Corporate News: A Legal Update

If you are a business owner, with the mergers and acquisitions market continuing to be active, you may have decided it could be the right time to sell your most valuable asset – the company that you’ve spent years building. Now that you have decided to sell your business, it is important to consider five things in order to receive the maximum value in this market.

The Federal Trade Commission and Department of Justice recently proposed drafts of new Merger Guidelines for their review and approval of mergers and acquisitions, with the intent of responding to the realities of the modern economy.

In a recent decision, Mallory v. Norfolk Southern Railway Co., the U.S. Supreme Court opened the door for companies to face lawsuits in the state where they have registered to do business. The ruling stems from a case involving a Virginia-based former employee’s lawsuit against Norfolk Southern in Pennsylvania, despite the alleged injuries occurring in other states. The Court’s majority decision upheld the notion of “registration by consent” laws, allowing states to assert jurisdiction over out-of-state companies based on corporate registration.

The recent issues involving community and regional banks, such as Silicon Valley Bank, Signature Bank, and First Republic, have led depositors to flock to the larger banks, such as Chase. Chase’s CFO Jeremy Barnum, in Chase’s earnings call last Friday, stated that Chase saw “significant new account opening activity and meaningful deposit and money market fund inflows” and they estimate that they “have retained approximately $50 billion of these deposit inflows at quarter end.” Barnum elaborated that these inflows reversed an intra-quarter trend of increased deposit outflows.

The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) published its guidance materials on March 24, 2023, to help companies understand the requirements of the Beneficial Ownership Information Reporting Rule, which will become effective on January 1, 2024. The rule was implemented under the Corporate Transparency Act to assist regulators in combatting crime and fraud.

The Securities and Exchange Commission (SEC) has been increasing its enforcement actions against cryptocurrency companies and individuals in recent years. In 2022, the SEC brought 24 litigation actions in federal courts and 6 administrative proceedings against cryptocurrency companies and individuals, a significant increase over the previous year.

The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR) requires premerger notifications to be filed for larger transactions in order to prevent monopolies and other anti-competitive effects. Unless an exemption applies, acquisitions that exceed certain threshold amounts for the sizes of the transaction, the acquiring person, and the acquired person are subject to antitrust review by the U.S. Federal Trade Commission (the FTC) and/or the Antitrust Division of the Department of Justice.

PFAS, short for per- and poly-fluoroalkyls substances are man-made chemicals used to make hundreds of products for home and industry use, ranging from stain proofing and waterproofing to firefighting and non-stick surfaces. They are among the most durable and task-effective man-made chemicals, yet they can exist in the environment for hundreds of years. Unfortunately, PFAS are associated with serious health risks including cancer, children’s developmental issues, immune system and endocrine disruption, and diabetes. The greatest area of public concern is contaminated drinking water. Human exposure also occurs in soils, surface water contamination, air emissions and workplace exposure (especially manufacturing and firefighting). 

Private placements can be a great resource for companies to raise capital in the current economic environment. They are cost effective in comparison to public offerings and provide greater decision-making latitude to current owners. Raising capital while keeping an entity private is an effective method for growing a business. Keeping a company private helps officers and directors take a long-term view of the company. Further, staying private has reduced administrative costs compared to public companies because private companies do not have the ongoing reporting obligations of public companies. Private placements allow companies to structure investments to meet their needs by issuing debt or equity investments under their terms. Whether the company is a newly formed start-up seeking the capital necessary to grow its business, or the company is more mature and would like to expand its ownership group by taking on new investors, private placements are versatile in how they serve companies.

Business brokers and intermediaries who are active in the lower end of the M&A middle market have been lobbying Congress for 10 years to enact a limited exemption from broker registration under the Securities Exchange Act of 1934.  Their work and patience have finally paid off.  On December 29, 2022, President Biden signed into law the Consolidated Appropriations Act, 2023.  Hidden away in it was Division AA, Title V, Small Business Mergers, Acquisitions, Sales & Brokerage Simplification, including the M&A Broker Exemption.