Dream Business Brokers
John called me in a panic after reading the buyer’s email. The deal was nearly done—due diligence was almost complete, and the finish line was in sight. His business was almost sold after several months of effort. But overnight, everything changed. A sudden shift in trade policy had spooked the buyer, and just like that, the momentum stalled. Now the buyer wanted to wait and see what happens with the tariffs before closing the deal to buy his business.
April 2nd changed the risk profile for many buyers, especially those in the manufacturing or distribution sector. That was the day President Trump called “Liberation Day;” the day he presented a list of tariffs that would take effect.
Uncertainty Disrupts Deals
The new tariffs included a universal 10% tariff across the board for most products from most countries, with some exemptions, and additional reciprocal tariffs for several countries, with China being the most concerning at 34%. Manufacturing firms were bound to be affected, since many components and raw materials are shipped from outside the U.S. China, Trump’s primary target, supplies a significant part of most manufacturers’ inventories of parts and components.
It looked like the cruise that John had booked for the month after closing would have to be put on hold. It wouldn’t be a surprise that many cautious buyers would want a “wait and see” period to determine just how profitable a company could be with the U.S. and China in a trade war. Uncertainty is the surest way to tank a deal, and the tariff situation remains unpredictable, as negotiations continue to evolve.
Manufacturers Face Risks and Opportunities
Manufacturers, who are cost-sensitive and often rely heavily on imported raw materials and components, have greater exposure to and risk from economic uncertainty in the global market. We learned during the pandemic how supply chain disruptions and worker lockdowns affected almost every product consumers buy. Smart manufacturers began developing a “Plan B” for their most important materials and components.
Smart buyers also started taking a closer look at supplier diversity, since reliance on a single supplier, especially an offshore one, could present a serious risk for new ownership. Even if tariffs aren’t an issue, natural disasters, terrorism, military conflicts, and worker strikes can affect the flow of goods for weeks, months, or even years.
Diversify to Mitigate Risk
More manufacturers are taking the opportunity to closely examine their supply chain. Many have not really considered changing vendors, since their choices had been made on cost, reliability, quality, and ship times. They’ve been in the “if it ain’t broke, don’t fix it” mode for a while, especially when listing their company for sale.
But maybe it’s time to diversify sources and take another look at cost and pricing. Tariffs change the calculation, and it’s possible that sourcing locally might now become an affordable option.
Are Local Sources Viable?
Sourcing locally may mean that a business owner has to carry less inventory, since they can order in smaller batches rather than having to order a full container from China. The reduction in carrying, transport, and storage costs may offset the slightly higher cost of the goods.
Dealing with U.S.-based vendors also makes it easier to monitor and discuss quality control. Being closer to suppliers enables more timely and direct communication, leading to better quality control and fewer defects, which can also reduce rework and associated costs. While waiting for another buyer to make an offer, our seller could order some small batches from onshore suppliers, testing the quality of the materials and the reliability of the vendor.
Good News
The good news for John is that he was able to find a US-based supplier for some of his products. That, along with negotiating better deals with suppliers and passing on a lot of the cost increases to his customers, helped avoid a significant decline in performance. The tariff reductions after the latest round of negotiations with China also put the Buyers’ mind at ease, and they finally closed the deal. After all the turmoil, John and his wife were finally able to enjoy their cruise. A big congratulations to John on the successful sale of his business!
If you plan to put your company up for sale over the next couple of years, creating a backup plan for your most critical vendors and suppliers is a crucial step to consider.
