Selling Your Manufacturing Business in the M&A Landscape of 2025

As of May 2025, the mergers and acquisitions (M&A) environment for privately held manufacturing businesses in the lower middle market is marked by both significant challenges and emerging opportunities. The recent introduction of extensive tariffs by the U.S. government has disrupted traditional trade patterns, impacting supply chains, cost structures, and investment strategies.

On April 2, 2025, President Trump announced a series of tariffs, referred to as the "Liberation Day" tariffs, imposing duties of up to 25% on a broad range of imports. This policy shift has led to increased costs for imported goods, prompting companies to reassess their supply chains and sourcing strategies. For instance, Toyota anticipates a significant profit reduction due to these tariffs and is considering relocating production to the U.S. to mitigate the impact.

The manufacturing sector, particularly those reliant on cross-border supply chains, faces heightened uncertainty. Companies are now evaluating the feasibility of re-shoring operations and seeking domestic suppliers to reduce exposure to tariff-related risks.

Despite the turbulent environment, private equity (PE) firms are identifying opportunities within the manufacturing sector. With substantial capital reserves, PE investors are targeting companies that demonstrate resilience to tariff impacts, such as those with domestic supply chains and advanced automation capabilities. The focus is on businesses that can adapt to the new trade landscape and offer potential for operational improvements and growth. Moreover, the current climate has led to more favorable valuations, making acquisitions more attractive for investors seeking long-term value creation.

The evolving tariff landscape necessitates a more rigorous approach to legal and financial due diligence in M&A transactions. Buyers and sellers must carefully assess the impact of existing and potential tariffs on target companies' financials, operations, and contractual obligations. This includes analyzing supply chain dependencies, customer contracts, and potential exposure to retaliatory trade measures.

Incorporating tariff-related contingencies into deal structures, such as earn-outs or price adjustments, can help mitigate risks associated with future policy changes, and sellers are starting to expect these measures to be included.

Outlook for the Remainder of 2025

While the tariff-induced disruptions have introduced complexities into the M&A process, they have also accelerated certain trends that could benefit the manufacturing sector. The push for supply chain diversification and increased domestic production aligns with the strategic objectives of many manufacturing firms. Companies that can adapt to these changes are likely to become attractive targets for acquisition.

Furthermore, the emphasis on innovation presents additional avenues for growth and differentiation in the market. Manufacturers investing in automated technologies, robotics, and digital transformation are poised to capture increased interest from both strategic and financial buyers.

The current M&A landscape for lower middle market manufacturing businesses is characterized by a complex interplay of challenges and opportunities. Tariff policies have disrupted traditional operations but have also opened pathways for strategic realignment and investment. Companies that proactively adapt to the changing environment, focusing on supply chain resilience, operational efficiency, and innovation, are well-positioned to attract investment and achieve sustainable growth in 2025 and beyond.