Strategic Planning For SBA M&A Rule Compliance And Growth

In this article, you can discover…

• How to structure a merger to protect your small business status.
• Steps your large business can take to mitigate risks during a merger.
• The penalties for failing to comply with SBA recertification requirements.

How Can Large Businesses Structure Mergers To Avoid Losing SBA Small Business Status?

Large businesses acquiring small businesses with government contracts must carefully structure mergers to avoid losing small business contract eligibility.

After the acquisition, a single award small business set-aside contract retains its status for the remainder of the contract or up to five years from the award date. However, the procuring agency cannot count the value of the contract toward small business goals or to the specific type of small business (8(a), WOSB, HUBZone, etc.). Buyers should negotiate with the agency to keep the contract active even without small business credit, but if termination is likely, they must factor that risk into the purchase price.

If a small business holds set-aside multiple-award contracts (MACs), the large business acquisition must be completed before January 17, 2026, to avoid a “disqualifying recertification.” For acquisitions after this date, the buyer will lose eligibility for future options and set-aside orders on the MAC. GSA Schedule contracts are a special case any disqualifying recertification results in immediately losing eligibility for future set-aside options, orders and BPAs, there is no grace period until January 17, 2026.

How Can Small Businesses Plan Acquisitions To Align With SBA’s Recertification Requirements?

Small businesses with valuable multiple-award contracts (MACs) must strategically time acquisitions to preserve small business contract eligibility. After January 17, 2026, an acquisition by a large company will trigger a disqualifying recertification, making the business ineligible for future MAC orders and options.

Unlike other MACs, GSA Schedule contracts lose eligibility immediately after acquisition, so businesses should weigh the impact of losing these contracts in an M&A deal. If selling to a large business, ensure they understand how the timing of the deal affects contract value and adjust negotiations accordingly.

How Can Large Businesses Mitigate Risks During Mergers That Trigger SBA Recertification?

Large businesses acquiring small business contractors must carefully evaluate small business contract eligibility and recertification risks to avoid unexpected losses. Here are some key considerations to make as you begin the process:

• Assess Existing Set-Aside Contracts: Identify single-award contracts that can continue without small business credit and determine if the procuring agency is likely to terminate them.
• Analyze Multiple-Award Contracts (MACs) & GSA Schedules: A disqualifying recertification after January 17, 2026 makes the acquired small business ineligible for future MAC orders and immediately ineligible for GSA Schedule contract orders and BPAs. Be mindful of this.
• Review Outstanding Proposals: Check when proposals were submitted some single-award contracts may still be eligible, while MAC proposals become ineligible regardless of timing.
• Strategic Timing of Acquisition: If the target company has significant MAC value, completing the deal before January 17, 2026, may help preserve future bidding opportunities.

Conducting thorough due diligence is key as a large business to dramatically reduce risks when acquiring a small business and make informed purchasing decisions.

How Can Contractors Maintain Eligibility For Set-Aside Contracts During Acquisitions?

Businesses must conduct a thorough size analysis and consider legal guidance to navigate M&A while maintaining eligibility. This encompasses maintaining eligibility for set-aside contracts during an acquisition. Some key factors to consider as you monitor the size status under the applicable NAICS code include:

• Size Eligibility: Determine whether both the buyer and seller qualify as small businesses before the merger.
• Post-M&A Size Standard: If the combined company still falls within the NAICS size threshold, it can retain its small business status.
• Impact on Set-Aside Contracts: If the new combined entity exceeds the size standard for single award set-aside contracts, the procuring agency will not be able to count the value of the contract towards its small business goals; small business MACs and GSA Schedule contracts must also be carefully assessed.
• Timing: Strategic planning of the acquisition can help avoid unintended disqualifications, especially for ongoing contracts.

What Are Penalties For Failing To Comply With SBA Recertification Requirements?

Failing to comply with SBA recertification requirements after a merger or acquisition can lead to serious penalties, including:

• Facing fines for wrongfully performing work under small business set-aside contracts.
• Suspension or disqualification from future government contracting opportunities.
• Criminal charges under the False Claims Act, carrying severe fines and potential imprisonment.

Be sure to update your SAM record and promptly recertify following an M&A to ensure compliance and avoid these penalties.

Early Strategic Planning: Your Key To Preventing Regulatory Issues During An Acquisition

Early strategic planning during an acquisition can go far to prevent regulatory issues and preserve your contract value. For example, if a small business holds a large set-aside or long-term contract, it should proactively engage with the agency contracting officer and small business office. Take these steps to avoid issues that could cripple your business:

• Discuss the M&A impact with the agency early to ensure the contract remains valid.
• Confirm that while the agency loses small business credit, the contract can still be performed by the newly combined company.
• Keeping the small business contract in place increases the company’s valuation and avoids compliance risks related to small business status misrepresentation.

Still Have Questions? Ready To Get Started?

For more information on SBA Merger and Acquisition Guidelines, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (301) 788-8198 today.