Last week, President Trump announced new tariffs that will apply to imports from Canada (25%, though “energy and energy resources” will be subject to a lighter 10% tariff), Mexico (25%) and China (10%). Temporary agreements were then reached with both Canada and Mexico to delay the implementation of the tariffs for 30 days; the 10% tariff applicable to imports from China went into effect on February 4.
Additional 25% tariffs on all steel and aluminum imports went into effect on Monday. As of this morning, President Trump has indicated a potential reciprocal tariff on each country with existing tariffs on US exports, but such tariffs remain in an exploratory phase.
This flurry of tariff activity (and the potential for retaliation from significant US trade partners) is expected to impact the M&A market in several ways:
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. The uncertainty will be compounded by potential retaliatory tariffs (including from the US, in response to retaliation from others).
Many businesses have already struggled to set appropriate pricing in the recent high-inflation environment; investors will now need time to assess how tariff activity further impacts the pricing of their targets’ goods and the broader effects on their operations. General uncertainty will lead to downward pressure on valuations, which will increase the likelihood of deal delays or failures.
Supply Chain Complications. Supply-chain complications (a common problem from the COVID era that has largely abated) are expected to resurface as US businesses seek out new domestic and international suppliers to avoid the added costs associated with increased tariff activity.
Increased stress on a healing but still-fragile supply chain could create unexpected business interruptions, shortages and, ultimately, price increases if demand cannot keep up with supply. All of the above eat into margins, distress valuations, and will impact the chances of sellers reaching existing earn-out metrics.
International Investment into US Targets. As a potential method to circumvent tariff exposure, international firms without a US footprint will be looking to acquire desirable US assets to ensure their products are made in the US. The result could be an increase in acquisition activity for US companies from international suitors that may not have drawn as much interest before tariff increases became a reality.
Nixon Peabody M&A attorneys are here to help buyers and sellers assess how increased tariff activity could impact their acquisition opportunities. Please feel free to reach out.