US President Donald Trump recently announced a "declaration of economic independence". Accordingly, a reciprocal tariff on all countries came into force. The tariff rate for Turkey was set at 10%, i.e. the minimum rate.
With the announcement of Trump's tariffs, not only the US economy but also the global trade order took a historic turn. Countries facing additional taxes, especially the European Union and China, have started to respond by imposing tariffs on imports from the US.
So, what should be considered in M&A transactions due to this tariff implementation?
The economic risks of the new tariffs should be considered as a very important agenda item, especially when drafting a share purchase agreement. In particular, the risks arising from tariffs may have a direct impact on the purchase prices and the mechanisms that adjust them, so it will be necessary to clearly reflect the methods of the calculations to the agreement.
Furthermore, it will be vital to accurately reflect the tax risks as the company valuation may be directly affected. Moreover, "retention" and "earn-out" arrangements, which are often included to the agreements, will need to be carefully considered in order to balance the transaction risks according to scenarios that may arise due to the impact of tariffs on the target company.
Key Considerations in M&A Transactions
1. Supply Chain and Export Market Analysis of the Target Company
- During the due diligence phase, it should be considered whether the Target Company exports to the US or uses inputs originating in the US. Conducting a market analysis in this sense at the outset of the project will make for an easier and more predictable transition process for both parties, both in terms of the process and post-closing integration.
2. Pricing and Valuation Effect
- The company's EBITDA and net profit may have come under pressure due to the tariffs. This may affect the valuation of the company.
- If the agreement specifically contemplates a transaction based on multipliers (e.g. put option, call option, etc.), it would be useful to reconsider the definitions of the multipliers applied (e.g. EBITDA multiplier).
3. Contractual Protection Mechanisms
- Specific reps & warranties for trade risks would be beneficial. For instance, specific indemnity provisions can be included for tariff-related tax penalties, additional costs, customs fines, etc. At this point, it would be beneficial to create specific reps & warranties to cover the seller's misdeclaration in past customs practices.
- Purchase price adjustments: Price adjustments can be defined in response to losses due to the impact of tariffs or falling turnover. Alternatively, an earn-out model can be used to share the risk between the purchaser and seller.
- Material Adverse Change (MAC) Clause: Macroeconomic changes such as tariffs can be specifically included in this definition.
4. Due Diligence / Regulatory and Compliance Review
- Examination of issues such as compliance with US customs regulations and the accuracy of country-of-origin declarations will be important for the purchaser to foresee the risks in the due diligence phase.
Conclusion
To summarize, the more widespread use of risk-sharing mechanisms in M&A agreements and resolution clauses such as "closing accounts", "retention" and "earnout" structures may come to the fore as a balancing tool between the parties. Likewise, the scope of clauses such as "Material Adverse Change" is likely to be expanded and the responsibilities of the seller and purchaser are likely to be regulated in agreements. As these clauses allow parties to terminate transactions, renegotiate or share risks, they will serve to mitigate the impact of economic fluctuations.
In conclusion, following US President Trump's announcement on April 02, 2025 regarding import tariffs, although Turkey is minimally affected by this taxation decision and it is thought that Turkey will suffer less damage in investment transactions due to the positive conditions arising indirectly from Turkey's economic and geographical structure, investors interested in operating in Turkey will need to adopt a more careful, foresighted and professional approach in both agreement preparation and strategic decision-making processes. In the upcoming period, these developments are expected to create a new balance in both transaction volumes and transaction structure, and parties to M&A transactions, especially those that have not yet been executed, should act more cautiously and carry out the processes more carefully, as the effects of this taxation decision may be observed in the long term.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
