Tariff turmoil may not be as bad for M&A as it seems
The new tariffs regime will necessarily disrupt global trade and cause distress to businesses across the world. An increase in distressed businesses could present a value play for astute buyers.
It is often said that the one thing markets hate the most is uncertainty.
Broadly, that is true: global equity markets’ negative reactions to the US’s “Liberation Day” tariff regime are attributable not just to their perceived economic cost, but also to uncertainties regarding the policy’s implementation and duration.
It follows that M&A activity in Australia and globally will be impacted as deal-makers wait to see what happens. But CFOs shouldn’t assume that deal activity will fall off completely.
Prior to the Liberation Day announcement, the M&A market was regaining global momentum after a post-pandemic slump. Despite the significant disruption the tariffs will cause, a number of these factors remain in play.
Insolvencies and distressed sales may remain high
Although the permanency and exact scope of the tariff regime is uncertain, it will necessarily disrupt global trade and cause distress to businesses across the world. This comes on top of many years of mounting insolvency and bankruptcy figures both in the US and Australia.
In both jurisdictions, company insolvencies have been caused by higher interest rates and low consumer sentiment in the post-Covid inflationary period, which has only just retreated. In Australia, these market dynamics have also seen increased use of the small business restructuring regime and the use of distressed debt specialists and safe harbour provisions for larger entities, which are alternatives to traditional insolvency processes.
Sector-wise we have seen signs of stress in aspects of the health industry – such as privately run hospitals and aged care facilities, alongside mining, property and construction, retail and agriculture. These sectors are all vulnerable to a general global economic slowdown which the tariffs are predicted to cause. Australian miners will be particularly impacted by a global commodities rout if the US proceeds with placing tariffs in excess of 100 per cent on Chinese exports.
From an M&A perspective, an increase in distressed businesses could represent a value play for astute buyers with a long-term view and a cash reserve on the balance sheet. Meanwhile, the current uncertainty around US trade policy may increase the impetus for industry consolidation in many areas, with one-time competitors joining forces to create larger, more resilient businesses that can more readily ride out the geopolitical storm.
New pools of credit emerging
Private credit markets expanded rapidly across the world following tighter capital standards and lending rules put in place in the wake of the Global Financial Crisis and are worth around $US2 trillion ($3.14 trillion) today. In Australia, private credit, although still a small percentage of the credit system, has grown at a faster rate than total business debt for a number of years. While private credit lenders are no doubt pausing to assess the situation, they may eventually find Australia an even more attractive investment destination if the US ultimately proceeds with imposing tariffs above the 10 per cent baseline on other countries.
Meanwhile, the weakening of our dollar following falling commodity prices will make the price of acquisitions here relatively more affordable for foreign private credit players.
Outside of private credit, debt is likely to become cheaper in Australia and globally.
Markets now expect central banks everywhere to bring forward interest rate cuts, and some commentators have even speculated over a return to quantitative easing, which would add significant liquidity to global markets.
IPO market — keep your powder dry a moment longer
Last year saw Australia’s IPO activity return to form after a few slow years post-pandemic.
IPO activity on the Australian Securities Exchange in 2024 saw $4.1bn across 67 listings, a nearly three-fold increase from 2023.
Prior to the recent tariff curveball, there was significant positive sentiment around the outlook for IPO activity in 2025, with public market investors willing to deploy capital for quality assets.
It is likely that uncertainty over the global economy will cause this nascent momentum to stall — but that doesn’t mean best-laid plans should go to waste.
Management teams considering an IPO should, therefore, do all they can to get ready for their next best opportunity, when uncertainty recedes below their risk threshold. Key to this is establishing strong and accurate internal forecasting and carefully evaluating which key performance indicators (KPIs) and non-IFRS metrics are most relevant, to develop a clear and concise equity story for the market.
Regardless of the global economic environment, growing regulatory and economic scrutiny, along with increasingly shortened timelines for going public, means it is more crucial than ever to prioritise early execution of these readiness activities. Preparing staff and systems to meet public company standards well ahead of the IPO process reduces execution risks and strengthens stakeholder trust.
Governance also continues to be a vital aspect. The C-suite and board will want to concentrate on strategy and oversight as a newly public entity, rather than dealing with issues related to noncompliance in governance, controls, and risk management that were not properly addressed before the IPO.
For companies aligned with ESG trends, there is a significant opportunity to integrate this into their equity story, boosting their appeal to investors and facilitating a successful public listing.
And as always, CFOs should keep their eyes on cost discipline and improvement on the path to an IPO.
CFOs, leaders, and those in the M&A space may be disheartened that global events appear to have taken the wind out of the deals market just as it emerged from a quiet period – but they shouldn’t despair.
Times of economic disruption may bring opportunity for those who can cut through the noise and see where the value lies.
Ian Turner is Strategy, Risk & Transactions Managing Partner at Deloitte Australia.
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