A big question going into 2025 was whether the M&A market would recover after two years of lacklustre performance. Deal-makers were optimistic about a second Trump term. Many expected a rebound in deal activity in Europe and across the globe, driven by falling interest rates and new business-friendly policies in the world’s largest economy.
But, less than a month into Trump’s second term, an M&A renaissance looks increasingly unlikely. On 1 February, Trump announced a 25% tariff on imports from Canada and Mexico, causing a panic in the stock market. A few days later, he paused the implementation of those tariffs for at least 30 days. This week, in another unexpected development, the US president announced a blanket 25% tariff on all steel and aluminium exports to the US.
Such volatility is creating considerable headwinds for deal-makers. Despite predictions of an M&A comeback, this year’s January deal volume in the US was the lowest in a decade, according to data published by Ion Analytics.
“It is less about the tariffs and more about the uncertainty they create,” says Mark Barron, partner at Taylor Wessing, a law firm. “Markets and businesses crave stability. If you know what the rules are, you can figure out how to operate within them. But at the moment no one really knows what the rules are going to be for the next four years.”
Tariff whiplash is dampening deal flow
Companies are thinking twice about cross-border deals in particular, as they try to determine how US tariffs could impact their bottom line. That’s according to Jeremy Over, a partner at Moore Barlow, a law firm.
Business leaders, worried about unpredictable trade policies, retaliatory tariffs and the knock-on effects of supply chain disruptions, are reluctant to move forward with M&A. “With squeezed margins and rising operational expenses, big M&A deals, especially in manufacturing and automotive, just aren’t as appealing as they once were,” Over explains.
It is less about tariffs and more about uncertainty
Firms including Nissan and Honda have already delayed or cancelled proposed mergers. Businesses that rely heavily on international trade have suffered lower valuations thanks to rising costs, supply chain challenges and currency fluctuations.
Rather than pushing ahead with acquisitions, Over explains, companies are focusing on cutting costs, localising production and reworking supply chains to sidestep tariff-related risks.
These risks go far beyond deal delays. For instance, higher import costs would squeeze profits and make UK goods more expensive in the US; fluctuating exchange rates hinder effective financial planning; and supply chain disruptions could strain supplier relationships.
To mitigate these risks, Over says businesses may need to find alternative suppliers or even restructure their operations. These are expensive and time-consuming processes, meaning M&A could become less of a priority.
There will be winners and losers
Trump’s tariffs will create both risks and opportunities in the UK M&A market, stresses Merlin Piscitelli, chief revenue officer at Datasite, a digital M&A platform. “There are still good opportunities for businesses that are agile enough to adapt swiftly to the changing global economic environment.”
M&A can help businesses strengthen supply chains, diversify portfolios and enter into regions with more favourable trade conditions. Firms in struggling industries could snap up undervalued assets at a discount. And sectors less affected by tariffs, such as professional services and certain consumer goods, could even see a surge in deal activity.
Piscitelli says businesses in the technology, media and telecommunications sector could be the biggest winners. He expects increased M&A activity in the areas of AI, semiconductors and advanced technology. Companies in the manufacturing and industrial industries, meanwhile, will likely accelerate their onshoring strategies to mitigate trade risks. This could temporarily disrupt their operations but would create partnership opportunities for small, domestic distributors, who struggle to compete with larger, multinational suppliers.
Firms that depend on international markets or suppliers, such as those in the automotive, electronics and technical manufacturing sectors, will be the hardest hit, Piscitelli says. “These sectors may experience reduced cross-border flow and increased regulatory complexity. Deal-makers will need to adopt a more nuanced approach, and due diligence will require deeper geopolitical risk assessments.”
Will tariffs undermine pre-existing market confidence?
Even with US tariffs dampening deal momentum, other macroeconomic factors, such as tax hikes, margin pressures and cash-flow concerns, could sustain M&A activity. So says Ryan McNelley, managing director at Kroll, a financial advisory firm.
Pay attention to private equity, he advises. There is considerable pent-up demand for private-investment exits and new funds are eagerly looking to deploy capital. Buyer and seller expectations therefore have become aligned, he says. “It will be interesting to see whether the threat of tariffs or a wider trade war will undermine that pre-existing market confidence.”
Perhaps acquirers will prioritise deals closer to home. Regardless, the ability to execute deals will depend on interest rates and evolving economic conditions. “For now, patience is the prevailing approach for investors and business leaders,” McNelley adds.
The UK could become a more attractive destination
Some believe UK plc could benefit from US trade policies. Trump seems fully committed to wide-ranging tariffs on EU imports. But he may be willing to negotiate a more favourable trade deal with the UK. If this were to happen, British products exported to the US would be cheaper and more appealing to American consumers than EU-made equivalents.
John Connor, partner at Womble Bond Dickinson, a law firm, says investors may even view UK acquisitions as a strategic move to bypass tariff-related costs. This could fuel M&A, especially in sectors where the UK has an existing competitive edge. “Companies already trading with the US might find new growth avenues, while those not yet involved could attract fresh interest from American investors.”
Connor continues: “It could open doors for UK and US businesses to build stronger trade ties. A UK-US trade agreement, although challenging for the UK government to secure, could supercharge opportunities, providing a more stable and predictable environment for cross-border investments and M&A activity.”
China poses a new challenge to M&A
Trump also introduced a 10% tariff on all Chinese exports to the US. China promptly responded with a 15% border tax on imports of US coal and liquefied natural gas products and a 10% tariff on American crude oil, agricultural machinery and large-engine cars.
Heightened tensions with China may also expose cross-border M&A to domestic regulatory regimes, which could impact pending or potential deals, says Reuben Miller, global chief regulatory editor at Ion Analytics, a market-data platform. The Chinese government has already shown a willingness to use non-tariff retaliatory measures. Most notably through the launch of antitrust probes into Google, Apple and Intel, and export controls on critical minerals.
There are still some good opportunities for businesses that are agile
“This should be top of mind for the M&A community,” Miller says. “China has a long and rich history of using its regulatory powers to disrupt US deal-making, recent examples of which include the NXP Semiconductors-Qualcomm saga, the Tower Semiconductor-Intel failure and the prohibition of Micron chip sales in China.”
Such actions suggest China could target US-sponsored M&A in an attempt to convince US politicians to reverse tariff decisions. Miller believes this tactic could work if it targets high-value deals involving prospects in sensitive sectors such as technology. “Already, pending deals may come to represent rare moments where the fate of a US effort is exposed to the internal regulatory power of a foreign country,” he says.
Is Trump’s tariff strategy a bluff, a bargaining chip or the start of a new era in international trade? Time will tell. But whatever the US president’s intentions, his tariffs will be a burden for businesses across the globe.
A big question going into 2025 was whether the M&A market would recover after two years of lacklustre performance. Deal-makers were optimistic about a second Trump term. Many expected a rebound in deal activity in Europe and across the globe, driven by falling interest rates and new business-friendly policies in the world’s largest economy.
But, less than a month into Trump’s second term, an M&A renaissance looks increasingly unlikely. On 1 February, Trump announced a 25% tariff on imports from Canada and Mexico, causing a panic in the stock market. A few days later, he paused the implementation of those tariffs for at least 30 days. This week, in another unexpected development, the US president announced a blanket 25% tariff on all steel and aluminium exports to the US.
Such volatility is creating considerable headwinds for deal-makers. Despite predictions of an M&A comeback, this year’s January deal volume in the US was the lowest in a decade, according to data published by Ion Analytics.
