Will Trump’s tariffs have the same impact on M&A as the pandemic?
When America sneezes, the rest of the world catches a cold. When it comes to mergers and acquisitions amid Trump’s tariffs, however, it could be more like Covid. According to Iain Lownes, a partner in the Corporate Finance practice at professional services firm S&W, the pandemic could provide a guide as to what we’re likely to see in the market.
“When Covid hit, we didn’t know how transactions would be affected. Uncertainty prevailed.” he said. Today, the same is true.
“We’re not locked in our houses, but there are similarities.”
Then, as now, stock markets fell in recognition of the likely impact on growth and profits. Transactions – at least in the short term – slumped. Office of National Statistics records show domestic and cross-border M&A fell from 183 deals in March 2020 to just 42 that May.
Lownes and his colleagues saw this first hand, “As lockdown was put in place, we were ready to go to market with a client selling their business. Lots of people wanted to read the information memorandum, but moving beyond that was hard.”
On the other hand, once the initial shock passed, deal activity did begin to recover albeit at lower levels. In October 2020, before the vaccine rollout had even begun, M&A deals involving UK businesses hit 114.
Uncertainty prevails for business sellers
This time, of course, the tariffs aren’t closing down entire sections of the economy, particularly since the 90-day suspension of higher rates to be imposed on some countries. At the same time, however, the uncertainty remains, as does the baseline tariff of 10% on all imports and higher levels in the escalating trade war with China.
Moreover, in 2025, there can be little hope of government support for businesses seen during the Covid crisis.
“What’s different now is there is no big fiscal relief from governments. The UK government has had their fiscal headroom in the Spring Statement wiped out, while the US government is telling its citizens that the crisis is the medicine,” says Lownes.
As with Covid, the impact will also vary widely by sector. During the virus, hospitality was particularly hard hit, while retail moved online and, in many cases, boomed. Today, technology and services (currently excluded from tariffs) are unlikely to be significantly impacted, while manufacturers potentially face a tougher time.
“Covid’s impact was quite sectoral, and this will be too. Software businesses helping to create efficiencies aren’t going to be impacted, because that’s still going to be attractive and they aren’t going to have tariffs – at least for now.”
In truth, though, all sectors will want to see how the coming months turn out.
“What Covid did was create massive uncertainty across markets, which is what this has done. If you have a global slowdown, that will affect all sorts of businesses,” says Lownes.
Silver linings for UK M&A
To an extent, there is little buyers and sellers can do to resolve that uncertainty. There is no sign yet of a resolution with China, and while the suspension of tariffs is in place negotiations ongoing. The final shape of US trade policy, let alone the impact of any US or reciprocal tariffs, has yet to be seen.
“Supply chains are so interlinked across the world that determining the impact on each sector will be incredibly complicated,” says Lownes. Moreover, solutions are not always easy to put in place.
“Moving plants and opening new factories takes a while. You probably can’t overhaul an entire supply chain within a US electoral cycle.” Many will hope for a resolution with Trump backing down, although Lownes thinks that unlikely.
However, a few factors remain in the M&A market’s favour.
First, whatever the EU, China or elsewhere decide to do, the UK is unlikely to retaliate. That would be self-defeating, says Lownes. Businesses here won’t be unaffected, but the UK government has dropped some of its own import tariffs and the impact will be mixed. Their US exports will be less competitive against domestic US producers, but more competitive against those from China (and potentially others if the suspension ends without a deal).
Second, the Bank of England is widely expected to cut interest rates, which should help with financing deals. With the present volatility and uncertainty it is unlikely to unblock big-ticket deals, but instead we may see activity pivot to the mid-market. Credit markets remain open and a broad range of private equity and debt funds have significant cash waiting to be deployed, with over $2tn dry powder.
Finally, sellers face incoming IHT changes and the potential for tax rises in the Autumn Budget.
“Many business owners paused their exit in 2024 off the back of interest rate and political uncertainty,” explains Lownes. “Some buyers now accept that volatility is just the new norm and are looking to do deals.”
Time is on your side
That doesn’t mean business owners considering a sale should rush into anything. The early days of the Covid crisis were marked by “opportunistic buyers” looking to buy on the cheap, warns Lownes.
“It wasn’t serious or strategic buyers, but rather financial or high net worth buyers trying to take advantage of nervous sellers.”
However, it does mean things can change quickly. That should be clear already, “Only a month ago, markets were booming at record highs”, Lownes reminds us. The lesson, he says, is that business owners need to be ready to make the most of opportunities when the market turns.
“You need to be ready to pivot when market sentiment changes, because sooner or later it will”, he says.
“I don’t doubt that some transactions will be delayed while uncertainty on the tariffs remains, and corporate priorities may change. But globalisation hasn’t gone away, and activity will return.”
As for the deal he began in the first lockdown, it did get done – but in 2024, Lownes says. By that time the business had more than doubled in price.