Navigating M&A Uncertainty: How Evolving Policies Could Impact Your Next Deal

The following article is intended for informational purposes only. It is not meant to be taken as financial or legal advice. Consult your financial advisor before making any decisions about your M&A strategy.

Mergers and acquisitions live in a state of uncertainty, as new policy changes could affect financing and long-term success. If you are planning an M&A deal, either in late 2024 or sometime in 2025, here are critical factors to consider as you prepare for the transaction. 

Interest Rate Environment

The Federal Reserve trimmed interest rates in late 2024, giving companies a chance to secure more affordable financing options for M&A deals. Lower interest rates can pull more buyers off the sidelines, as financing becomes more affordable and they get more for their money. Lower rates present both opportunities and challenges:

• Changes to deal financing: With lower rates, borrowing costs decrease, allowing companies to finance deals more cost-effectively.
• Inflated valuations: With cheaper debt, companies may see inflated valuations from increased competition. Sellers may feel more pressure to close deals quickly.
• Debt service and cash flow impacts: With more options available and rates coming down, there will likely be more of a spread between senior and junior debt facilities–which could create more competitive term sheets. The amortization period of the debt will also have an impact on cash flow.

Shifting Antitrust Regulations

Political shifts often cause changes in antitrust enforcement, and business owners could see loosened antitrust scrutiny in 2025. This shift could shorten review times and potentially reduce conditions and restrictions placed on deals:

• Less scrutiny, faster approvals, and larger deals: With a lighter regulatory touch, companies could pursue larger acquisitions that might have previously drawn scrutiny. This could increase expansion opportunities and give firms greater structuring freedom.

Tariffs and the Reshoring Trend

Trade policies could focus on bringing supply chains back to the U.S., driven by potential import tariffs and reshoring incentives. European companies may look to the U.S. as an attractive market for acquisitions. However, the trend brings both opportunities and risks for M&A:

• Demand for U.S. acquisition targets: Emerging trade policies could create substantial risk in deal pricing and strategic planning. Potential shifts in tariff structures, reshoring incentives, and investment regulations mean that acquisition valuations can rapidly change. European firms may target U.S. companies to strengthen their domestic presence, which could drive up competition for domestic companies and raise acquisition prices.
• Supply chain management: Reshoring can complicate the post-merger supply chain. Companies should evaluate potential supply chain risks—like disruptions from sourcing transitions—and plan for a phased, stable integration.

• Acquisition landscape volatility: European firms must now factor in potential tariff fluctuations, policy changes, and geopolitical tensions when assessing U.S. acquisition targets, potentially altering traditional due diligence.

Tax Policy Changes

Tax policy can significantly influence M&A strategies, especially if corporate tax rates, deductions, or international structures shift. Recent proposals suggest potential changes to gift and estate taxes, corporate tax rates, and various deductions—all of which can impact M&A deal economics and post-merger structures.

• Deal economics: Changes in corporate tax rates could alter the anticipated return on an acquisition. Lower tax rates could increase net income.
• Wealth transfer and liquidity planning: Proposed adjustments to gift and estate tax rules could influence timing for family-owned businesses and private companies. For owners considering an exit strategy, proactive wealth transfer planning can mitigate some tax liabilities with the sale.

As we learn more about these policy shifts, it helps to closely monitor policy changes and adjust M&A strategies. If you need help navigating these changes, the Redpath M&A advisory team can assist in understanding the nuances of a changing regulatory and economic landscape, helping you make informed decisions.