How Tariffs Are Quietly Killing Deal Value — And What Smart Operators Are Doing About It

As talk of tariffs once again dominates headlines, many founders and operators in the U.S. lower middle market are confronting a quieter but more consequential reality: trade policy is no longer a macroeconomic abstraction. It’s showing up in earnings statements, M&A negotiations, and, in some cases, in decisions to delay a long-planned exit.

In January 2025, U.S. deal volume hit its lowest point in more than a decade. The downturn didn’t begin in boardrooms or bank vaults—it began in the ambiguity of tariff announcements that made it nearly impossible for buyers to price risk. What began as policy posturing has turned into a practical constraint for companies whose value is tied to imported inputs, offshore vendors, or international customer bases. For owners of businesses in sectors like technical manufacturing or industrial services, tariff exposure is now as important to buyers as revenue growth or market share.

The Pricing Problem

It’s not that buyers have vanished. In fact, many remain eager to deploy capital. The issue is valuation. Investors and strategic acquirers are building in tariff risk with a level of scrutiny once reserved for compliance failures or sudden shifts in leadership.

Margins are under pressure, even in firms that are otherwise healthy. Currency swings and shifting material costs mean that EBITDA no longer tells the full story. For acquirers, the question isn’t just “How profitable is this company?” but “How long will those profits survive a 15% shift in import duties?”

Caution Cascading Through the Market

Dealmakers are reacting accordingly. In sectors like automotive, energy, and electronics, transactions are stalling mid-process. Some die in the diligence phase; others are revised with tariff-related contingencies, including earn-outs or material adverse change clauses specific to trade conditions. Even among companies still eager to close, legal teams are spending more time probing supply chain fragility than cap table structure.

Yet not all deals are shrinking. In pockets of the market where founders have invested in domestic operations—or have diversified supplier relationships that mitigate overseas dependencies—valuations are holding. In some cases, they’re even climbing. One Midwest-based manufacturer, producing specialized components previously sourced from China, recently drew competing offers from two strategic buyers, both seeking to localize their supply chains. The company’s financials hadn’t changed dramatically. The geopolitical context had.

Winners, Losers, and Those Still Deciding

This moment doesn’t punish all players equally. Companies with the ability to flex sourcing, retool production, or serve as domestic replacements for foreign suppliers have become significantly more valuable. In effect, tariff conditions have rewritten the definition of strategic value—not based on scale or speed, but resilience.

Conversely, those that remain tethered to volatile cross-border trade relationships—without clear contingency plans—are finding themselves boxed in. Some are deferring exits, unsure whether today’s valuations are artificially low or a preview of new norms. Others are racing to reposition, quietly raising prices or accelerating onshoring projects in hopes of telling a different story by Q3.

There’s also a middle cohort: businesses neither fully exposed nor fully protected. For them, the challenge is narrative. Buyers and investors are looking for clarity—not just in numbers, but in strategy. It’s no longer sufficient to report on costs; operators must demonstrate foresight in anticipating them.

Tariffs as a Strategic Filter

For dealmakers, tariffs have become a sorting mechanism. They separate the agile from the dependent, the resilient from the overextended. And increasingly, they influence not only whether a deal gets done, but how—and at what price.

But there’s a broader takeaway here, one that goes beyond M&A. As capital allocators adjust their models and corporates rethink global footprints, lower middle market companies are being asked, implicitly or explicitly, to define where they fit in the next decade of domestic economic strategy.

Some will answer that call with hard pivots. Others will be acquired precisely because they already have. Either way, the trade policy headlines are no longer noise. For the right businesses, they’ve become a growth opportunity. For others, they’re a final stress test.

Sources

Will Trump’s Tariffs Cast a Shadow Over M&A?, Raconteur (Feb. 2025), https://www.raconteur.net/finance/trump-tariffs-ma.
Nissan Set to Step Back from Merger with Honda, Sources Say, Reuters (Feb. 4, 2025), https://www.reuters.com/markets/deals/nissan-honda-may-call-off-merger-talks-asahi-says-2025-02-04.
The Impacts of New Tariffs on M&A Activity, Nixon Peabody LLP (Feb. 14, 2025), https://www.nixonpeabody.com/insights/articles/2025/02/14/the-impacts-of-new-tariffs-on-ma-activity.
M&A Still on Hold Amid Policy Uncertainty, Charles Schwab (Mar. 2025), https://www.schwab.com/learn/story/ma-still-on-hold-amid-policy-uncertainty.
Trade Wars Come with a Price, and Investors May Already Be Paying It, U.S. Global Investors (Mar. 2025), https://www.usfunds.com/resource/trade-wars-come-with-a-price-and-investors-may-already-paying-it.
Turning Tariffs into Opportunity: Industry Insights for Middle Market Businesses, CBIZ, Inc. (2025), https://www.cbiz.com/insights/articles/article-details/turning-tariffs-into-opportunity-industry-insights-for-middle-market-businesses.

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