The imposition of tariffs on Canadian businesses is creating uncertainty, impacting business competitiveness, pricing strategies, supply chains and overall business operations. Canada and its provinces are taking retaliatory measures, and potentially offering relief from tariffs, as part of a remission process that maybe available. The political climate has become adversarial, consumers are concerned about increasing costs and job security and are reducing their household expenditures. Companies are delaying, reducing, or postponing capital expenditures and hiring.
Tariffs are duties (taxes) levied by a country on imported goods with the importer of record, being a buyer or seller paying the duty. Tariffs are passed through to the final user or consumer.
Canadian exports to the USA become less competitive as the costs for American buyers increases. The trade war may lower the Canadian dollar raising the cost of imported goods. A lower dollar may cushion the impacts of tariffs.
Businesses are valued based upon the principals of risk and reward. The uncertainty of tariffs and the additional risks they create for businesses can be expected to lower buyer asking prices and valuation multiples. Financing may become more costly and difficult to obtain. Private equity may focus on businesses that do not rely on exports from Canada. Some transactions maybe delayed until uncertainty around tariffs become clearer.
Like during Covid, the valuation date becomes more important. Historical financials become more suspect for export-oriented operations and business that are heavily impacted by tariffs. Buyers will critically forecast current and future impacts on sales and profitability. Sellers are expected to put more legal clauses into agreements to protect and provide more flexibility against uncertainty and spikes in costs due to tariffs.
Business owners can take steps to better understand and mitigate the impacts on their operations. A recent BDC article provided a good overview of getting your business ready for tariffs. Here is the link.
How to get your business ready for potential tariffs | BDC.ca
