8(a) is a special status given to a firm that is owned and operated by persons deemed to be socially or economically disadvantaged. A business considered an 8(a) Firm is eligible to receive financial assistance, training, mentoring and other forms of assistance. The status is part of a business development program administered by the Small Business Administration (SBA), a United States agency charged with supporting the growth and development of small businesses. It is specifically outlined in Section 8(a) of the Small Business Act, and is designed to help small, disadvantaged businesses compete in the general market. In order to increase business involvement by a broader portion of society, governments provide incentives for certain segments of the population to own a business. The SBA identifies several groups that are eligible for 8(a) status including: Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, and Subcontinent Asian Americans. Businesses that receive contracts due to their 8(a) status are subject to annual reviews. Form N-8A is also known as "notification of registration filed pursuant to section 8(a) of the Investment Company Act of 1940." The SEC uses this form in its inspection, policymaking, regulatory and disclosure review roles.
The buying pool for 8(a) contractors working on multiple 8(a) set-aside contracts is smaller because 8(a) set-aside contracts can only be transferred to other 8(a) contractors, making other 8(a) contractors the only willing and able buyers. Given the nature of the 8(a) Program, most 8(a) contractors are small and less likely to be in a buying mode, which limits the buying pool even further. Due to the limited buying pool, valuing an 8(a) contractor can be tricky, so it is important to speak with a certified valuation analyst with experience valuing 8(a) contractors. Finding potential buyers can be difficult, but there are buyers out there. Working with advisors who know how to find and attract potential buyers is crucial. 8(a) contracts are automatically terminated upon the transfer of ownership of a contractor unless a “waiver” of the automatic termination is obtained prior to the closing of the sale of the contractor.
This SBA waiver process adds complexity and time to the transaction which needs to be anticipated by both the buyer and the seller. SBA Section 13CFR124.515 in the Code of Federal Regulations states that the SBA Administrator may waive the automatic termination if requested to do so by the 8(a) contractor when ownership and control of the concern that is performing the 8(a) contract will pass to another 8(a) participant, but only if the acquiring firm would otherwise be eligible to receive the award directly as an 8(a) contractor.
Complex rules regarding the sale of 8(a) contractors and, more specifically, the transfer of 8(a) contracts mean that there are fewer advisors familiar with the sale of 8(a) companies. Selling any business can be a difficult task and is one of the most important decisions in the life of a business owner. Understanding the added complexities of selling an 8(a) Firm can mean the difference between a successful sale and an unsuccessful one.