Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

Historically, the SEC has taken the position that in order for a person to receive transaction-based compensation in connection with the sale of securities – even when the sale of securities is in the context of an M&A transaction – the recipient would need to be a registered broker-dealer.  As a result, people whose business involved brokering strategic transactions (M&A brokers) were either barred from receiving transaction-based compensation or required to expend significant time and effort becoming a registered broker-dealer.  The SEC had previously issued two No-Action letters relating to the role of M&A brokers, but the letters had little real world impact due to their narrow construction.  For example, to fit within the exceptions carved out by the existing No-Action letters, M&A Brokers had to severely limit their activities and could not engage in negotiations, provide advice relating to whether to issue securities in a transaction, or value securities issued in the transaction.

In a January 31, 2014 No-Action letter, the SEC has now indicated that, under certain circumstances, an M&A broker can receive transaction-based compensation without having to register as a broker-dealer.  The January 31st No-Action letter defines “M&A Broker” to mean a person engaged in the business of effecting securities transactions solely in connection with the change in control of privately held companies to buyers that will actively operate the businesses after the transactions close.  Persons who satisfy this definition can receive transaction-based compensation without registering as broker-dealers provided that the transaction and their involvement in the transaction comply with a number of conditions set forth in the No-Action Letter.

Unlike the prior No-Action letters, the January 31st letter should have a real impact on the M&A brokerage business.


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The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.