INTRODUCTION Contributed by: Frank Aquila, Sullivan & Cromwell LLP
practices also make transaction valuation sig - nificantly trickier due to the variability depending on the day, introducing additional closing risk for parties to allocate in the deal negotiation stage. Ultimately, tariffs may not entirely dampen M&A activity in the long term. Instead, the imposi - tion of additional tariffs may actually spur some cross-border M&A activity among entities that are aiming to diversify their portfolios to reduce the immediate, negative impact of tariffs, or perhaps avoid tariffs altogether by entering new markets. In addition, some smaller entities may opt to be the target of M&A activity in light of the lat - est economic landscape, as they may be better off being acquired compared to the unexpect - ed, increased costs associated with remaining independent. Nevertheless, given the potential impact upon global M&A, it is worth keeping an eye on the trade developments coming out of the United States and any subsequent reprisals from around the world. Foreign investment regulation Restrictions on inbound investment into the US are anticipated from the Committee on Foreign Investment in the US (CFIUS), which has the discretion to recommend that President Trump block (or place conditions on) a deal for pur - poses of national security. The CFIUS approval process allows for wide discretion by the com - mittee, so long as there is a connection to the country’s national security. As such, in addi - tion to blocking deals that may actually cause a national security risk, there is the belief that President Trump may attempt to use CFIUS as a political weapon, using the prospects of block - ing a deal to extract political concessions from foreign governments.
Enforcement activity by CFIUS has the potential to be quite impactful – in 2024, CFIUS issued its largest enforcement action ever, which was a USD60 million penalty against T-Mobile due to national security concerns connected to data breaches in connection with T-Mobile’s merger with Sprint. As such, the prospects of the politi - cisation of CFIUS could be disastrous to M&A activity, especially when considered in tandem with ongoing trade wars. In light of the fact that CFIUS may potentially be used as a means to negotiate deals with other nations, transacting parties may avoid transacting altogether to the extent they are located in a country that is sub - ject to new Trump tariffs. Furthermore, on January 2nd, the new “reverse CFIUS” rules issued by the Department of Treas - ury went into effect, imposing significant restric - tions on US outbound investment in certain Chinese companies (and potentially companies from other “countries of concern” in the future) that are engaged in technologies related to semi - conductors, microelectronics, quantum technol - ogies and artificial intelligence. While not impact - ing all outbound investment, these new rules are sure to drive up compliance and diligence costs, and to generally dampen the level of US investment in China. Furthermore, it is expected that the EU may consider similar restrictions in the future that mirror the US’s “reverse CFIUS” guidelines, which is sure to have a similar impact and reduce outbound investment from the EU, if implemented. Geopolitics Lastly, geopolitical risks are always, and continue to be, a headwind to M&A activity, by introduc - ing the potential for undesired uncertainty and disruption into transactions. Ongoing tensions with foreign nations create additional transaction risk and vacillation to financial markets, generally
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