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Sunday, 02 February 2014 14:33

Federal legislation would ease small business M&A

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As a generation of baby boomer entrepreneurs looks toward retirement, a West Michigan congressman has sponsored legislation to make it easier to broker the sale or acquisition of small businesses.

Sponsored by U.S. Rep. Bill Huizenga, R-Zeeland, the bill would direct the U.S. Securities and Exchange Commission to streamline the registration process for firms that broker the sale of privately held businesses simply by allowing them to register electronically. That would reduce the regulatory compliance costs for M&A firms involved in deals for small companies, Huizenga said.

The legislation would affect brokers representing businesses with EBIDTA of less than $25 million or annual revenues of less than $250 million.

In remarks on the U.S. House floor prior to the unanimous Jan. 14 vote to pass the bill and send it on to the Senate for consideration, Rep. Huizenga noted that the SEC’s annual Forum on Small Business Capital Formation for seven straight years recommended modernizing and streamlining regulations over M&A brokers. He attributed the need for the legislation to an oncoming wave of baby boomer entrepreneurs looking to retire and sell their businesses.

“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,” said Huizenga, who introduced the bill last June.

Given the 422-0 vote on the bill in the House, Huizenga is “very optimistic” for Senate passage in 2014.

“There is one group or another looking for anything that they can agree on, and this does that,” he said. “This is a business issue that had unanimous support and that’s rare to find.”

Kevin Hirdes, managing partner at M&A firm NuVescor Group LLC in Grand Rapids, considers the bill a significant piece of legislation affecting the industry. Present regulations over M&A brokers date back to the Depression, Hirdes said.

The legislation “further opens the door of opportunity for business owners to more efficiently and cost effectively sell or transition their business to a different owner without the regulatory burdens currently in place,” he said. “It is a win for the small to mid-sized business owners who have risked much for their success.”

In addition to the estimated $150,000 cost to initially register with the SEC, business brokers have to pay an annual, ongoing fee of $50,000 to maintain their registration, Hirdes said. The costs and regulatory burden of the present law tend to make it cost-prohibitive to broker transactions for small business, he said.

“Larger SEC-registered firms are not generally interested in small fees and the unfamiliarity of working with small businesses. In my opinion, this law has left small business owners in a difficult position,” Hirdes said. “This bill puts into place a new structure that is appropriate for the scale of small business ownership.”

A quarterly survey by Pepperdine University in Malibu, Calif. and two M&A trade groups, the International Business Brokers Association and M&A Source, shows retirement as the main reason business owners are selling their businesses.

The website BizBuySell.com also reports strong activity for 2013, more than half of it driven by baby boomers selling a business.

BizBuySell.com, a portal for business owners and brokers to list a business that’s for sale, reports a 49-percent increase in small business transactions in 2013 over 2012. Transactions involving restaurants increased 78 percent in 2013 and deals for retail businesses listed for sale on BizBuySell.com grew 71 percent.

Brokers surveyed nationally attributed more than half of the transactions to business owners wanting to retire.

BizBuySell.com’s transactions for the fourth quarter alone increased 38 percent from the same period a year ago. The website called 2013 “a great stepping stone to what should be a healthy business transaction market for some time to come,” driven by pent-up demand following the recession and retiring baby boomers.

In the survey of M&A brokers, 76 percent of respondents said they expect more baby boomers to sell their businesses in 2014 compared to last year.

As an entire generation of entrepreneurs hits retirement age, Huizenga argues that the SEC needs to modernize regulations over M&A brokers to better accommodate the coming deal volume and not hinder the ability of a business owner to sell.

“We want people to be able to see the fruits of their hard work over the years and we want to see them to be able to sell those companies. We don’t want to see them close them unnecessarily,” Huizenga said. “This ultimately is about the foundation of our country. It is about the 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 providing jobs to communities like we all represent.”

Read 3465 times Last modified on Sunday, 02 February 2014 14:54

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