The imposition of new U.S. tariffs under the Trump administration is exacerbating challenges in the global mergers and acquisitions (M&A) market, which is already experiencing a downturn. During the first two months of the year, M&A transactions have dropped by 21% compared to the same period last year, totaling $434.2 billion. This decline marks the lowest level of deal activity in at least five years, as reported by Bloomberg (Bloomberg Law).
The slowdown is partly attributed to the uncertainty surrounding new tariffs on imports from Canada, Mexico, and China. These tariffs, which took effect on March 4, have led businesses to reevaluate valuations, particularly for those with significant exposure to affected regions. As noted by Neil Barlow, an M&A partner at Clifford Chance, clarity is partly emerging regarding some countries, but the overall impact and the domestic repercussions of potential retaliatory tariffs remain uncertain.
Meanwhile, there is noticeable demand among clients for advice on matters such as national security and export controls. Chase Kaniecki, a partner at Cleary Gottlieb, observed an increase in inquiries related to tariffs and their implications. This shifting landscape has prompted some companies to delay M&A activities until after the November election. Additionally, firms are waiting for potential interest rate cuts from the Federal Reserve before proceeding with transactions.
- The current trade environment has also forced M&A practitioners to focus on mitigating impacts, such as adjusting the location of manufacturing bases and reevaluating supply chains.
- Law firms may need to enhance staffing or reassign personnel to manage the increased complexity of navigating tariff regulations, as highlighted by Kaniecki.
While the future of these tariffs remains uncertain, some firms are considering seeking exclusions from the U.S. Trade Representative, though obtaining such exemptions may prove more challenging than in previous instances. As William Rowe, an M&A partner at Baker McKenzie in Chicago, points out, the number of necessary exclusions could be higher, depending on a company’s supply chain complexity.
Ultimately, affected companies might need to adopt a wait-and-see approach, monitoring operations across the upcoming quarters to determine the appropriate strategy for dealing with these tariffs. As uncertainty looms, stakeholders must carefully assess whether to absorb costs or pursue alternatives to mitigate potential impacts.