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 current economic climate presents both risks and opportunities for buyers and sellers. With thoughtful negotiations and experienced counsel, deals can get done.

https://www.nortonrosefulbright.com/en-la/knowledge/publications/e0b75101/tariff-uncertainty-and-ma-deals