M&A Activity Delayed as Tariffs Create Trade Risk
The slow start to mergers and acquisitions activity in 2025 is likely just a temporary blip, mostly due to tariff uncertainty.
The U.S. post-election environment in the last two months of 2024 saw an expectation for more deal making.
The one deal seen so far is a $900 million planned acquisition of the Helly Hansen brand by Kontoor that’s expected to close in the second quarter. Another possibly in the works centers on rumblings that Capri Holdings could be in talks to sell its Versace brand to Prada.
“It’s almost as if we’ve seen a light switch turn on since the election in the U.S.,” Anton Sahazizian, managing director and global head of M&A at Moelis & Company and the firm’s former head of U.S. M&A, said during a webinar hosted by S&P Global Market Intelligence. He said there was a backlog of deals and was expecting to see the start of an acceleration of deal completions in early 2025. At the time, he described the backlog levels as “very full,” adding that pitch activity was also increasing.
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Another webinar participant, Jay Hofmann, a managing director and the co-head of J.P. Morgan’s North American M&A business, said the recovery was due to rising confidence levels and the impact of the new administration on M&A activity.
While there’s been some M&A talk, robust isn’t exactly how one would describe deal activity in 2025 thus far. So what happened?
“At post election, everyone came up with our forecast that, OK, we have a Republican administration, we have a Republican Senate, Republican House. It’s going to be great for the M&A market. We’re gonna see a lot of activity. Markets are gonna be hot. We haven’t seen that,” said Jeremy Swan, national director at CohnReznick’s financial sponsors and financial services industry practice and head of the firm’s M&A consulting services practice. He spoke at a company webinar last week on “New Administration Policy & Priorities: Strategies to Consider Right Now.”
“In fact, we’ve seen the first couple months of this year being relatively slow from a transaction perspective. While we do expect that to pick up. We do see backlog starting to come off,” he said. Swan said the “uncertainty” of what’s going on with tariffs has impacted M&A activity.
Part of the reason is due to questions over how inflation might be impacted by tariffs. And because deals have to be financed, there are now financing questions as well. “How is the Fed going to react and what changes will there be in rates?”
The M&A expert said that anyone looking to acquire a business will consider whether to sell or raise capital. Other concerns include the buyer’s overall valuation of the targeted asset to be acquired, as well as what else could impact valuation. Currently, tariffs introduce the concept of trade risk. That, he says, means not just level one, but upstream at level two, level three and beyond. That analysis will help a buyer understand the trade risk of the targeted business. Moreover, buyers will also need to look at tariff implications in different regulatory environments.
“You’re going beyond the typical financial, tax, operational, due diligence that you would do on a business, and really understand where are there risks from a trade perspective,” Swan said. ” When we look at the tariffs, it’s not just the flow through of the impact on inflation, the impact on rates [and] the impact on your valuation.”
Swan also said that when evaluating the impact of tariffs on inflation, one knows that prices are going to adjust, whether it will be passed onto the consumer or business will have to absorb it. But then the debate centers on whether it’s a one-time hit or whether it will be ongoing. And a buyer will need to look at the supply chain to see if the business is importing from Mexico and Canada, due to the planned tariffs that are set to start.
“There are so many moving pieces. So you really need to understand what part of your business is going to be impacted, looking at your supply chain, understanding where there may be challenges, understanding what the cost impact is going to be, [and] how much of that cost can be passed on to your end customer,” he said.
As for when M&A activity will start to get more robust, Swan’s hoping that there will be more certainty in six or nine months, maybe even a year from now, once the dust settles on tariff activity and there is certainty on whether they’re in place or not.
“The market thrives on stability and certainty. It’s the uncertainty that is holing back exists from businesses. It’s holding back an amount of activity in the the M&A market,” he said.
