For a business owner thinking about selling, tariffs may sound like a trade issue rather than an M&A issue.
Increasingly, they are both.
Businesses that purchase materials or equipment from the United States, export to U.S. customers or operate in tariff-exposed industries can expect buyers to spend more time understanding how changing trade costs affect the company’s earnings.
For sellers, the goal should be to understand those questions before the buyer starts asking them.
Buyers Care About Sustainable Earnings
Most buyers ultimately value a business based in significant part on its expected future cash flow.
If tariffs materially increase the cost of imported inputs, a buyer will want to know whether those costs can be passed along to customers or whether margins will be squeezed and decline.
That means historical EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) may not tell the whole story.
A buyer may ask:
- Which products or inputs are tariff-exposed?
- How much has the company actually paid in tariffs?
- Can prices be increased?
- How quickly can prices change under customer contracts?
- Are alternative suppliers available?
- Would changing suppliers affect quality or delivery times?
If the answers are unclear, buyers may build additional risk into their valuation. That’s deal speak for a lower purchase price.
Know Your Contracts
Customer and supplier contracts can become particularly important.
Some contracts permit price increases where duties or government charges change. Others lock in pricing for extended periods.
Likewise, a company dependent on one U.S. supplier may face very different risk from a competitor with multiple Canadian or international sources.
Understanding those contractual rights before a sale process begins allows an owner to explain the exposure rather than simply disclose it.
Expect More Attention to Forecasts
Tariff volatility can also complicate financial projections.
If purchase prices have increased but management assumes margins will remain unchanged, a buyer will want to understand why.
That matters even more where part of the purchase price depends on future performance through an earn-out.
If an earn-out is part of the deal the parties should consider whether extraordinary tariff changes can distort an earn-out calculation and whether the purchase agreement needs to address that risk expressly.
Resilience Can Become a Selling Point
Tariffs are not necessarily bad news for transaction value.
A company that has diversified suppliers, strong pricing power, domestic production and flexible customer arrangements may become more attractive precisely because competitors are more exposed.
The important piece is being able to demonstrate that resilience.
Prepare Before the Sale
Owners considering a transaction should include tariff exposure in their pre-sale review.
Identify affected products. Quantify historical and expected costs. Review important customer and supplier agreements. Understand alternatives. Document what management has done to protect margins.
A buyer is likely to investigate these issues anyway.
Doing the work first allows a seller to control the explanation and can turn a potential diligence concern into evidence that the business is well managed and capable of adapting when conditions change.
If you’re planning for a potential purchase or sale, connect with Pitblado Law for tailored guidance. Our team can help you evaluate your options and navigate the negotiation and transaction process. For a confidential discussion, please contact:
Partner
204.956.3572
Note: This article is of a general nature only and is not presented as a comprehensive review of the law or as being exhaustive of all possible legal rights or remedies. This article is not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice applicable to their own circumstances. We do not undertake any obligation to update this article to reflect changes in law that may occur in the future.