New SBA Regulations May Adversely Impact Small Business Valuations
By: Robert Rubin, Senior Managing Director, Boustead Securities
Recently, the Small Business Administration (“SBA”) published 220 pages of new rules on a broad range of topics including regulations regarding small business recertification, joint ventures and Mentor/Protégé programs.
Some of these changes are aimed at streamlining and/or clarifying processes and regulations, for instance, approval of 8(a) JV’s prior to contract award, consistency of NAICS codes for task orders, and consideration of subcontractor capabilities in contract awards.
Impact on Small Business
Some provisions of this document could have a profound impact on the growth and M&A prospects valuation for small businesses – neither of which I believe would be positive. The provisions of the most concern include:
Between submission of a proposal and the contract award, a small business must re-certify its size status to the Contracting Officer if it loses its size status due to a M&A transaction.
The offeror may be ineligible for a set-aside contract if a M&A transaction occurs within 180 days of the initial submission of a proposal.
Although the SBA has been tightening regulations regarding Small Business Set Aside awards, in the past, many M&A transactions were completed in anticipation of the buyer being able to continue performing under a small business award after a M&A transaction, and, upon contract expiration using that performance to rebid on a full and open basis.
In addition, under these new regulations, as they near size standards, small businesses will likely no longer be able to expand their pipeline of future business with additional set aside contracts – negatively impacting future organic growth prospects.
Limiting the future organic growth potential of a small business and the ability of an acquirer to perform under small business contract awards of a target is a toxic mix which may translate into lower enterprise value for small businesses.
If you would like to discuss how these changes may impact your company please contact Robert N. Rubin:firstname.lastname@example.org | (301) 537-8221
The opinions herein are of the individual and not necessarily of Boustead Securities, LLC or Trident Advisors. There is no guarantee that any specific outcome will be achieved.
About Robert N. Rubin
Robert Rubin joined Boustead as Senior Managing Director in 2020 and has over 35 years of experience in Mergers and Acquisitions, the last 25 of which have been specifically focused on the technical services marketplace including Aerospace, Defense and Government contracting in the Washington DC Metropolitan area.
In addition to his background in M&A, he has extensive experience in corporate finance and development with public and privately held companies. He has been involved in more than 40 transactions worldwide, and served as President of the National Capital Chapter and on the International Board of Directors for ACG. Robert is a FINRA registered representative and holds series 7, 24, 63, 79 and 99 licenses.
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Senior Managing Director
About Boustead Securities, LLC
Boustead Securities, LLC (“Boustead”) is an investment banking firm that executes and advises on IPOs, mergers and acquisitions, capital raises and restructuring assignments in a wide array of industries, geographies and transactions, for a broad client base. Boustead’s core value proposition is the ability to create opportunity through innovative solutions and tenacious execution. With experienced professionals in the United States, Boustead’s team moves quickly and provides a broad spectrum of sophisticated financial advice and services. Boustead is a majority owned subsidiary of Boustead & Company Limited, a diversified non-bank financial institution. For more information, please visit www.boustead1828.com.
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