Tariff Policy's Impact on Business Valuation

Business Valuation Resources, LLC wrote an excellent article on the impact tariff policy may have on business valuations. In its article, they cite five key factors valuation experts, sellers, and buyers should consider. They are:

1. Increased Costs. With baseline tariffs increased on most imports, companies face the dilemma of (a) absorbing these additional costs, thereby reducing their profit margins, or (b) passing the tariff on to consumers, potentially resulting in lower demand and sales.

2. Sector-specific impacts. Industries heavily reliant on imports from, for example, China will face increased costs which puts pressure on business valuations.

3. Heightened Uncertainty. Uncertainty breeds delay in investments and completing acquisition transactions.

4. Altered M&A structures. Tariffs introduce additional risks in a transaction. Buyers may seek price discounts to offset such risks or structure deals so that sellers take more of the tariff risk.

5. Potential for Inflation. Increased costs due to tariffs can contribute to inflationary pressure and higher prices to consumers This may reduce consumer spending power potentially decreasing overall demand and thus revenue for affected businesses. Read more.