The new tariffs are shaking up global trade — and middle-market M&A is next. The April 2, 2025, tariff announcement took away uncertainties about how much would be levied from which countries, and markets reacted negatively. As details emerge about which industries are affected, businesses are now assessing the effects the tariffs will have on their operations and profitability. For buyers and sellers active in middle-market M&A, the new policy presents both challenges and opportunities.

 

HOW TARIFFS ARE RESHAPING DEAL TERMS AND BUYER BEHAVIOR

For transactions with companies affected by the announced tariffs, the dynamics will change, and buyers will try to find ways to minimize the risk caused by the prospective uncertainty on the target’s business projections and expected valuation. This may result in the following:

  • A General Pause on Transaction Activity Involving Tariff-Impacted Companies: While buyers and sellers are eager to transact, uncertainty caused by the imposition of tariffs will require a consideration of the potential impact on revenues and profitability. Many advisors are counseling clients to delay starting the marketing phase of transactional activity until this impact is better known with a logical narrative surrounding such impact, which may also lead to a pause until forecast growth and profitability improve. Anecdotally, GHJ is aware of one prospective seller that, upon conducting a high-level analysis of the potential impact of the tariffs, forecast a drop of nearly 1/3 in EBITDA profitability. This seller may have to wait for an indefinite period of time before beginning a transaction process. With this example it is worth noting that depending on each company’s individual circumstances, companies will be influenced in a different way by the increased tariffs and that few, if any, generalizations can be made about potential impact. Among many additional company-specific factors, each business's level of revenue exposure to tariff levies, demand elasticity and/or consumer behavior will play a vital role in determining how the tariffs will shape the future profitability and related business valuation. This will require a detailed analysis of all factors influencing any company that has prospective tariff exposure.
  • Increased Due Diligence: Buyers will conduct more thorough due diligence to assess the target's exposure to tariffs and its ability to pass on the higher input costs to its customers. They may also evaluate the target’s compliance with customs regulations and estimate any additional expenses, such as additional headcount or external advisors, to stay compliant. Buyers might also seek stronger representations and warranties related to tariff risks in the purchase agreement.
  • Earn-outs, Contingent Consideration and Structures Involving Continued Seller Investment: To bridge valuation gaps caused by tariff uncertainty or anticipated financial uncertainty, deal structures might more and more include earn-outs, contingent consideration, higher levels of equity rollovers and seller notes. This will transfer some of the risk tariffs may have on the target’s future profitability and downside risk in valuation to the sellers.
  • Renegotiation of Existing Deals: In these cases where a letter of intent has been signed but the deal has not closed yet, buyers may attempt to renegotiate the purchase price. Buyers may also try to include the items mentioned in the previous point in the purchase agreement. This can lead to terminating the transaction if the seller does not agree with the changed terms.

 

WHERE INVESTORS MAY FIND VALUE AMID DISRUPTION

On the other hand, the announced changes in the tariffs also bring opportunities:

  • Increased Appetite for Targets Less Impacted by Tariffs: Because of the added complexities and uncertainties mentioned above, there is an expectation that investor interest will shift more towards targets in industries that have less prospective exposure to tariffs such as business services, technology (software development and information technology services), healthcare services and education and for targets that are not exposed to tariff levies. For business owners that are contemplating a sale, this may be the moment to go to market, as the supply of investment opportunities that may be on the market for available capital will decline, which creates an environment where an auction process may be beneficial and maybe more valuable.
  • Foreign Buyers May Enter the U.S. Deal Markets: Foreign companies may look to acquire local U.S. manufacturers with excess capacity to produce goods in the U.S. and avoid import duties. Post-acquisition, these acquirers may apply their processes and workplans to the existing business to create value with the domestic target. 
  • Domestic Consolidation: 
    • Domestic company M&A activity might increase as companies acquire domestic suppliers or businesses with local sourcing networks to replace imports.
    • Increased cost of imports can make products from domestic manufacturers more attractive to domestic customers. This might lead to consolidation in the domestic market as companies seek to gain scale and market share in a changed competitive environment.
  • Distressed M&A: For both foreign and domestic acquirers, opportunities will arise to purchase assets at lower valuations as companies that are impacted by tariffs and unable to adapt to this new reality timely might face financial distress. 

 

ADAPTING TO UNCERTAINTY AND POSITIONING FOR OPPORTUNITY

The recent announcements of tariffs may initially lead to a slowdown in M&A activity in the middle market due to increased financial performance uncertainty and valuation challenges. Over time, as businesses adapt to the new tariff landscape and better understand the impact of levies, M&A activity may rebound. This recovery could be driven by the development of strategic playbooks, such as foreign buyer entry or domestic consolidation. Additionally, deal structures may leave increased risk with the seller with higher scrutiny of cost structures and tariff mitigation opportunities during due diligence.

Overall, the tariff announcements made on “Liberation Day” brings uncertainty into the middle-market M&A landscape. It requires careful due diligence, is likely to impact transaction activity in the near term, can impact valuations and deal structures and may create both challenges and strategic opportunities for buyers and sellers. 

 

TURNING STRATEGIC PLANNING INTO SUCCESSFUL DEALS

GHJ’s mission is to help business owners assess strategic options, prepare financial information for the sales process, and evaluate tax implications before going to market. The Firm also provides ongoing support throughout the sales process. 

In addition to sell-side services, GHJ offers comprehensive support on the buy side. This includes conducting thorough financial and tax due diligence to uncover risks or opportunities associated with potential acquisitions and data analytics services to assist businesses in their evaluation of the opportunity and with their investment decision.

GHJ’s team is dedicated to ensuring clients have the necessary resources and guidance for both successful business sales and acquisitions. If you are interested in learning more about how GHJ can assist you in preparing for a successful business sale or assist you with your acquisition, please reach out to GHJ’s Transaction Advisory Services and Growth Planning and Strategic Advisory Practices.