Navigating M&A and Financing Transactions in the Era of Tariff Uncertainty

Well, it certainly has been interesting. Reciprocity. More than reciprocity. Pause for 90 days. Oh, wait, not for China. Then not for electronics and phones (thank goodness, I need a new iPhone, and T-Mobile Magenta only goes so far). 

Maxwell Smart was desperately trying to reach Control because Kaos hatched a devious new plan.  

What is a deal to do in this environment?

All deals live in this globally interconnected world. How do we find success amidst the chaos?

There is an Opportunity

The tariffs imposed under the Trump administration have far-reaching consequences, altering transaction dynamics in a fast-developing and uncertain environment and affecting investor confidence. This has had a particular impact on cross-border deals, providing unique opportunities for both buyers and sellers to structure transactions that seek to benefit from the present volatility. However, this landscape is also contributing to a slowdown in deal-making. As Raconteur reports, "Uncertainty around tariffs is dampening deal flow," indicating that businesses must remain agile and adaptable to navigate the changing trade environment.

Well, yeah no kidding Raconteur.  Thanks. Opportunity is always available in chaos. Ask Agent 99. We recommend building out multiple end-case scenarios.  Dive deep into root cause analysis with different attribute weights. Doing this will place you in a more prepared situation when the dust settles. 

The Impact of Tariffs on M&A and Financing Markets

1. Increased Deal Complexity and Regulatory Hurdles

The imposition of tariffs, particularly on industries such as manufacturing, automotive, technology, and consumer goods, has added challenging layers of complexity to M&A transactions. Companies engaged in cross-border acquisitions or partnerships now face heightened regulatory scrutiny and potential supply chain disruptions, forcing dealmakers to reevaluate transaction structures. Ignoring these factors can significantly impact existing business models.

That said, the current environment also provides incentives for companies seeking to establish or expand their presence in a tariff-affected market. One way to mitigate the impact of cross-border tariffs is through the acquisition of an established business within the target market, allowing companies to maintain supply chain efficiency while reducing exposure to regulatory risks.

2. Changes in Valuation and Deal Terms

Tariffs have directly impacted the valuation of companies, especially those reliant on global supply chains. Higher costs from import duties and retaliatory tariffs have pressured profit margins, leading buyers to reassess the valuation of target companies. This environment has led to a shift in deal structuring, with a greater emphasis on contingent considerations, earnouts, regulatory risk assessments, and seller financing to mitigate uncertainty. 

Despite initial optimism for a surge in M&A activity, the reality has been less promising. Barron’s notes, "Investment bankers anticipated a boost due to pro-business policies; however, the escalation of tariffs has led to market volatility and a subsequent slowdown in deal-making." As such, M&A professionals are now adopting more creative financial structures to account for the evolving risk landscape.

Get creative. Move deals as far forward as possible, utilizing caveats, triggers, and dependencies in deal structure. 

3. Shifts in Capital Markets and Investment Strategies

Uncertainty around trade policies has led to volatility in capital markets, affecting financing options for business transactions. Private equity firms and strategic buyers may adapt by focusing on new domestic investments, while multinational corporations may seek alternative transaction and financing terms to offset tariff-related risks. Additionally, some industries—particularly those affected by tariffs on raw materials and components—may face liquidity challenges, further impacting their ability to secure financing.

This aligns with observations from Anthony Bova II at Nixon Peabody LLP, who highlights that "Tariff activity, and the potential for retaliation from significant US trade partners, is expected to impact the M&A market in several ways," particularly through "Elevated Uncertainty. Uncertainty is bad for business. Many businesses will be hesitant to engage in significant hiring decisions, investments and, of course, acquisitions, if they are uncertain as to how tariffs will affect their particular markets."

What is a deal to do? Prepare for all scenarios. The chaos will end shortly. We all know Trump’s negotiation style; except China, most trade partners will settle before the end of Summer. Get everything in place so when the chaos retreats you are first in line. 

4. What to Expect in the Near Term

Looking ahead, U.S. trade policy is unlikely to shift away from its current trajectory. Plan for at least eight years of this policy. The Trump administration is expected to continue pushing for a return to U.S.-based production, a move that will likely impact capital expenditure growth among U.S. companies. Businesses may hesitate to invest amid trade uncertainty, opting instead to delay major strategic decisions until there is more clarity on the political and economic outlook.

These adjustments, spanning multiple administrations, are part of a broader strategy to shift the U.S. toward being more of an exporter rather than a heavy importer. As supply chains continue to evolve in response to these changes, businesses must remain agile in their sourcing, logistics, and overall strategy to maintain a competitive advantage in this complex M&A and financing landscape.

If you are thinking about a near-future cross-border deal, we advise not waiting until the Kaos subsides. Start your process in the near term, so when the dust settles, you are ready to make your move. 

Maxwell Smart has finally, barely squeezed through the door to Control. He has a plan.

At DEALEXEC, our Executive Deal Advisors help businesses navigate these complexities by optimizing sourcing strategies, mitigating risks, and identifying opportunities for domestic and nearshore manufacturing. Given the ever-changing political and economic landscape, having a proactive approach to supply chain resilience is more critical than ever. If advising a cross-border company, we would suggest moving more production and sourcing to the U.S. where feasible, while also holding off on major investment decisions until at least late Q2 2025. This timeline allows for a clearer outlook on political developments—such as the outcome of the Canadian federal elections in April 2025—and gives diplomatic negotiations among affected countries a chance to progress.