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Looming fresh tariffs cool dealmaking pace

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Sharp stock market volatility is worrying executives

trying to

find a price for companies to be sold

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Pockets of big deal making still exist to create champion

companies

By Svea Herbst-Bayliss, Abigail Summerville and Sabrina

Valle

NEW YORK, March 5 (Reuters) - A private equity firm in

early talks to buy a small U.S. snack food maker and merge it

with a Canadian rival was optimistic about getting a deal done

this year - until U.S. President Donald Trump took office in

late January.

The talks were shelved indefinitely after Trump said he

would impose a 25% tariff on Canadian goods. Trump made good on

the threat on Tuesday, sparking a drop in global markets and

retaliation from other countries.

"We can't take that risk right now," the investor said days

before Trump levied 25% tariffs on goods from Mexico and Canada,

triggering a global trade war. Trump also doubled the taxes on

imports from China to 20%.

"We would be super aggressive on that deal if there wasn't

so much uncertainty around tariffs," the executive said, asking

not to be identified because the talks were private.

Across Wall Street, executives and investors are running

into roadblocks to get deals over the finish line, or even to

begin exploratory talks, according to interviews with more than

20 investment bankers, M&A lawyers, private equity investors and

hedge fund managers.

Wall Street analysts cheered when Trump was elected in

November, predicting a banner year for mergers and acquisitions

with a projected $4 trillion in potential corporate deals, the

best in at least a decade. Instead, 2025 started with a whimper.

Dealmakers and corporate executives are struggling to

navigate through the rapid-fire global policy and economic

changes unleashed in the first six weeks of Trump's new

administration - from retaliatory tariffs to Elon Musk's mass

firings at federal agencies. The uncertainty has cast a chill

over the market.

The pace of U.S. mergers and acquisitions in the first two

months of 2025 was the weakest since the financial crisis with

just 1,603 deals signed through Friday, making it the slowest

open by volume since 2009, Dealogic data showed. Total deals

fell more than 19%, while the total value dropped 29% to $248.78

billion from the first two months last year.

"All the deals got held off in January and February," said

Bill George, former Medtronic CEO and executive fellow at

Harvard Business School. "There were very few deals done because

of this uncertainty; they (CEOs) don't know how to run the

numbers, they don't know how to predict what happens."

Trump imposed tariffs against a slew of consumer goods and

raw materials, promising to raise prices on cars, consumer

goods, gasoline and technology.

"The prospects of higher tariffs and escalating tensions

between the U.S. and its trading partners are the top concerns

for many U.S. corporate borrowers we rate," S&P Global ratings

said in a research report on Thursday.

"Significant uncertainties also remain for other measures -

including reciprocal tariffs, and additional tariffs on specific

products, as well as the possibility of 25% tariffs on imports

from the EU - that the president has suggested."

One activist hedge fund was pressing a $1 billion aerospace

conglomerate in early January to consider selling itself, said

one person with first-hand knowledge of the discussions. But the

two sides are at an impasse with a top executive at the company

worrying it will not fetch a fair price with so much uncertainty

in Washington and market volatility, the person said.

While market gyrations sometimes benefit hedge funds and

other traders, corporate boards and shareholders looking to

strike multibillion-dollar deals do not like wild swings in

stock prices and government policies.

The lackluster opening for M&A in 2025 is already weighing

on big investment banks like Goldman Sachs, Keefe Bruyette &

Woods analysts wrote in a research report downgrading the

investment bank's shares last week.

"Market uncertainty surrounding tariffs, inflation, interest

rates and government policies ... have led to a disappointing

start of the year in investment banking," driving investors away

from those stocks, the analysts wrote.

Even for companies not directly affected by tariffs, the

mood has soured on deals, bankers and fund managers told

Reuters, adding that any whiff of uncertainty from Washington

can chill the atmosphere. Several hedge fund managers complained

that deals they proposed were lingering somewhere between dead

and being on life support.

"There is a strong view that a lot of things around taxes

and regulation will go in the right direction, but in the

interim, those negotiations can be controversial and complex,"

said Gregory Bedrosian, managing partner & CEO of boutique

investment bank Drake Star.

Uncertainty is driving potential sellers of companies to

wait until markets are steady enough that their projected

valuations will hold and not be upset by unusual macroeconomic

events, he said.

The slowdown in dealmaking will likely take center stage at

this week's 37th Annual Tulane Corporate Law Institute

conference in New Orleans, where more than 1,000 lawyers,

bankers and executives will meet for two days of speeches and

panel discussions on key issues affecting the industry.

Even as smaller deals are getting sidelined, many on Wall

Street still expect Trump's stances on taxes and regulation to

pave the way for megadeals this year, like the sale of Chinese

short-video app TikTok.

Several senior dealmakers at top U.S. banks, requesting

anonymity because they are unauthorized to speak publicly, said

work is proceeding on other potential blockbuster deals that

would create mega U.S. companies to compete with China. They do

not expect the Justice Department under Trump to hold up such

deals, as was the case under the Biden administration.