Tumultuous tariffs and valuations caused M&A buyers to put their manufacturing deals on pause. That pause is extending, and it could become stagnation.
“Unfortunately, many companies right now are frozen in a wait-and-see mentality,” said Grant Thornton Manufacturing Industry National Leader Kelly Schindler. “But the tariffs are here, and the buyers that are assessing risk, planning and getting into the market are the ones that are going to be successful.”
Unfreezing
Grant Thornton Transaction Advisory Services Principal Eric Young agreed, “There’s an element of people still sitting on the fence. In a high tariff environment, which is effectively protectionary commerce, a business that is US-based with US inputs and customers becomes more valuable in the eyes of acquirers. We might see buyers looking to acquire in America instead of building in America. We might see that from foreign acquirers, too.”
However, acquisitions could take time to develop. “Most buyers won’t execute on that strategy until they believe that tariffs will remain at an elevated rate for a significant period of time,” Young said. “That period of time could be the three-to-four-year horizon, because any acquisition is going to be at a relatively high multiple. That won’t happen until the uncertainty phase is over.”
“The biggest hurdle for buyers right now is the uncertainty of the current situation,” Young said. “It’s the uncertainty of what costs are today, tomorrow and a year from now, along with the key inputs needed for production.”
Still, buyers can’t win if they’re frozen. Even if they have some deals on pause, they can watch a range of factors, and take a closer look at their targets, to know when and where to activate alternative strategies.
Unexpected factors
Most buyers are watching some core factors in today’s market, but it’s important to balance these correctly and consider other factors as well. “I think everyone’s under the general assumption that there are going to be tariffs broadly impacting manufacturers that import and export — so, there will be increased costs,” Young said. One important question is how much of those costs should be passed along to customers.
Schindler said she has heard of recent deals where buyers require acquisition targets to pass tariff costs along to customers. This reduces immediate cost impacts, but it can put long-term value at risk when you balance other factors like customer relationships. Buyers need to consider a range of factors that includes:
Maritime fees
Maritime and port fees have been levied and waived, but they are scheduled to resume in October and their costs are an important consideration. This year, ships that were made in China have been charged port fees of over a million dollars per ship to dock, even if the ships carried goods that were not from China. “There’s been so much discussion about tariffs that people aren’t realizing that these other fees are out there,” Schindler said.
Workforce issues
Workforce turbulence has been an ongoing concern in manufacturing, but recent immigration enforcement has exacerbated that concern in some sectors. “It’s a hot-button issue to consider whether there is any risk that a component of a company’s workforce might have trouble getting citizenship or staying in the US,” Young said. “I think that has more impact on the smaller targets or targets that have large amounts of contract labor or temp workers.” Schindler added, “In the food and beverage sector, where there’s an agricultural component, I can see it being a definite concern.”
De minimis tariff loophole
On the positive side for US business values, the US closed the de minimis trade exemption on Chinese imports from May 2, 2025 onward. This exemption allowed goods valued at or below $800 to enter the country without any tariffs owed on them. In today’s e-commerce environment, that meant small orders had no tariff applied — while large orders by US retailers had to pay tariffs. “It was unfair to US companies who would buy and sell things in bulk, because they had to pay that extra tariff cost, while small orders could get it cheaper,” Schindler said. “Now, tariffs are going to be applied to all items coming in from China and Hong Kong, no minimum, so we’re on a more level playing field.” The suspension of that treatment could be a boon to some domestic manufacturers, though it may force others to shift the sourcing of certain inputs. The Trump administration, as well as congressional Republicans, are also weighing whether to suspend de minimis treatment for items from other countries.
Alternative strategies
In this changing environment, buyers need to be agile. Scenario planning should be an ongoing activity that not only plays into the valuation and diligence process, but also the target identification process. “What we call ‘scenario planning’ is a big umbrella,” Schindler said, noting that it can apply at multiple levels. Buyers might even want to think globally.
Location alternatives
The recent tariffs have put a focus on the value of US companies, but if buyers want to target other markets in their portfolio, they might choose to flip that equation. “From a retaliatory tariff standpoint, if I’m trying to sell into other countries I might want to think ‘local for local,’” Schindler said. “Local for local” puts a focus on acquiring manufacturing operations in the same region as the customers they serve.
“Some buyers are looking for those local-for-local opportunities,” Schindler said. In particular, she called out the UK, where high inheritance taxes are pushing some family-owned manufacturers to sell. In the UK, the 40% inheritance tax has traditionally been waived for some agricultural and business properties, but it will be more tightly enforced in 2025. “The next generation that inherits a business might suddenly have to pay 40% tax on the value of that business,” Schindler said. “To prevent that from happening, some family-owned businesses are selling. If there’s something in the UK that is of interest to you, you might want to look now. There’s one more reason to be looking at the UK so that you can avoid European retaliatory tariffs.”
Supply alternatives
As buyers evaluate a target manufacturer’s costs, supply chain stability and potential exposure to tariffs, it’s important to know if the company has examined its bill of materials. “Client manufacturing companies are doing bill of materials engineering,” Schindler said. “Under scenario planning, they’re drilling into the bills of materials and looking at all of the costs at a very granular level. For each of those granular costs, they ask where they come from, whether there are alternatives through a different supplier or type, and whether they can substitute an item for something else.” Young added, “There can be a diversity of material sourcing options, with alternative components, sources and supplier countries.”
Target companies might also need to go back to suppliers and renegotiate prices in light of current tariff costs. “Whatever you’re not able to negotiate down is just going to eat up your gross margins unless you can then pass those costs along to consumers,” Young said.
Schindler noted that some companies cannot scrutinize their entire bills of materials manually. “Some companies will have 15,000 or more SKUs. So, maybe you’re strategizing certain ones, or building an AI component that can do the analysis.”
Technology alternatives
Schindler said that M&A participants and their target companies are incorporating technology for scenario planning that is faster, more dynamic and more accurate. “Today alone, I had two instances where clients asked for help with those solutions,” she said. Oracle, Anaplan, OneStream and other companies provide tools that can be used as provided or customized for forecasting and agile cost modeling. “They can be a very cost-effective way to have quick analysis that you can perform over and over.”
Dynamic preparation
If buyers are feeling frozen with uncertainty, waiting for tariffs and markets to settle out, it’s time to adopt a mindset of dynamic preparation.
Buyers might not need to take significant deal actions, but they need to achieve significant deal insight. “I’ve cautioned companies about being impulsive, and instead advised that they engage their analysis and have open discussion with their suppliers,” Schindler said. “They very well could have similar concerns, and express they are still open for business. In addition, I’ve seen some clients start to push through increased pricing to their customers and their customers haven’t flinched.”
“Do your scenario planning,” Schindler said. “Look at the situation that way, so that you are ready when that time comes. When factors cross that line in the sand that you established during your scenario planning, you’re ready to go.”
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