Jane Marlowe, Senior M&A Advisor, BMI Mergers & Acquisitions
Good news: the service sector, particularly businesses with inelastic demand profiles like facilities management, field services, and healthcare, is anticipated to see increased M&A activity due to announced U.S. tariffs. With lower tariff exposure compared to manufacturing, these businesses are becoming increasingly attractive targets, potentially commanding premium valuations.
Tariffs can create uncertainty, making it harder for companies to predict costs and revenues, which can lead to deal delays or failures. For some businesses with international supply chains, or those whose customers are impacted, there may be downward pressure on valuations. But many service businesses, such as building services contractors active in repair and maintenance, will become more attractive to buyers.
Why Service-Based Businesses Will Be More Attractive
Reduced Tariff Vulnerability: Unlike businesses heavily reliant on imported goods, service providers are less susceptible to direct tariff impacts. This stability positions them as lower-risk investments.
Premium Valuation Potential: The relative immunity to tariff volatility can drive higher valuations and better deal structures for service businesses. This is especially true for businesses with strong, recurring revenue streams.
Focus on Pricing Power: Servicebusinesses with strong pricing power, are better equipped to navigate economic fluctuations, making them more desirable to acquirers.
Strategic De-Risking: Acquirers are increasingly seeking to diversify their portfolios by incorporating non-discretionary service businesses, particularly those with a diversified customer base and strong recurring revenue.
For business owners concerned about whether they missed their exit opportunity due to their supply chain exposure to tariffs, fear not. A recent Grant Thornton report theorized, “companies could look for supply chain synergies that optimize tariff exposure. Essentially, tariff mitigation becomes part of synergy realization. Opportunistic acquirers could find potential for synergy success.”
Buyers Will Need to Consider Tariff Impact in their M&A Analysis
Valuation: Acquirers should anticipate higher valuation multiples for businesses with minimal import exposure.
Due Diligence: Acquirers will need to conduct thorough due diligence to assess the potential impact of tariffs on the target company’s operations and financials.
Mitigation Strategies: Buyers might explore strategies to mitigate the impact of tariffs, such as opportunities for sourcing materials domestically, shifting production to lower-tariff locations, or renegotiating contracts.
Legal Considerations: M&A agreements should address tariff-related risks. Canadian law firm Torys notes, “Those deals that will proceed may see lengthier diligence periods, and more guardrails put in place (e.g., earnouts, contingent payments, changes to Material Adverse Effect clauses and indemnities) to adjust for risk.”
More good news: M&A demand is still strong for profitable businesses
GF Data, which tracks middle market M&A deals, reported that M&A activity rebounded in 2024,and Middle Market Growth reported that strategic and financial buyers still have the appetite to do deals, with 77% of survey respondents saying the expect “significantly more” or “somewhat more” deal volume in 2025.
Considering Your Options?
For service business owners considering expansion or exit strategies, the current market presents unique opportunities. At BMI Mergers & Acquisitions, we specialize in guiding clients through complex M&A transactions. Contact us today for a confidential consultation to explore your options.