Despite the economic and institutional uncertainty created by evolving tariff policies, M&A transactions remain viable—provided they are approached with the discipline and mindset often applied in emerging markets transactions. For those of us experienced in cross-border M&A in volatile jurisdictions, the incorporation of valuation buffers, structural protections, and contractual guardrails is standard practice.
Below is a non-exhaustive set of key considerations to effectively structure and execute M&A transactions under current tariff-related uncertainty:
1) Valuation Adjustments: Proper valuation requires a reassessment of assumptions to reflect the potential impacts of tariffs:
- Revised Financial Projections: Forecasts should be updated to reflect potential shifts in cost structures, demand, and pricing power resulting from tariff policies.
- Scenario Planning: Develop best-case, base-case, and worst-case scenarios to assess potential financial outcomes under varying tariff environments.
- Valuation Methodology: Incorporate additional risk premiums into the cost of capital and apply conservative valuation multiples when using market comparables.
2) Deal Structuring: Structuring mechanisms can help bridge valuation gaps between buyers and sellers and mitigate downside risk:
- Earn-Out Provisions: Earn-outs can be used in transactions where parties agree to "wait and see" what the tariff effect will be on the target business by tying a portion of the purchase price to future performance metrics that may be affected by tariffs. Clear definitions of performance metrics and dispute resolution mechanisms are essential to avoid post-closing litigation.
- Purchase Price Adjustments: Include pricing mechanisms that account for unexpected tariff-related costs.
- Material Adverse Change (MAC) Clauses: Negotiate MAC provisions to explicitly address tariff-related triggers, enabling exit rights in the event of material negative developments.
- Escrow Arrangements: Allocate a portion of the purchase price to escrow to cover potential post-closing liabilities or disputes arising from tariff exposure. The triggering events for release or forfeiture should be clearly defined.
3) Enhanced Due Diligence: Traditional diligence—financial, tax, legal, HR, and operational—must be expanded to include targeted analysis of supply chain exposure:
- Supply Chain Mapping: Conduct a thorough mapping and risk assessment of the target's supply chain to identify vulnerabilities related to tariff-impacted suppliers, regions, or input materials and develop alternatives.
- Contractual Reviews: Analyze existing customer and supplier contracts for provisions related to pricing adjustments, force majeure, or early termination triggered by tariff changes.
- Post-Merger Integration (PMI) Planning: Develop a robust and actionable PMI plan that includes strategies to re-engineer the supply chain, diversify or change sourcing, and, where possible, pass on increased costs to customers. If cost pass-through is not feasible, focus on shifting production to higher-margin products that are less affected by tariff exposure.
When there is alignment between a willing buyer and a willing seller, M&A transactions can proceed successfully—even in today's uncertain environment—by proactively addressing these critical risk areas through tailored structuring, pricing, and diligence strategies.
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.
