“Merger and Acquisition Broker” (M&A Broker) is a relatively new category of business intermediary originally defined by the Securities and Exchange Commission (SEC) in 2014 and recognized by federal law in 2023. This new designation addresses a regulatory gap that had long existed between business brokers, who represent small, "main street" companies, and investment banks, who represent large companies.
The Regulatory Chasm Between Investment Banks and Business Brokers
The Securities and Exchange Commission Act of 1934 (“The Exchange Act”) was passed to regulate the stock market in the wake of the market crash of 1929. One of the provisions of the act called for stockbrokers and dealers to be registered with and regulated by the SEC.
The sale of small and mid-sized companies can take one of two basic forms: (1) the sale of the stock of the business (a "stock sale”) or (2) the sale of the assets of the business (an "asset sale"). Most buyers of small and medium-size companies insist on an asset sale, but stock sales can have significant tax advantages for the sellers. Unfortunately, it’s impossible to predict which form a deal might take until long after a business intermediary is engaged and a deal is being negotiated.
If a business broker was able to negotiate a stock sale for their client, they would technically have been in violation of the Exchange Act because they were selling the stock of the company without being a registered stockbroker. This regulatory risk caused many business brokers to avoid stock sales for fear of running afoul of the SEC, much to the detriment of their clients.

When Business Brokers Are Too Small and Investment Banks Are Too Big
The effect of this regulatory ambiguity was to restrict the options available to small and mid-sized businesses when choosing an intermediary to work with. Businesses in between $5 million and $50 million were generally too large for most business brokers to handle and too small to be taken on by investment banks. Businesses of this size had to:
use registered investment banks (who are rarely interested in representing companies smaller than $50 million in annual revenue and, if they were interested, the cost was prohibitive), or
find a business broker who would insist on an asset sale, which is less favorable to the seller, or
find a business broker who was willing to risk prosecution by the SEC for selling “stocks” if a stock sale could be negotiated, or
hire a consultant on an hourly basis instead of a success fee basis, which increases the business owner’s financial risk in the event that a sale cannot be negotiated at all.

Merger and Acquisition Broker (M&A Broker) is Born
The business brokerage industry lobbied the SEC to clarify their position on business sale transactions involving stocks. In 2014, the SEC published a “no action” letter which did two things;
It defined, and a new category of business intermediary (the M&A Broker), that sits in between business brokers and investment banks, and
It promised not to enforce the Exchange Act when M&A Brokers were selling a majority interest in a privately held company in a stock sale, subject to certain restrictions.
The policy changes outlined in the SEC’s 2014 no action letter were refined and signed into law as part of H.R. 2617 The Consolidated Appropriations Act for 2023, making M&A Broker a legally recognized category of intermediary.

What are M&A Brokers Allowed to Do?
The law that established M&A Brokers as a new category of business intermediary resolved the stock sale dilemma described above, and established some parameters under which M&A Brokers must operate:
M&A Brokers may only sell privately held companies with annual revenues below $250 million or Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) below $25 million. Businesses above this size need to be represented by investment banks.
Any stock sale must involve a change in control of the company. No minority stock sales are allowed.
M&A Brokers may not do any of the following:
Receive, hold, transmit or have custody of the funds or securities to be exchanged in the transaction.
Provide financing related to the M&A transaction.
Assist with the formation of a group of buyers who then acquire the company that is for sale.
New Options for Middle-Market Business Owners
The owners of privately held businesses with less than $250 million per year in sales and less than $25 million per year in EBITDA now have a choice. They can engage an SEC-regulated investment bank to sell their company or they can choose an M&A broker and avoid the costs of SEC regulation which investment banks ultimately pass on to their clients.
This new option is especially important for the owners of businesses between $5 and $50 million per year in sales because investment banks are rarely interested in representing businesses that small and business brokers aren’t typically sophisticated enough to represent them well.
About Venture 7 Advisors:
Venture 7 Advisors is a team of merger and acquisition advisors who assist the owners of small and mid-sized companies to plan and complete the sale of their business. We find the best buyer to meet each business owner’s financial and legacy goals. We represent clients in consumer products, distribution, manufacturing, B2B services, construction, telecommunications, and eCommerce from offices in Burlington, Vermont, the Hudson Valley, New York, and Western Massachusetts.
We're here to talk about your situation, provide information, discuss your options, and put things in perspective. Contact us at any time:
Bryan Ducharme
Managing Partner
Mobile: 802 578 6462