Uncertain economic times call for careful planning and expert advice

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The global Economic Policy Uncertainty Index — a measure of the uncertainty at the junction of economics and politics — is currently at its highest level since the pandemic. But how is this uncertainty affecting mergers and acquisitions (M&A) deal volume nationally and locally?

“Economic uncertainty has created a mixed landscape for M&A activity in our region,” said David L. Mancuso CPA, director in the assurance practice at Freed Maxick. “While interest rates are expected to decline, and potentially a shift to a more favorable regulatory environment, there is heightened concern with the geopolitical landscape, including instability with tariffs which could impact the global economy.”

At the same time, Mancuso explains that companies with strong balance sheets are still pursuing strategic acquisitions, particularly in industries like manufacturing and distribution.

“We’re seeing more scrutiny in due diligence, with buyers being more cautious about valuations, quality of earnings, and cash flow projections,” he said.

In terms of new tax policies or regulations that could significantly affect deal-making this year,  Mancuso and his team are monitoring the extension of the expiring provision of the 2017 Tax Cuts & Jobs Act.

“Some of those expiring provisions were to place corporate and non-corporate effective tax rates on similar footing, or at least within a close proximity of each other,” Mancuso said. “If those expiring provisions are not extended, or are partially extended, the gap between corporate and non-corporate effective income tax rates could widen, thus affecting structuring in deal-making.”

This uncertainty is motivating some business owners to accelerate or consider accelerating transactions before the impact of any unfavorable provisions is implemented or when favorable provisions expire, Mancuso explained.

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“On the flip side, the new tariffs that recently became effective are also creating uncertainty in the merger and acquisition market,” he said. “This uncertainty extends beyond income tax concerns. We have already seen a slowdown in industries that are impacted by the new tariff regime.”

However, Mancuso believes that once the market becomes more educated and comfortable with the risks and impact of these tariffs, there should be a return to the deal-making volume typically expected, subject to other factors that could otherwise create a slowdown.

Overall, he expects M&A activity to remain steady but selective in the year ahead, acknowledging that while geopolitical and economic uncertainty could slow down certain deals, private equity firms and strategic buyers still have capital to deploy.

“We are watching credit market conditions, business valuations, and industry-specific trends in sectors like manufacturing, distribution, and technology to gauge activity levels,” Mancuso said.

For those considering selling a business in this uncertain environment, he says preparation is key—having clean financials, a strong quality of earnings report, and a clear understanding of valuation expectations will improve deal success.

“For buyers, thorough due diligence is more important than ever, given economic fluctuations,” Mancuso said. “I also encourage both parties to consider tax implications early in the process to avoid surprises later.”

Overall, Mancuso says that M&A remains a viable strategy for growth, but careful planning and expert guidance are crucial in today’s economic climate and that whether buying or selling, working with experienced advisors ensures a smoother transaction and a stronger financial outcome.

Mark F. Schuber, an attorney and senior counsel in the corporate practice group at Harris Beach Murtha PLLC  says that whenever there is economic uncertainty like there is now, it makes M&A more difficult, but not impossible by any means.

“It’s caused some volatility in the markets which has made buyers cautious,” Schuber said. “But I think there are still plenty of buyers and potential investors out there looking for the right opportunity.”

Schuber notes one challenge of M&A in this environment is  the difficulty to both value potential targets and to complete transactions when potentially midway, an economic or regulatory change like a tariff could happen and change that valuation that was so difficult to make in the first place.

“Market volatility can make it very difficult to agree on valuation between the seller and the buyer, to complete a deal and build the kind of trust you need between the buyer and the seller that a deal is going to get done,” Schuber said.

Assuming this uncertainty doesn’t go on indefinitely, he is relatively optimistic about the year ahead.

“There are still people out there looking to invest and there will always be sellers looking to either sell their business or looking for a debt or equity financing,” Schuber said. “We have the buyers and the sellers out there. We just need a little bit more certainty to bring them together.”

Russell D’Alba, CPA, the founder, president and managing director of Paramax Corporation, an investment banking firm, points out the benefits temporary tariffs could have for certain companies when it comes to M&A.

“ If an American company was thinking about selling and there is a positive impact by these temporary tariffs, the positive impacts for the temporary tariffs generally do no harm to and they may get a head start or a jumpstart on improving their working capital and other things over time,” D’Alba said.

He is also seeing certain businesses busier with M&A activity right now, despite economic and regulatory uncertainty – specifically those centered around efficiency (like artificial intelligence and remote health monitoring) and those focused on roofing, HVAC, electrical and plumbing.

“Anything to do with repairing and servicing real property and or equipment in homes is a big deal,” D’Alba said. “There are roll-ups occurring in those industries that have been happening now for the last year and a half or so, and we’re starting to see more and more of it. We haven’t even gotten to the peak of those roll-ups within those particular industries.”

Caurie Putnam is a Rochester-area freelance writer.