Cross-border merger and acquisition (M&A) activity in 2025 will be shaped by tumultuous economic, legal, and regulatory change. Driven by the new U.S. administration’s dramatic shift in policies and priorities, developments that once took months to unfold are now likely to impact the political and market conditions in a matter of weeks or even days. Although cross-border investment into the United States will still present opportunities as the year unfolds, foreign investors contemplating U.S. acquisitions or strategic investments are likely to encounter new technical, regulatory, political, and even cultural challenges.

These challenges will vary depending on the specific circumstances surrounding the deal. For example, the recent imposition of new U.S. tariffs is likely to reshape global supply chains and disrupt operations relying on them. Investors also need to consider potential review by the Committee on Foreign Investment in the United States (CFIUS) — especially in cases impacted by the ongoing U.S.-China trade war and the potential transfer of critical technologies. Together with new U.S. antitrust review standards, state legislation restricting foreign real estate sales, and other sector-specific requirements, the net result is a radical shift in U.S. investment and industrial policy.

Trade Wars: Coping with Volatility

Managing this turmoil during an M&A transaction requires awareness, flexibility, and meticulous preparation. This is particularly true in cases where U.S. target companies and their business partners find themselves embroiled in the Trump Administration’s rapidly expanding trade wars. President Trump recently imposed new 25 percent tariffs on foreign automobiles, computer chips, and pharmaceuticals. These changes accompanied an additional 25% tariff on steel and aluminum imports. And just last week, the President signed a memo calling on his administration to determine reciprocal tariffs with respect to each foreign trading partner. This means the administration will tailor tariffs based on individual trading nations, depending on their trade profiles.

These policies could have profound implications for global dealmaking. Using tariffs to seek political and economic leverage over major U.S. trading fosters greater uncertainty in the boardroom. Rapidly reshaping corporate strategies and global supply chains invited greater volatility on U.S. stock exchanges. And despite initial hopes for greater M&A activity in 2025, this combination of volatility and uncertainty is creating unexpected headwinds for dealmakers.

Tariffs, by nature, increase the cost of imported goods. Increased tariffs can lead to higher prices, greater operational costs, and reduced efficiencies. These factors make foreign acquisitions and investments less attractive and can ultimately lead to a significant decline in M&A activities. The consequences are already clear. In January 2025, U.S. deal making experienced its weakest start in a decade, with mergers and acquisitions dropping nearly 30 percent compared to the previous year.

Similar trends are evident in Canada, the US’s closest trading partner. According to KPMG, Canadian business owners looking to bring their companies to market pause M&A activity and assess the impact of new U.S. tariffs on their earnings. The result was downward pressure on company valuations and a greater overall likelihood of failed deals.

Adapting to High-Tariff Environments

KPMG’s Deal Advisory team recently advised acquirers and sellers to recognize how their business could be impacted by the new high tariff environment. They noted that identifying key vulnerabilities — such as costs, supply chain disruptions, and alternative pricing strategies — is crucial. They recommend that firms develop strategic plans to address the cost of tariffs and other Non-Tariff Barriers (“NTBs”) and then assess how those plans could impact a potential merger or acquisition.

Evaluating these costs may place greater burdens on businesses seeking to be acquired. With this possibility in mind, target companies should conduct thorough due diligence on their own potential tariff exposure before a prospective sale. Doing so will help them proactively demonstrate how they will continue to create value through strategic synergies despite the higher costs, uncertainty, and volatility discussed above.

Such strategies should be company specific. In some instances, high tariffs may create incentives for target companies to establish new operations in low-tariff jurisdictions outside the United States. In others, U.S. target companies serving the U.S. domestic market might mitigate tariff risk by leveraging domestic acquisitions to increase U.S.-based production. Either way, the goal should be to demonstrate a capacity to adapt and thrive despite the current headwinds in U.S. M&A markets.

Coping with U.S. Industrial Policy

In addition to adapting to high-tariff environments, parties contemplating acquisitions or investments in the United States must also cope with other significant changes in the U.S. legal and regulatory landscape. Some of the key issues to consider in 2025 include the following:

Foreign investors who proactively address these issues, plus political, regulatory, cultural, and financial complexities, will be well-positioned to execute successful transactions and achieve their strategic objectives in the U.S. domestic market.

Disclaimer

Author(s)

Louis Lehot

Partner
[email protected]
Silicon Valley
650.251.1222

Christopher Swift

Partner
[email protected]
Washington, D.C.
202.295.4103

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