Weathering the Storm: Key M&A Considerations for Foreign Investors Entering the U.S. Market

Cross-border merger and acquisition (M&A) activity in 2025 will be shaped by tumultuous economic, legal, and regulatory change. Driven by the new U.S. administration’s dramatic shift in policies and priorities, developments that once took months to unfold are now likely to impact the political and market conditions in a matter of weeks or even days.  Although cross-border investment into the United States will still present opportunities as the year unfolds, foreign investors contemplating U.S. acquisitions or strategic investments are likely to encounter new technical, regulatory, political, and even cultural challenges.

These challenges will vary depending on the specific circumstances surrounding the deal.  For example, the recent imposition of new U.S. tariffs is likely to reshape global supply chains and disrupt operations relying on them.  Investors also need to consider potential review by the Committee on Foreign Investment in the United States (CFIUS) – especially in cases impacted by the ongoing U.S.-China trade war and the potential transfer of critical technologies.  Together with new U.S. antitrust review standards, state legislation restricting foreign real estate sales, and other sector-specific requirements, the net result is a radical shift in U.S. investment and industrial policy. 

Trade Wars: Coping with Volatility

Managing this turmoil during an M&A transaction requires awareness, flexibility, and meticulous preparation.  This is particularly true in cases where U.S. target companies and their business partners find themselves embroiled in the Trump Administration’s rapidly expanding trade wars.  President Trump recently imposed new 25 percent tariffs on foreign automobiles, computer chips, and pharmaceuticals.  These changes accompanied an additional 25% tariff on steel and aluminum imports.  And just last week, the President signed a memo calling on his administration to determine reciprocal tariffs with respect to each foreign trading partner. This means the administration will tailor tariffs based on individual trading nations, depending on their trade profiles.

These policies could have profound implications for global dealmaking.  Using tariffs to seek political and economic leverage over major U.S. trading fosters greater uncertainty in the boardroom.  Rapidly reshaping corporate strategies and global supply chains invited greater volatility on U.S. stock exchanges.  And despite initial hopes for greater M&A activity in 2025, this combination of volatility and uncertainty is creating unexpected headwinds for dealmakers.

Tariffs, by nature, increase the cost of imported goods. Increased tariffs can lead to higher prices, greater operational costs, and reduced efficiencies.  These factors make foreign acquisitions and investments less attractive and can ultimately lead to a significant decline in M&A activities. The consequences are already clear.  In January 2025, U.S. dealmaking experienced its weakest start in a decade, with mergers and acquisitions dropping nearly 30 percent compared to the previous year.

Similar trends are evident in Canada, the US’s closest trading partner.  According to KPMG,  Canadian business owners looking to bring their companies to market pause M&A activity and assess the impact of new U.S. tariffs on their earnings.  The result was downward pressure on company valuations and a greater overall likelihood of failed deals.

Adapting to High-Tariff Environments

KPMG’s Deal Advisory team recently advised acquirers and sellers to recognize how their business could be impacted by the new high tariff environment. They noted that identifying key vulnerabilities—such as costs, supply chain disruptions, and alternative pricing strategies—is crucial.  They recommend that firms develop strategic plans to address the cost of tariffs and other Non-Tariff Barriers (“NTBs”) and then assess how those plans could impact a potential merger or acquisition.

Evaluating these costs may place greater burdens on businesses seeking to be acquired.  With this possibility in mind, target companies should conduct thorough due diligence on their own potential tariff exposure before a prospective sale.  Doing so will help them proactively demonstrate how they will continue to create value through strategic synergies despite the higher costs, uncertainty, and volatility discussed above. 

Such strategies should be company specific.  In some instances, high tariffs may create incentives for target companies to establish new operations in low-tariff jurisdictions outside the United States.  In others, U.S. target companies serving the U.S. domestic market might mitigate tariff risk by leveraging domestic acquisitions to increase U.S.-based production.  Either way, the goal should be to demonstrate a capacity to adapt and thrive despite the current headwinds in U.S. M&A markets.

Coping with U.S. Industrial Policy

In addition to adapting to high-tariff environments, parties contemplating acquisitions or investments in the United States must also cope with other significant changes in the U.S. legal and regulatory landscape.  Some of the key issues to consider in 2025 include the following: 

• Expanded CFIUS Reviews.  CFIUS has broad authority to review any merger, acquisition, investment, or joint venture that results in a foreign person “controlling” a U.S. business.  Although CFIUS traditionally focuses on transactions that implicate national security interests, the Trump administration’s expansive view of “national security” suggests a growing desire to leverage the CFIUS process to support emerging U.S. industrial policy.  Investors targeting sensitive industries should anticipate heightened scrutiny.  The same is true for investors located in China and other countries engaged in trade disputes with the United States.  To address these challenges, foreign investors and U.S. target companies should diligence CFIUS and “reverse CFIUS” risks early in the M&A process, identify potential risks, and determine whether voluntary or mandatory CFIUS filings are appropriate.
• New Antitrust and Competition Laws.  The Federal Trade Commission (FTC) and the Department of Justice (DOJ) enforce antitrust laws, ensuring that mergers do not create monopolies or reduce competition. Early engagement with these regulations and legal counsel is important for companies that wish to avoid unnecessary legal or regulatory complications. Industries such as technology, healthcare, defense, and energy have additional regulatory oversight that may impact the feasibility of a transaction. Expect increased scrutiny of mergers, particularly in tech, with the FTC and DOJ aggressively challenging deals that may be perceived to hinder competition. 
• Sector-Specific Requirements.  Identify industry-specific compliance requirements, including technology transfer restrictions, energy regulations, and financial services oversight. 2025 is looking to be the Year of Regulatory Shift in areas of technology and data risks, consumer/investor protections, and risk management and governance, according to the new KPMG US Ten Key Regulatory Challenges of 2025 report. Their report delves into the Regulatory Shift and how companies will need to “roll forward” to address these emerging risks.
• Corporate Culture Alignment.  Mismatched corporate cultures can be the difference between success and failure and may ultimately derail a transaction. Developing a thorough understanding of the target company’s management style, how they go about their decision-making processes, and workplace culture is important for post-merger integration success.
• Tax and Structural Considerations. At the start of a merger, companies would be wise to review corporate tax implications, including potential changes to tax rates, deductions, and international tax treaties that could impact deal structure.
• Debt Financing and Capital Structure.  The availability of financing, interest rate fluctuations, and leverage structures should be analyzed to optimize financial returns.
• Deal Structuring and Negotiation.  Decisions on how the transaction is structured, be it an asset purchase, stock purchase, or merger, impact liability exposure, tax treatment, and regulatory approvals. Conduct due diligence to understand potential risks, and appropriate contractual protections (such as indemnities, escrow arrangements, and earn-outs) should be incorporated. Consideration should be given to arbitration clauses, governing law provisions, and jurisdictional issues in the event of disputes.
• Post-Acquisition Integration and Strategy.  Finally, the parties need to develop and implement a clear roadmap for how the merged company will integrate business processes, technology systems, and corporate governance. Transparent communication with employees, customers, suppliers, and regulators is critical to minimizing disruptions.

Foreign investors who proactively address these issues, plus political, regulatory, cultural, and financial complexities, will be well-positioned to execute successful transactions and achieve their strategic objectives in the U.S. domestic market.