Client Alert: SBA Final Rule Expected to Spur Increased Small Government Contractor M&A Activity In 2025 | Whiteford

On December 17, 2024, the U.S. Small Business Administration (“SBA”) issued a Final Rule (“Rule”) that will dramatically change the landscape for the Merger and Acquisition (“M&A”) market for both large and small businesses. Under the new Rule, an acquiring firm will no longer be eligible to bid on set-aside or reserved orders under a Multiple Award Contract (MAC) if, following a merger, acquisition, or sale, the acquired firm makes a disqualifying recertification (“no longer small”). Currently, a concern remains eligible to bid set-aside or reserved orders under a MAC after the M&A deal, but the agency cannot count the orders toward its small business goals. The new Rule, which goes into effect on January 17, 2026, is expected to spur an increased level of M&A during 2025.

Generally, a contractor’s size is determined as of the date of its submission of its proposal and that status does not change throughout the life of the contract. However, all small businesses must recertify their status as “small” as a result of a merger, acquisition, or sale. If the acquired company has a single award set-aside contract and is found to be “other than small” as a result of recertification, the acquiring firm can still continue performing the contract, including the option years of the original contract, but the agency cannot count the dollars expended toward its socioeconomic contracting goals.

A MAC is a type of indefinite-quantity contract awarded to multiple contractors from a single solicitation. The government then solicits work from this smaller pool of contractors using task or delivery orders. The contractors then compete against one another for these orders. A MAC can be set aside for small businesses and can be long-term, i.e., more than five years.

Under current SBA rules, the acquiring firm, following a disqualifying recertification after a merger, acquisition, or sale, can still perform task or delivery orders under the MAC, but the agency cannot count the dollars expended to the firm against its annual small business goals, which are negotiated with the SBA and reported to Congress. As of January 17, 2026, however, such firms will no longer be eligible to bid on such orders at all.

One other important note is that the new Rule makes no exceptions for those acquired businesses that hold GSA Schedules or Federal Supply Schedules (FSS). Usually, SBA regulations include an exception for GSA Schedules or FSS contracts, providing that the size and status for such orders and agreements are generally determined as of the date of the offer for the master contract regardless of recertification. Under the new Rule, this will no longer be the case, and a disqualifying recertification will have the same effect on a GSA Schedule/FSS contract as it has on a MAC. Most importantly, there is no January 17, 2026, delayed effective date for GSA/FSS Schedules.

By eliminating eligibility for orders and options following a “disqualifying” recertification, the Rule will likely reduce the amount of future revenue an M&A buyer could expect a small business MAC contractor to generate, presumably resulting in less bidder interest and lower valuations, particularly so for large companies seeking to acquire small government contractors. Large businesses will soon lose access to long-term small business MAC contract dollars that they possessed by acquiring small firms that had them. That is why the delayed effective date of the new Rule until January 17, 2026, is expected to spur significant M&A activity as firms rush to complete acquisitions during 2025.

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