broker represents and obtaining written 
     consent from both parties to the joint representation.
       ``(vii) Facilitates a transaction with a group of buyers 
     formed with the assistance of the M&A broker to acquire the 
     eligible privately held company.
       ``(viii) Engages in a transaction involving the transfer of 
     ownership of an eligible privately held company to a passive 
     buyer or group of passive buyers.
       ``(ix) Binds a party to a transfer of ownership of an 
     eligible privately held company.
       ``(C) Disqualification.--An M&A broker is not exempt from 
     registration under this paragraph if such broker (and if and 
     as applicable, including any officer, director, member, 
     manager, partner, or employee of such broker)--
       ``(i) has been barred from association with a broker or 
     dealer by the Commission, any State, or any self-regulatory 
     organization; or
       ``(ii) is suspended from association with a broker or 
     dealer
       ``(D) 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.
       ``(E) Definitions.--In this paragraph:
       ``(i) Business combination related shell company.--The term 
     `business combination related shell company' means a shell 
     company that is formed by an entity that is not a shell 
     company--

       ``(I) solely for the purpose of changing the corporate 
     domicile of that entity solely within the United States; or
       ``(II) solely for the purpose of completing a business 
     combination transaction (as defined under section 230.165(f) 
     of title 17, Code of Federal Regulations) among one or more 
     entities other than the company itself, none of which is a 
     shell company.

       ``(ii) 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 if, 
     upon completion of a transaction, the buyer or group of 
     buyers--

       ``(I) has the right to vote 25 percent or more of a class 
     of voting securities or the power to sell or direct the sale 
     of 25 percent or more of a class of voting securities; or
       ``(II) in the case of a partnership or limited liability 
     company, has the right to receive upon dissolution, or has 
     contributed, 25 percent or more of the capital.

       ``(iii) Eligible privately held company.--The term 
     `eligible privately held company' means a privately held 
     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):

       ``(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.

     For purposes of this subclause, the Commission may by rule 
     modify the dollar figures if the Commission determines that 
     such a modification is necessary or appropriate in the public 
     interest or for the protection of investors.

       ``(iv) 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--

[[Page H4747]]

       ``(I) upon consummation of the transaction, any person 
     acquiring securities or assets of the eligible privately held 
     company, acting alone or in concert--

       ``(aa) will control the eligible privately held company or 
     the business conducted with the assets of the eligible 
     privately held company; and
       ``(bb) 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, including without limitation, for example, by--
       ``(AA) electing executive officers;
       ``(BB) approving the annual budget;
       ``(CC) serving as an executive or other executive manager; 
     or
       ``(DD) carrying out such other activities as the Commission 
     may, by rule, determine to be in the public interest; 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 fiscal year-end financial statements of 
     the issuer of the securities as customarily prepared by the 
     management of the issuer in the normal course of operations 
     and, if the financial statements of the issuer are audited, 
     reviewed, or compiled, any related statement by the 
     independent accountant, 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.

       ``(v) Shell company.--The term `shell company' means a 
     company that at the time of a transaction with an eligible 
     privately held company--

       ``(I) has no or nominal operations; and
       ``(II) has--

       ``(aa) no or nominal assets;
       ``(bb) assets consisting solely of cash and cash 
     equivalents; or
       ``(cc) assets consisting of any amount of cash and cash 
     equivalents and nominal other assets.
       ``(F) Inflation adjustment.--
       ``(i) In general.--On the date that is 5 years after the 
     date of the enactment of this paragraph, and every 5 years 
     thereafter, each dollar amount in subparagraph (E)(iii)(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, 2021; 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 
Illinois (Mr. Garcia) and the gentleman from Arkansas (Mr. Hill) each 
will control 20 minutes.
  The Chair recognizes the gentleman from Illinois.


                             General Leave

  Mr. GARCIA of Illinois. Madam Speaker, I ask unanimous consent that 
all Members may have 5 legislative days within which to revise and 
extend their remarks on this legislation and to include extraneous 
material thereon.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Illinois?
  There was no objection.

                              {time}  1600

  Mr. GARCIA of Illinois. Madam Speaker, I yield myself such time as I 
may consume.
  Madam Speaker, I rise today to urge passage of H.R. 935, the Small 
Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act 
of 2021. I thank its lead sponsors, Congressman Huizenga, who serves as 
the ranking member of the Subcommittee on Investor Protection, 
Entrepreneurship and Capital Markets, as well as Congresswoman Maloney 
who served as the chairwoman of the same subcommittee last Congress.
  Congressman Huizenga and Congresswoman Maloney have come together to 
put forth a commonsense bill, which provides relief for small and 
midsize businesses who are looking to merge or sell their companies.
  Generally, mergers and acquisitions brokers act as intermediaries who 
conduct negotiated sales of privately held small- and medium-sized 
companies. These so-called M&A brokers essentially help facilitate the 
transfer of ownership and control of such companies to a buyer.
  The Securities and Exchange Commission, which oversees brokers, can 
become involved in these transactions because M&A brokers facilitate 
securities transactions when they connect a selling company to a buyer.
  In 2014, the SEC, via a no-action letter, permitted M&A brokers to 
effect securities transactions with the transfer of ownership of 
privately held companies without registering as a broker-dealer. This 
no-action letter helps to account for the fact that small and midsize 
businesses have fewer resources to pay for the services of registered 
broker-dealers, and ultimately do not pose the kinds of potentially 
systemic risks that larger companies may pose.
  H.R. 935 would codify the SEC 2014 no-action letter and will further 
clarify and simplify the registration regime for M&A brokers, which 
will reduce costs for buyers and sellers.
  H.R. 935 is consistent with the North American Securities 
Administrators Association's model State regulation for M&A brokers, 
which exempts M&A brokers from State securities legislation.
  Madam Speaker, I again thank Members on both sides for coming 
together on this bill, and I urge its passage, and I reserve the 
balance of my time.
  Mr. HILL. Madam Speaker, I yield myself such time as I may consume.
  Madam Speaker, I rise today on behalf of the committee in support of 
H.R. 935, the Small Business Mergers, Acquisitions, Sales, and 
Brokerage Simplification Act. I particularly want to thank the bill's 
sponsor, the gentleman from Michigan (Mr. Huizenga), for his leadership 
on this issue on behalf of small businesses across our country. The 
importance of small businesses to our economy, our job creation, and 
the innovation across our Nation cannot be overstated. They are the 
backbone of all of our communities.
  In October 2020, the SBA, the Small Business Administration, reported 
that there were 31.7 million small businesses in the United States. 
Yet, too often Democrats' heavy-handed approach to business regulation 
in this country can put that success at risk. A one-size-fits-all 
regulatory approach disproportionately burdens small enterprises. For 
those looking to grow through merger and acquisition, they often face 
additional costs, the expense of that transaction.
  The committee has found that merger and acquisition brokers provide 
crucial services to small businesses whose owners desire to sell the 
business or merge with another firm. However, certain of these brokers 
face significant compliance costs, including SEC registration fees, 
which, of course, are passed on to their clients, the small businesses.
  H.R. 935 helps to alleviate these costs by amending the Exchange Act 
to create a simplified registration system for these kinds of merger 
and acquisition brokers.
  The Securities and Exchange Commission, the SEC, agrees with the 
premise of this bill. In fact, back in 2014, the SEC issued a no-action 
letter to exempt certain M&A brokers from registration, and that no-
action letter, Madam Speaker, is relied upon today.
  Without a change in law, the regulated community is left in a state 
of uncertainty when it comes to Federal securities laws. The gentleman 
from Michigan's bill will clarify, simplify, and provide much-needed 
certainty as to that process without compromising important investor 
protections.
  I also remind my colleagues that this bill has passed the House in 
previous Congresses. Therefore, our committee urges our colleagues to 
support H.R. 935, and I reserve the balance of my time.
  Mr. GARCIA of Illinois. Madam Speaker, I have no further speakers and 
I am prepared to close.
  Madam Speaker, I reserve the balance of my time until Mr. Hill yields 
back.
  Mr. HILL. Madam Speaker, I yield 5 minutes to the gentleman from 
Michigan (Mr. Huizenga), the author of this legislation and the ranking 
member of our Investor Protection, Entrepreneurship, and Capital 
Markets Subcommittee.
  Mr. HUIZENGA. Madam Speaker, I rise today in support of my 
legislation,

[[Page H4748]]

H.R. 935, the Small Business Mergers, Acquisitions, Sales, and 
Brokerage Simplification Act of 2021.
  Madam Speaker, this bill isn't new, we have been here before. In 
fact, this will be the third instance that my legislation has actually 
come to the floor. Each time Members of this body have unanimously 
supported the legislation before us today. I certainly hope that the 
third time is the charm.
  Let's be clear. For small, privately-owned businesses, merger and 
acquisition advisers and business brokers perform crucial roles in 
preparing these privately held businesses for a sale or a merger by 
finding and screening potential business buyers or partners. These 
brokers play a vital role in navigating M&A transactions to successful 
outcomes.

  Unfortunately, Federal securities regulations technically require an 
M&A broker to be registered and regulated by the Securities and 
Exchange Commission, as well as FINRA, just like a Wall Street 
investment banker selling or buying publicly traded companies. This is 
a problem long identified by both practitioners and the regulators 
themselves.
  Whether it is a small, locally owned store in Holland, Michigan, my 
hometown, or a Fortune 500 company, today, the same rules apply, 
regardless of the size of the business, the size of the transaction, or 
whether they are publicly or privately held.
  Sadly, these last 2 years have only increased the need for my bill. 
Despite $5 trillion in COVID relief packages, which have often picked 
winners and losers, rising costs due to inflation are making it 
difficult for many small businesses to keep the lights on today.
  Recent data from the Federal Reserve itself showed that 85 percent of 
small businesses experienced financial hardships and difficulties in 
2021. According to the Small Business Administration, 68 percent of 
small business owners say they are having a hard time keeping and 
hiring staff.
  Nevertheless, small businesses continue to be the backbone of all of 
our local economies. Just look at my home State of Michigan, which is 
the home of very large companies like the automakers, office furniture 
makers, chemical companies, and medical device companies. But it also 
is a place where 98 percent of businesses are small businesses--98 
percent of them--and they employ literally half of the Michigan 
workforce. Just as important, for every $100 spent at a local business, 
roughly $68 stays in the local economy, according to studies.
  Small businesses need to grow and have to do a couple of different 
things to be successful. For some that means they need to consolidate; 
some may need to restructure and try to recover from the challenges 
that have been exacerbated by the pandemic or the economy or whatever 
it might be; and sometimes it may be a family succession plan that is 
happening within those small businesses. These innovators, 
entrepreneurs, and risk-takers are critical to our country's economic 
growth and prosperity. We need to level the playing field that gives an 
unfair advantage to those Wall Street big guys.
  So, how did we get here?
  As was discussed, in 2006 merger and acquisition brokers attempted to 
address their concerns with the Securities and Exchange Commission by 
developing a rule that would codify and simplify the ``broker-dealer'' 
regulation.
  Unfortunately, due to the fallout from the great financial crisis, 
the SEC could not make the time for this rulemaking and make it a 
priority, which sent groups then to Congress for a legislative fix. 
Along the way, this bill has enjoyed bipartisan and bicameral support. 
It passed the Committee on Financial Services, not once, not twice, but 
now four times, including this last summer.
  In 2014, the chief counsel of the Division of Trading of the 
Securities and Exchange Commission released the M&A broker no-action 
letter, which concluded that the SEC staff would not recommend 
enforcement against an unregistered person who was engaged in 
facilitating a securities transaction solely related to the purchase or 
sale of a privately held company--regardless of the size of the 
company--provided certain enumerated conditions were met.
  H.R. 935 is consistent with the no-action letter but will clarify and 
simplify the merger process for small businesses and M&A brokers. The 
bill codifies the extensive investor protections, while not affecting 
the SEC's jurisdiction over M&A brokers.
  However, a no-action letter is not legally binding. It cannot change 
securities laws. That is up to us, Congress. We must pass my 
legislation to provide legal clarity once and for all.
  The SPEAKER pro tempore (Ms. Newman). The time of the gentleman has 
expired.
  Mr. HILL. Madam Speaker, I yield an additional 30 seconds to the 
gentleman.
  Mr. HUIZENGA. Madam Speaker, we have been on this journey for nearly 
10 years, going back to the 113th Congress. While many of the Members 
who served with me back then no longer remain, the challenges small 
businesses face have not dimmed.
  Madam Speaker, I recognize my colleague, Representative Brian Higgins 
from New York, who has been the original cosponsor from day one, and he 
has been on this journey every step of the way, as well as 
Congresswoman Maloney and Chairwoman Waters and Ranking Member McHenry.
  Madam Speaker, I urge my colleagues to pass this commonsense 
bipartisan legislation.
  Mr. GARCIA of Illinois. Madam Speaker, I reserve the balance of my 
time.
  Mr. HILL. Madam Speaker, let me conclude the discussion on H.R. 935 
by thanking my friend from Michigan for his persistent leadership over 
many Congresses on this topic. I urge my colleagues to support him in 
this effort, putting it over the goal line, and getting a great result 
out of the Senate in the days ahead.
  Madam Speaker, I urge a ``yes'' vote, and I yield back the balance of 
my time.
  Mr. GARCIA of Illinois. Madam Speaker, I yield myself the balance of 
my time.
  Madam Speaker, I certainly hope the third time is the charm, as the 
sponsor of the bill has reiterated. H.R. 935 will provide legal 
certainty to certain financial intermediaries who serve and support 
small business owners and buyers.
  The bill would codify a longstanding no-action letter by the 
Securities and Exchange Commission. I thank its sponsors, Mr. Huizenga 
and Mrs. Maloney.
  Madam Speaker, I urge the speedy passage by the House, and I yield 
back the balance of my time.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from Illinois (Mr. Garcia) that the House suspend the rules 
and pass the bill, H.R. 935, 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. ROY. Madam Speaker, on that I demand the yeas and nays.
  The SPEAKER pro tempore. Pursuant to section 3(s) of House Resolution 
8, the yeas and nays are ordered.
  Pursuant to clause 8 of rule XX, further proceedings on this motion 
are postponed.

                          ____________________