DealLawyers.com Blog

Tariffs on and off and on. Potential refunds. Real refunds. Let’s just say tariffs have presented challenges for dealmakers for well over a year now. But where do things stand now for transaction planning?

This Debevoise article (page 7) says we can’t think of tariffs as a temporary disruption anymore. They need to be treated as a “recurring operating and transactional risk requiring sustained focus in diligence, valuation, transaction structuring, contractual risk allocation, and post-closing integration.” After suggesting ways to preserve potential refunds, the alert suggests the following:

[A]cquirors and investors should account for tariff exposure directly in diligence and underwriting. That includes mapping and stress-testing supply chains, key customer and supplier contracts, and pricing flexibility, as well as assessing whether tariff risk is fully captured in the deal economics. That inquiry may affect the credibility of projections, the sustainability of recent earnings, the adequacy of carveout financials, and the appropriateness of valuation and contingent consideration. It may also shape how transaction risk is allocated, including through closing conditions, interim covenants, and targeted indemnity protection.

[T]ransaction parties should review existing agreements and negotiate new ones with tariff risk allocation in mind. Because tariffs can materially affect earnings stability, pricing flexibility, and supplier and customer relationships, provisions addressing price adjustments, pass-through rights, change-in-law protection, indemnities, termination rights, and dispute resolution may take on increased significance, as we reported here.

[C]ompanies should incorporate tariff compliance into integration and governance planning from the outset. Practical steps may include establishing a cross-functional tariff response team, implementing protocols for repricing and supplier renegotiation following defined tariff events, and strengthening customs classification, valuation and country-of-origin substantiation processes to reduce overpayment risk and preserve access to refunds, exclusions or other relief.