For private equity investment professionals and their advisors navigating the deal landscape in 2025, tariffs are directly and indirectly introducing turbulence to live transactions. Whether these tariffs emerge from trade tensions, geopolitical competition, or evolving executive action, they create a fog of risk that complicates pricing, due diligence, and even deal structures. The tariff risk M&A participants must navigate, particularly on the buyside of transactions, goes beyond the mere existence of tariffs. It also includes the volatility in tariff policy—shifting rates and new categories of goods and countries subject to duties. In many deals, the question is no longer limited to “Is there tariff risk?” but also, “What will the tariffs be tomorrow?”
This uncertainty is more pronounced for M&A targets for which the answer to the first question is “Yes”—generally, targets with supply chain exposure to goods and/or countries under newly announced or evolving tariff regimes. The standard M&A risk management toolkit, unless modified and adapted, may fall short in addressing the volatility of trade policy in transactions where tariff risk is significant.
To mitigate these risks, private equity buyers may wish to consider the following, particularly in contexts where the buyer has negotiating leverage—i.e., situations that are not (or are no longer) competitive auctions:
- Simultaneous Sign-and-Close: Where feasible, buyers may wish to consider selecting simultaneous sign-and-close structures. This structure shifts to the seller material adverse effect (MAE) risks that otherwise would be borne by the buyer if the transaction were instead structured as a deferred closing or sequential sign-and-close transaction. In a simultaneous sign-and-close structure, if, one day before the expected sign-and-close date, new tariffs were announced or existing rates increased, the buyer could pause, recalibrate, and seek to renegotiate the deal because the buyer did not yet sign a binding purchase agreement. But if the same event occurred in a deferred closing or sequential sign-and-close structure, unless there were clear contractual outs without high legal standards that must be met, the buyer would be stuck with the terms and risk allocation in the contract it signed. Note that simultaneous sign-and-close structures aren’t limited to small M&A transactions. They are also available in transactions where antitrust filings are required. Even under the new rules of the Hart-Scott-Rodino Antitrust Improvements Act (HSR), the filing can be made based on a letter of intent between buyer and seller. The parties need not wait for a signed purchase agreement to make an HSR filing.
- Tariff-Adjusted Purchase Price Mechanisms: Another strategy is to negotiate a purchase price reduction based on an analysis of future operating costs under various tariff scenarios. This analysis could incorporate, among other things, reasonable assumptions regarding the target’s ability to pass on those costs through price increases —recognizing that not all products, businesses, or industries command the pricing power to do so sustainably. The purchase price reduction could take one of two forms – (i) a straightforward reduction of base purchase price (whether to the number itself or, in situations where it is important to the seller for the base purchase price to optically remain untouched, a defined term representing the quantum of the downward adjustment could be built in to reduce the base purchase price and arrive at the amount payable at closing), or (ii) the same adjustment, but subject to a post-closing true-up mechanism that, depending on where the tariff rate ended up by the end of the purchase price adjustment period or some other negotiated measurement date, either recaptures the forgone portion of base purchase price for seller or further reduces base purchase price.
- Clawback Escrow Arrangement: Alternatively, the parties can negotiate a clawback arrangement that essentially operates like the reverse of an earnout but is more seller-friendly than an upfront purchase price adjustment. Under this arrangement, the portion of the purchase price that would have been the upfront purchase price reduction amount would be deposited into an escrow account at closing. If, during a specified post-closing period, the target’s financial performance fell by more than an agreed threshold that provably correlates with, and is materially attributable to, increased tariffs beyond the base case priced into the deal, then the buyer would be entitled to recoup all or a portion of the amount in the clawback escrow.
- Limitations of the No-MAE Closing Condition: Under customary market MAE constructs in purchase agreements and applicable case law, buyers cannot rely (at least not as their primary risk management tool) on the likelihood that a material and adverse tariff change would trigger a walk right. There are—at least—two key reasons for this: (i) in addition to other carveouts that likely apply, most definitions of MAE contain an express carveout that says any changes in “Law” (typically broadly defined to pick up executive orders or pronouncements that have the force of law) are not MAE events, and (ii) the requirement of durational significance. Delaware courts have consistently required that an MAE must be “durationally significant” for a “commercially reasonable period measured not in months, but years”. The unpredictable nature of U.S. trade policy in 2025 means that a tariff announcement or increase to an existing tariff rate is unlikely to meet that standard because that tariff could be revised to a lower rate or removed completely the next day, within a few weeks, or as soon as a new trade agreement is negotiated. Consequently, any specific tariff action is, by nature, potentially transient and difficult to characterize as durationally significant.
- Limited Utility of Representations & Warranties Insurance (R&W Insurance): R&W Insurance policies basically insure buyers for losses arising out of the inaccuracies in statements made by sellers in the purchase agreement about the target business. Buyers may consider negotiating bespoke, materiality-qualified representations about sellers’ assessment of the impact of tariffs, but, even if sellers are willing to accommodate any such new representations, R&W Insurance carriers are likely to reallocate those risks to buyers by insisting on knowledge qualifiers or simply proposing broad exclusions under the R&W Insurance policies. This is what the marketplace experienced in the pandemic era. However, just as buyers were often able to resist sweeping COVID-19 exclusions by encouraging competition amongst carriers on the scope of those exclusions, buyers should consider seeking to narrow unacceptably broad tariff exclusions (including amplifying terms such as “arising out of” or “relating to” that exacerbate the impact of such exclusions). Limiting exclusions (e.g., to certain geographies or product classes), including by paying a modest premium to narrow them significantly or remove them entirely, can be worth the greater confidence about coverage.
From 9/11 and the heightened sensitivity to material adverse effects of international terrorism, to the impacts of the global financial crisis, to the COVID-19 pandemic, subsequent inflation and rising interest rates, each generation of control investors and their advisors have had to grapple with various macroeconomic risks. Now, tariff volatility is the latest risk that requires allocation. But the role of the dealmaker remains unchanged: to be acutely aware of the operative negotiating environment, price risks fairly, creatively solve problems, and get deals over the finish line.