Tariff talk is on everyone’s lips, especially after the April 2 announcement expanding the levy regime. No one can say for sure what the final framework will be, but even in this fluid situation, I want to assess the potential impact of these policies on the M&A market—which is of critical importance to business owners.
Deal Activity
We should expect a short-term slowdown in deal activity as both buyers and sellers evaluate how the new tariffs will affect earnings, costs, and overall business stability. Even before the April 2 announcement, two-thirds of companies that Bain surveyed were planning cost-cutting measures to get ahead of impacts.
Uncertainty often prompts hesitation to engage in M&A, but activity could rebound later in 2025 as companies adapt—potentially through modified supply chains or alternative product sourcing.
Buyer reactions
Buyer responses will vary. Some may grow cautious and delay deals involving companies heavily impacted by tariffs because they’re wary of the financial impact. Others might seize the chance to acquire assets at reduced valuations, especially if they believe the tariff effects can be managed or are short-lived.
Remember that investors still have capital to invest, but tariffs will likely reduce the pool of attractive targets. Therefore, the “flight to quality” we’ve experienced the past few years will probably intensify as buyers compete for top-grade companies with low tariff risk.
Impact on sellers
The most affected companies will be those in manufacturing and distribution that rely heavily on imported raw materials, components, or finished goods, such as manufacturers of electronics, automotive parts, or consumer goods. These firms face higher costs and squeezed margins, which may spell trouble for their ability to attract buyers and close an M&A deal.
Conversely, companies will feel less impact if they have primarily domestic sourcing, diversified supply chains, or the ability to pass increased costs onto customers without losing market share. The pain from tariffs will depend on how reliant a company is on a specific supplier or how much pricing power it has with its customers.
Valuations
In general, uncertainty works inversely to valuations in M&A. Valuations for companies exposed to the tariffs will likely face downward pressure—buyers may lower their bids or apply more conservative valuation multiples to account for increased costs and risks.
But companies with minimal exposure or chiefly domestic operations should be able to maintain valuations or even attract additional attention.
Deal Structures
Deal structures may shift toward more protective mechanisms as investors navigate the uncertainties brought by tariffs. Expect buyers to push for earn-outs, contingent payments, or other risk-mitigating structures to bridge valuation gaps and safeguard against potential profit erosion, especially for targets with significant tariff exposure.
What’s next?
Uncertainty is the byword for the near future. Even if some of the tariffs are relaxed or eliminated, buyers won’t adopt a freewheeling approach to their investment activity because they can’t be sure what policies are coming next.
If you want to sell your company, you can look for savings in a diversified supply chain or product design that relies less on imported inputs. But understand that we’re likely heading into a more conservative M&A environment for companies with tariff exposure, so you should enter any deal process with eyes open.
AUTHORED BY:
Zack Gibson
Managing Director | Class VI Securities, LLC
Zack joined Class VI in 2008 and currently holds the position of Managing Director. Zack’s primary responsibilities include leading Class VI ‘s investment banking division in executing and closing transactions involving the sale or financing of mid-market clients across a broad range of industries.