On February 16, 2015, the Texas State Securities Board voted to formally adopt their proposed Rule 139.27, which provides an exemption from dealer registration for intermediaries providing services solely in connection with mergers and acquisitions meeting certain criteria that closely follow those outlined by the SEC in a no-action letter issued last year (and discussed in our earlier e-Alert here). The rule became effective immediately upon adoption.
Prior to the adoption of Rule 139.27, an intermediary receiving a fee in connection with a merger or stock sale could be deemed a "dealer" within the meaning of the Texas Securities Act and be subject to (or in violation of) certain registration requirements as a result. This is because a sale of stock—even if it represents 100% of the outstanding stock of the issuer—is still a sale of securities under the Texas Securities Act, which requires registration as a dealer of anyone who engages in the offer or sale of securities within the State of Texas.
Rule 139.27 will allow intermediaries to receive fees for effecting transactions in securities, without registration as a dealer, as long as they provide services solely in connection with "Qualifying M&A Transactions" meeting several criteria, including the following:
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The transaction must be a transfer of ownership and control of a privately-held company.
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The company or its business must be controlled and actively operated by the buyers following the transaction.
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The transaction cannot involve a public offering of securities, and an issuance of securities in the transaction must be conducted in compliance with an applicable exemption from registration under the Texas Securities Act.
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The intermediary will not have the ability to bind a party to the transaction, nor will it directly or indirectly provide financing for the transaction or have custody, control, or possession of or otherwise handle funds or securities issued or exchanged in connection with the transaction.
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To the extent the intermediary represents both buyers and sellers in the transaction, it must provide clear written disclosure as to the parties it represents and obtain written consent from both parties to the joint representation.
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The intermediary can facilitate the transaction with a group of buyers only if the group is formed without its assistance.
Rule 139.27 also contains a disqualification provision that is broader in scope than its SEC counterpart, making the exemption unavailable to a wide range of "bad actors"—dealers who (or whose employees, officers, or directors) have been convicted of securities-related offenses or have been subject to one of any number of regulatory orders or disciplinary actions.
Before considering any offering of securities, intermediaries and issuers should consult with counsel to ensure compliance with state and federal securities law requirements and to evaluate potentially superior alternative structures.
