The Deregulatory Pony for Small Biz Buried in the Omnibus Pile
John Berlau • 12/23/2022
There's not much good to say about an "omnibus" bill crammed in at the end-of-year lame duck session of Congress that contains a grab bag of unrelated legislative items and further balloons government spending by $1.7 trillion. As my CEI colleague Ryan Young puts it, "Inflation remains America's top economic problem (and) adding another $1.7 trillion to federal spending is not going to help."
Yet to paraphrase the eternal optimist Ronald Reagan, if you dig hard enough you can probably find a pony even in the thickest pile of you-know-what. And there is at least one "pony" in this omnibus pile: a provision that removes regulatory barriers that smother small and midsize businesses aiming to combine to survive today's economic winds.
When mergers and acquisition are typically discussed in the media and in Congress, the focus is typically on large multinational corporations. Yet, there are plenty of Main Street mergers in which the acquirer and the acquired businesses—or businesses that combine—are relatively small.
As Rep. Bill Huizenga (R-MI), ranking member of the House Financial Services Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets, puts it in The Hill, "Small businesses need to grow, consolidate, and restructure to recover from the challenges that have been exacerbated by the pandemic." If business owners needing an exit couldn't find buyers, Huizenga points out, the result would be many retail establishments "closing their doors and forcing employees into unemployment lines."
Fortunately, there are many merger and acquisition advisors and business brokers that match buyers and sellers in small and midsize business markets, but they and their business clients often get caught in a regulatory thicket. If the merger involves the sale, purchase, or exchange of stock in a given company—even if this stock isn't public traded—the businesses in question frequently have to work with costly broker-dealers registered with the Securities and Exchange Commission (SEC), as if they were Fortune 500 companies trading on the New York Stock Exchange.
For years, Huizenga has been trying to remove the SEC's jurisdiction from these types of mergers, and his legislation has gotten bipartisan support. His "Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act" was added to the Jobs and Investor Confidence Act of 2018—also known as the JOBS Act 3.0 (as it served as a successor to the bipartisan and highly successful deregulatory Jumpstart Our Business Startups (JOBS) Act signed by President Obama in 2012). Although that legislation passed the House 406-4, the bill never came up for a vote in the Senate.
But now a provision was tucked into the big-spending omnibus that is similar to this legislation. This provision, which begins on page 2,754 of the initial version of the omnibus released Tuesday morning, exempts from SEC registration brokers who handle mergers and acquisitions for privately held companies with earnings of less than $25 million or revenues of less than $250 million.
So while Main Street businesses and their customer still struggle with inflation that this is exacerbated to by this big-spending bill, they will at least get a small but significant holiday helping of regulatory relief.
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