How SBA’s New M&A Rule Affects Small Business Acquisition

In this article, you can discover…

• How SBA’s new rules could impact your small business.
• The new SBA recertification time lines for mergers and acquisitions.
• Business size standards under new SBA rules, and how to navigate them.

How Will SBA’s New M&A Rule Impact Acquisitions And Mergers Involve Small Businesses After 2025?

The SBA’s new final rule, which took effect on December 17, 2024, will significantly impact small businesses involved in mergers and acquisitions. This rule replaces previous SBA regulations and case law, introducing a brand new regulation, 13 CFR 125.12, which consolidates and rewrites guidelines on when businesses must recertify their small business size and status.

The most significant change affects multiple award contracts, including GSA contracts. If a business undergoes a disqualifying recertification such as being acquired by a large business it will lose eligibility for future small business set-aside task orders, delivery orders, and contract options. This could result in the loss of current contracts and limit a business’s ability to bid on new small business opportunities.

Under the new rule, businesses that naturally outgrow their small business status as opposed to being acquired can still qualify as small for certain contracts unless a contracting officer specifically requests recertification. Businesses acquired by large business firms, however, will no longer qualify for small business set-aside orders, including those under GSA Schedules.

While the full impact remains uncertain, this rule could significantly decrease the value of small businesses in M&A transactions and limit their opportunities post-acquisition. If you’re a small business owner considering a sale, it’s crucial to assess how these changes might affect your contract eligibility and long-term business value.

What Triggers Mandatory Recertification Under SBA’s New Merger And Acquisition Rules?

Under the SBA’s new merger and acquisition rules, businesses must undergo mandatory recertification in three key situations:

• Mergers, Acquisitions, Or Sales: If a business or its affiliate undergoes a change in controlling interest due to a merger, acquisition, or sale, it must recertify its small business status.
• Long-Term Contracts: Businesses must recertify at the five-year mark of a long-term contract.
• Contracting Officer’s Request: If a contracting officer explicitly requests recertification for a specific order or agreement, the business must comply.

These triggers ensure that businesses remain compliant with small business set-aside requirements and prevent large businesses from benefiting from contracts meant for small businesses after structural changes.

What Are The New SBA Recertification Timelines For M&A Transactions?

Under the SBA’s new rule, businesses must recertify their size and small business program status within 30 calendar days of a merger, acquisition, or sale that results in a change in controlling interest. This applies to all small business categories, including 8(a), HUBZone, WOSB/EDWOSB, and SDVOSB.

Failing to meet this recertification deadline can impact your business’s ability to compete for future small business set-aside contracts and may even result in the loss of eligibility for current contracts.

How Does Exceeding Size Standards During A Merger Or Acquisition Affect Contract Eligibility?

If a merger or acquisition causes a small business to exceed its size standard, its contract eligibility changes depending on the type of contract:

Single-Award Set-Aside Contracts

The business can continue performing, receive orders, and have options exercised; however, the agency cannot count the work toward its small business goals. As agencies often prioritize maintaining small business credit, this may still lead to contract termination for convenience.

Multiple-Award Set-Aside Contracts (MACs)

The SBA has postponed the effective date of the new recertification rules for MACS by one year, making them effective on January 17, 2026. After that date, businesses will no longer be able to bid on new orders or have options exercised if they do not meet the recertification requirements. Until then, they may continue bidding, but agencies will not receive small business credit for awards.

GSA Schedule Contracts

Businesses immediately lose eligibility for pending and future set-aside GSA orders or blanket purchase agreements (BPAs); there is no delayed effective date until January 17, 2026, as there is with MACs.

For Submitted Proposals Of A Small Business Later Acquired by A Large Business

• Eligible for single-award set-aside awards if the proposal was submitted at least 180 days before the business acquisition, plus the award counts toward small business goals.
• Not eligible for award if the proposal was submitted within 180 days following the acquisition and before award.
• Not eligible for pending multiple-award set-aside contract proposals or task order proposals under multiple award set asides, regardless of submission date.

How Do The New Rules Address Mergers Between Two Small Businesses?

The SBA’s new rules are more favorable toward mergers between two small businesses than those involving a large company acquisition. For instance, when two small businesses merge, recertification is required, but it is not disqualifying for set-asides or options under a multiple-award contract (MAC). Even if the combined entity no longer qualifies as small, the business can still compete for set-aside orders under the MAC.

However, the procuring agency cannot count those orders or options toward small business goals similar to how single-award contracts are treated after a merger. This distinction makes small business-to-small business mergers more viable than those involving large business acquisitions.

How Do SBA’s New M&A Rules Influence Joint Ventures And Strategic Partnerships?

Under the new SBA M&A rules, joint ventures (JVs) and strategic partnerships must recertify when a member is involved in a merger, sale, or acquisition. If one member of a JV is involved in an M&A transaction, the JV must undergo recertification. To remain eligible for small business contracts, all JV members must still qualify as small at the time of recertification. However, a JV under the SBA mentor-protégé program will continue to be considered small as long as the protégé business remains small at the time of recertification.

What Unique Challenges Might Small Businesses Face During The Acquisition Process Under The New Rule?

The new SBA M&A rule creates significant challenges for small businesses looking to be acquired, particularly those holding multiple-award contracts (MACs). Here are a few we anticipate playing out:

Reduced Business Valuation

Since MAC orders and options become unavailable after disqualifying recertification, buyers especially large businesses may see less future revenue potential in acquiring small businesses. This can lead to lower company valuations and reduced buyer interest.

Limited Buyer Pool

Large businesses used to acquire small firms to retain small business MAC set-aside contracts, but under the new rule, this is no longer possible after January 17, 2026. This will shrink the pool of potential buyers for small business contractors.

Immediate Impact For GSA Schedules

Unlike other MACs, GSA schedule contracts are affected immediately there is no delayed enforcement until January 17, 2026. This makes acquisitions riskier for businesses relying on GSA schedule revenue.

These factors make M&A transactions involving small businesses significantly less attractive, requiring careful planning to avoid revenue loss and contract disqualification.

Still Have Questions? Ready To Get Started?

For more information on Small Business Mergers and Acquisitions, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (301) 788-8198 today.