Tariffs and M&A: 3 Things to Watch for in 2025

On April 24th, Fogel & Potamianos LLP hosts its annual 2025: M&A and Alternative Investment Forecast. We have learned from experience that while it’s difficult to predict the future, the right people can help forecast it. In our pre-panel meeting with panelists Cesar Bello, Partner with hedge fund Corbin Capital Partners, Jason Somerville, Partner with investment bank GW Hahnbeck, and Robert Dalie, Managing Director of wealth management firm The Summa Group of Oppenheimer & Co. Inc, we discussed the potential impact of tariffs. With that in mind, here are 3 things to watch for in 2025:

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1. The intensity and duration of tariffs will determine their impact on M&A. We can liken our experience with tariffs to a smooth commercial flight that suddenly experiences turbulence. It is intense, and we might wonder when the harrowing experience will end. As this relates to tariffs, the first question is how intense will the turbulence be (i.e. the percent of baseline and country-specific tariffs, without exemption, and number of industries affected, which seems to change daily)? The second question is just as important: how long will the intensity last (will this be weeks, months, or even years?). Both intensity and duration will impact M&A, as more explained below. Given the daily changes to trade policy and tariffs, this is a fluid situation to monitor.
2. Negotiations around Material Adverse Effect (MAE) may determine whether or not deals get off the ground or are eventually consummated in definitive documents. Traditionally, Delaware courts have looked at an estimated 20% impact on the bottom line to quantify triggering an MAE. That said, we will likely see explicit MAE carve-outs for trade policy and tariffs, meaning that the mere existence of tariffs, no matter the intensity and duration, would not on their own trigger an MAE. However, to the extent a target company experiences a disproportionate impact, then there would be a carve-back to trigger an MAE. Expect protracted negotiations on carve-out and carve-back definitions and various iterations of language until both sides can come to an agreement to either kick deals off at the LOI stage, or get them across the endzone at the definitive document stage.
3. Increased due diligence around tariffs will stall some deals and help others get the parties comfortable around risk allocation. Tariff diligence will become commonplace for 2025. First, this will increase around supply chains – and some may take six sigma like thoroughness to the process, as the impact can be iterative when thinking about parts within parts sourced from tariffed countries within products. Second, valuations around price, costing, and demand is in flux; investment bankers will be burning the midnight oil with all of their financial modeling. Heavily componented products from with high country-specific tariffs or imports directly with high country-specific tariffs will be most affected. That said, companies with US supply chains and limited tariff exposure will be attractive targets.

Jerome Fogel is co-founder of Fogel & Potamianos LLP. A partner in the Corporate Practice Group and Chair of the Sports & Entertainment Group, he is known as an innovator and dealmaker in the legal community. He represents private companies in mergers and acquisitions, emerging venture funds from formation through deployment of capital, and sports superstars in their off-field transactions.

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