Guide
The M&A broker exemption: $25m EBITDA or $250m revenue
Updated
Sellers are often startled to learn their M&A adviser is not registered with anyone. Usually that is lawful, because a federal exemption lets a firm broker the sale of a privately held company without registering as a broker-dealer. The exemption is narrow, its boundaries are numeric, and knowing where they sit tells you whether your adviser is inside them.
What the statute actually says
The exemption sits at 15 U.S.C. 78o(b)(13). It covers a broker engaging solely in securities transactions related to transferring ownership of an eligible privately held company, where the broker reasonably believes the acquirer will control and actively manage the company afterwards.
That last condition does real work. The exemption is built for the sale of a business to somebody who will run it, not for arranging investments. A buyer who intends to sit passively is outside it, and the statute says so separately.
The two thresholds, and the word between them
An eligible privately held company is one with no securities registered with the SEC that, in its prior fiscal year, had EBITDA of less than $25,000,000 or gross revenues of less than $250,000,000.
The word between those figures is OR, not AND, and it is the most commonly misread part of the provision. A company with $300,000,000 of revenue and $20,000,000 of EBITDA still qualifies, because it satisfies the EBITDA limb. Only a company failing both tests falls outside.
Both figures adjust for inflation every five years beginning 29 December 2027, on an Employment Cost Index formula rounded to the nearest $100,000. So the numbers above are current, and they are not permanent.
The disqualifiers matter more than the thresholds
Most firms comfortably clear the size test and then have to stay inside a list of prohibitions. The broker may not receive, hold, transmit or have custody of the funds or securities in the transaction. It may not provide financing for the deal, or assist in obtaining third-party financing without proper compliance and disclosure.
It may not represent both buyer and seller without clear written disclosure and consent. It may not facilitate a buyer group formed with its own assistance, engage with passive buyers, bind the parties to the transaction, work on public offerings of registered securities, or deal with shell companies outside a genuine business combination.
Any one of those breaks the exemption. The firm is then an unregistered broker, and the consequences reach your transaction as well as its own.
Why an owner should care
Because the commission agreement of an unregistered broker is vulnerable. A buyer or a seller looking for a reason not to pay a success fee has one, and the argument arrives at closing when everybody is committed and nobody wants a dispute.
The practical protection is cheap. Ask the firm in writing which position it occupies, and read the engagement letter against the list above. Custody is the one to check hardest, because escrow arrangements are where a well-meaning adviser most easily strays.