The recent waves of tariffs, both those effective April 5, 2025, and threatened to be effective, have sent ripples through global supply chains, with potentially up to 25% duties on imports from Canada and Mexico and up to 125% (or more) on Chinese goods. A 90-day tariff pause announced on April 9, 2025, alongside potential retaliatory measures from trading partners, has introduced significant uncertainty in the M&A market, requiring buyers to strategically reassess potential targets and increase certain due diligence practices, especially around potential supply chains.

Heightened Due Diligence Demands

Tariffs are reshaping the operational realities of middle market companies, especially those reliant on imported inputs in sectors like manufacturing and consumer goods. Supply chain and import/export diligence has become a top priority in order to assess a target’s exposure to tariff-affected regions, such as China, Canada or Mexico. Business, tax and legal due diligence should also cover hidden or undisclosed liabilities that could erode EBITDA post-closing, such as penalties for terminating supply and vendor agreements, potential supplier force majeure claims, customs violations/misclassification of goods, and unrecorded tariff-related tax liabilities. In order to negotiate informed valuations or walk away from deals with unmanageable risk, buyers must identify any sourcing dependencies, evaluate alternative suppliers, and assess potential regulatory issues. A meticulous approach to due diligence is especially critical in the current environment, where the tariff pause/start/stop and potential trade agreement renegotiations add layers of complexity to forecasting costs and operational stability.

Legal Deal Points for Tariff Uncertainty

The current uncertain tariff landscape requires careful consideration of specific legal deal points to protect buyers from supply chain disruptions. Acquisition agreements should include robust representations and warranties addressing potential cost escalations or supplier interruptions, and buyers should consider whether tariff-related closing conditions or termination rights can be leveraged to allow a buyer to renegotiate or walk away if conditions further deteriorate. Other risk allocation methods can be performance-based (e.g., earnout provisions tied to post-tariff performance further align valuations with actual outcomes) or unrelated to performance a target’s performance (e.g., specific indemnities, holdbacks, escrows, deferred payments or tariff-specific agreements between parties). For example, the transaction agreements could allocate funds to address supplier disputes, preserving deal economics if a key vendor fails to deliver. To mitigate risks of inventory obsolescence—where tariffed goods become uneconomical—buyers can negotiate covenants requiring a target to diversify sourcing pre-closing or include warranties covering inventory write-down costs.

Conclusion

The tariff-induced supply chain restructuring is reshaping middle market M&A, presenting both risks and opportunities for all buyers and sellers. By integrating tariff considerations into due diligence and transaction documents, attorneys can help clients navigate the volatility, positioning them to capitalize on strategic advantages in a dynamic market. As trade policies evolve, a disciplined, legally informed approach will be essential to sustaining deal momentum and maximizing returns.

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