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lawyergirl

SBA Rules on M&A and Aggregation of Annual Receipts

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Hello: 

Under SBA Rule 13 CFR 121.104(d)(2), I understand that if a small business acquires an affiliate, recertification is required.  I also understand that size of the purchaser is impacted -- a recalculation has to take place to aggregate annual receipts using the applicable 3-year lookback measurement on or around the date of the transaction. 

If a purchaser acquires a seller in mid-2014, the look-back period would be annual receipts for completed fiscal years 2013, 2012 and 2011, divided by 3.  While this calculation has to be done for the purchaser's annual receipts, do you also add, for all three years, the annual receipts of the seller (divided by 3) to get to the right size determination?  This seems so crazy to me that I thought I should check on this!

Any guidance is gratefully appreciated!

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9 minutes ago, lawyergirl said:

do you also add, for all three years, the annual receipts of the seller (divided by 3) to get to the right size determination? 

Yes.  A concern's size is determined by the annual receipts of the concern and all its affiliates.  Because the seller is an affiliate of the purchaser, its annual receipts must be used in determining the size of the purchaser.

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How are receipts of the purchased concern used by the buying concern when it is NOT an affiliate? Would the buying concern simply absorb the new (previously unaffiliated) business and start counting the revenue from the date of purchase forward?

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For clarity, are you asking how the size of a concern is determined following a merger?  I am a little confused by your terminology.  In the first sentence you indicate that the acquired concern will not be an affiliate of the purchasing concern.  In the second sentence you refer to the acquired firm as "previously unaffiliated."  This seems to indicate that the acquired firm is an affiliate of the purchaser.

Edited by Retreadfed

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On ‎3‎/‎13‎/‎2019 at 12:04 PM, BABS said:

How are receipts of the purchased concern used by the buying concern when it is NOT an affiliate? Would the buying concern simply absorb the new (previously unaffiliated) business and start counting the revenue from the date of purchase forward?

The answer is not a set date, it would come down to when the Buying firm's interest became control of the company being purchased.  In a size determination the reviewer would look at that information and make a determination.  Usually there is a point in the negotiation between the Buyer-Seller where intent is clear, and that date would be the point that affiliation is assumed.  At that point the revenues of both firms would be combined to determine the size of the combined firms.

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