January 11, 2017
Small Company M&A: Rule 504 Now a Financing Option?
This Sheppard Mullin blog suggests that the SEC’s recent amendments increasing the amount that can be raised under Rule 504 of Regulation D to $5 million may have made the little-used exemption a viable alternative for funding smaller M&A deals.
Rule 506’s disclosure requirements when securities are offered to non-accredited investors have limited its usefulness in M&A – but this excerpt points out that Rule 504 takes a different approach:
Rule 504, however, does not require the issuer to provide any particular information to investors to establish the exemption. Accordingly, it may be used in transactions involving the offer and sale of smaller amounts of securities to non-accredited investors where the burden of preparing disclosures meeting the requirements of Rule 502(b)(2) would otherwise be cost prohibitive or take too much time.
While Rule 504 doesn’t prescribe specific disclosures, Rule 504 offerings remain subject to Rule 10b-5 & are not entitled to the benefits of NSMIA’s preemption of state “blue sky” requirements.
– John Jenkins