‘A moment of pause’: M&A is in limbo thanks to tariff uncertainty
President Trump’s Liberation Day announcement sent the S&P 500 into freefall earlier this month, and the markets have been in turmoil since.
The on-and-off approach to tariffs has made it difficult for the retail industry to plan accordingly. It’s also put many M&A discussions on pause, investors say. And it could hardly come at a worse time — activity had just been picking back up in the last few months after a slow couple of years in dealmaking.
According to consumer brand investors, the overall environment is still ripe for strategics looking to scoop up buzzy brands, particularly in hot areas like food and beverage. But the instability in the coming weeks could cause more players to take a wait-and-see approach before pursuing any new deals, especially as the summer lull approaches. Given the uncertainty around tariffs, it will be challenging for strategics to properly calculate a brand’s future profitability and margins until businesses get a clear picture of their future operations.
“We’re seeing a moment of pause across many sectors,” said Rachel Hirsch, founder and managing partner of Wellness Growth Ventures. That includes the wellness space she invests in. “The uncertainty around tariffs, inflation and broader recessionary signals has many strategics treading carefully.”
It’s a sharp turnaround from the sentiment at the beginning of the year. Before the current administration took office, some industry watchers had predicted a friendlier environment for large mergers, especially after the Biden-led FTC blocked a number of them from going through. Prominent examples included Tapestry and Capri and the Korger-Albertsons deals falling through.
Now, a trade war with manufacturing hubs like China, which many companies rely on, has created new uncertainty around businesses’ ability to simply survive. With that, investors predict even closer scrutiny by large strategics looking for potential buys.
Like many, Hirsch was encouraged by the recent brand exits in the last few months. She cited PepsiCo’s recent acquisition of Poppi for $2 billion, which came just five years after the brand launched on Amazon at the start of the pandemic.
Despite the fact that some conversations are coming to a halt right now, Hirsch said, all-in-all, strategics are still looking for sustainably-growing brands, as opposed to a hip presence and high top-line growth. “If anything, this moment reinforces the need for financial discipline and operational health,” she said. “The M&A activity we do see moving forward will be concentrated around profitable, durable companies with strong margins and loyal communities, not just Instagrammable packaging.”
Other investors still see opportunities for big brand conglomerates to grow or recalibrate their portfolios at a time when young brands are more open to selling. Despite the stop-and-go pattern that has developed in the last few weeks, some believe the overarching factors still signal more M&A opportunities this year. That’s especially compared to the last two years, when deals were far and few in between.
One such investor is Luke Goldstein, the co-founder of Simple Food Ventures, whose portfolio includes the recently-acquired Aura Bora and Cure Hydration. “M&A activity is a reflection of public market activity,” Goldstein told Modern Retail. “So it’s hard to say exactly what’s going to happen, given that these are unprecedented headwinds.”
Still, Goldstein said that, even with some potential delays in deal closures, the macro narrative still points to more acquisitions in the food and beverage startup space. He added that this is largely because a lot of strategic players also want to future-proof their portfolios for younger consumers by folding in emerging, better-for-you brands.
Goldstein pointed to the splashy M&A momentum from the past six months as reason for optimism. “We’ve seen the Siete, Poppi, Simple Mills and LesserEvil deals just in the last six months,” Goldstein said.
“Big conglomerates’ way of capturing this upcoming audience will come through acquisitions,” Goldstein said, adding that in-house R&D could take even longer to execute in the coming years. This is especially true, he said, given that millennial and Gen-Z consumers favor more ingredient transparency and ethical sourcing compared to older generations.
For consumer brand investors, uncertainty around tariffs and overall consumer sentiment has brought short-term volatility. But for healthy businesses, this could also spell an opportunity to get noticed by the big guys.
“Strategics aren’t disappearing, they’re sharpening their pencils,” Hirsch said. “What this climate will do is accelerate the divide between brands that were built to last and those that were built to sell.”