Eva Davis Shares Insights on Structuring Tariff-Impacted Deals with Mergers & Acquisitions

Winston & Strawn partner Eva Davis spoke with Mergers & Acquisitions about how it is possible to close deals despite uncertainty surrounding potential tariff impacts. She explained that in two deals that were close to signing in March, there was enough of a cushion in the sellers’ valuation expectations that when tariffs took effect on April 1, they agreed to reduce the purchase price and do an earnout to make up for the reduction that allowed the deals to close in April and May. She noted that in each transaction, the purchase price was based on an Ebitda multiple calculated over either a trailing or projected 12-month period.

One transaction involved a consumer-packaged food product. “Using ingredients in a food deal as an example, when the tariffs hit during deal negotiations, we looked at the tariff impact for the ingredients based on projected sales volumes of that product for a future period and the expected tariff impact on price of the ingredient for that same period,” Eva said. “We then multiplied that anticipated tariff impact by the Ebitda multiple used to price the deal and reduced the cash purchase price at closing by the product of those amounts.”

She explained that sellers can recover all or part of the reduced purchase price if actual ingredient costs after closing turn out to be lower than projected due to factors like tariff cuts, alternative sourcing, or better supplier pricing.

“So, if the tariff impact was expected to be $1 million additional cost over a 12-month period and the purchase price was negotiated off of a 12x Ebitda multiple, then the cash purchase price at closing was reduced by $12 million,” she said. “If the pricing of the ingredient ended up only increasing by $400,000 for an agreed period following the closing thus ‘saving’ $600,000 relative to the expected $1 million increase in price, then the seller could earn back $7.2 million in cash purchase price post-closing—$600,000 x 12.”

Eva added that in another transaction, the seller had flexibility to choose the timeframe for measuring the Ebitda earnout—whether it would cover the 12 months immediately after closing or a later 12-month period, such as one beginning in late 2025 or early 2026.

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