Tariffs bring uncertainty—and opportunities—for PE and M&A

Author:
Kevin Dowd
Read time:
6 minutes
Published date:
2 July 2025

In the first weeks after the initial tariff announcement, dealmakers proceeded with caution. More recently, however, spending in the merger market has been revving back up.

The status of the new tariff regime announced by the U.S. in early April remains in flux, with negotiations that could reshape the international economy continuing to unfold as the year nears its halfway point.

In May, total M&A deal value in the U.S. climbed to $198.8 billion. That’s a 40% increase from April, when activity in the market declined due to widespread uncertainty over what trade duties would be implemented and when they would ultimately go into effect.

Investors across all types of financial markets seem to have grown much more optimistic that the results will not be too tumultuous. After plunging in early April, major public stock indexes recovered to near all-time highs. In May, spending on M&A deals experienced a similar spike.

But question marks remain. Even as deal value rises, the number of transactions taking place remains depressed. Total M&A deal count in the U.S. declined by 8% in May compared to April. On a year-over-year basis, transaction count in May was down 13%. In an EY Parthenon report from May, almost 25% of PE GPs who were surveyed reported that they had experienced “deal disruptions” due to concerns about tariffs.

Uncertainty breeds opportunity

In her dual roles as the founder and managing partner at Regen Capital and the CEO and chairman at Dynamix, Andrejka Bernatova is actively pursuing investments in the energy, power, and infrastructure sectors in both the private and public markets. In a career that includes prior stints at Blackstone and Morgan Stanley, she’s learned that this sort of uncertainty is nothing new. Investing is inherently a business of peaks and valleys.

But that doesn’t mean that it’s currently business as usual. In today’s market, Bernatova and her teams are looking for investments with particular appeal in the current market climate.

“What we’re doing is figuring out where the opportunities are,” Bernatova says. “In a sort of perverse way, volatility can be good, because it does create more opportunities.”

For both PE firms and corporate buyers, this can be a common approach in these sorts of conditions, according to Kip Wallen, senior director of thought leadership at SRS Acquiom, a provider of various financial services related to M&A transactions that published a recent report on M&A deal terms. In an uncertain market, acquirers can be more inclined to look at opportunities on a deal-by-deal basis and to push beyond some of their normal boundaries.

The impact of tariffs so far

Different types of companies and different types of private equity firms may have very different exposure to tariff-related changes.

Companies that are reliant on international supply chains are likely to be impacted the most, according to Robert Lytle, a senior managing director at Stax Consulting who works with private equity firms and their portfolio companies on due diligence and value creation.

“If I’m the CEO of an auto supply company, say, I’m not sleeping well at night,” Lytle says. “And I use that as an example, but any areas like that which are reliant on supply chains could be impacted. Portions of consumer, anybody in the industrial space.”

PE firms likely have a close eye on any portfolio companies operating in these sectors. But that’s only the first-order effect. Lytle cautions that investors should also be aware of any portfolio companies who serve customers who might be in one of these impacted industries, and how changes for those customers might trickle up to a PE firm’s bottom line.

As a general rule, Lytle says, larger private equity firms are more likely to feel the effects of higher tariffs in their portfolios. These mega-cap firms are more likely to have the resources to invest internationally or in capital-intensive industrial sectors. Midcap firms and other smaller investors, he says, often lean toward industries that may have less tariff exposure, like software and services.

Attitudes toward risk

Every investment comes with some degree of risk. But volatility can ramp up that risk factor.

When considering deals in the current uncertain environment, Bernatova says she’s particularly concerned with mitigating risk and finding ways to protect herself and her LPs from negative outcomes. As an example, she points to the contracts that a company might sign with its customers, such as an energy company agreeing to provide power on certain terms.

“There needs to be some sort of downside scenario that still works for investors,” Bernatova says. “For example, if you take a manufacturing business or an energy business, maybe you need a stronger contract that will not expose you to cost overruns. Maybe you have a higher price in terms of the engineering and operating contract, but at the same time, you have more certainty.”

Implications of M&A uncertainty

This latest bout of tariff-driven market uncertainty comes at an awkward time for many players in the private markets.

At the start of the year, many investors were eagerly anticipating that 2025 would be a strong year for M&A activity, providing a long-sought and much-needed chance for fund managers to generate liquidity for their LPs. The surge of deal activity in March was a promising sign on this front. April’s slump was less encouraging. If investors are more hesitant about making acquisitions, some companies that have been waiting for exit opportunities may have to wait a little longer.