Cross-Border M&A in the US-Canada Context: Navigating Trade Tensions in LOI

February 03, 2025

by a searcher in Québec City, QC, Canada

Hi everyone,

Given the ongoing trade tensions between the US and Canada, I'm curious how others are approaching Letters of Intent (LOIs) and deal structuring for targets on either side of the border.

Specifically, I'm grappling with the following:

LOI Adjustments: How are you factoring potential trade-related impacts on business financials into your LOIs? Are we discounting projected cash flows to account for increased uncertainty? If so, how are you determining the appropriate discount? Financing Challenges: How do commercial lenders view deals impacted by trade disputes? Does the uncertainty surrounding future cash flows make securing financing more difficult? I'd assume a lack of financing would effectively kill the deal. Has anyone experienced this firsthand? Market Outlook: Do the experts here foresee a potential stagnation in cross-border M&A activity until these trade issues are resolved? Are we in a "wait-and-see" period? I'd appreciate any insights or experiences you can share on navigating these challenges. Thanks in advance for your input!

Reply by a searcher
from University of Calgary in Calgary, AB, Canada

Thanks for the tag ^redacted‌. Interesting times to be looking at opportunities in manufacturing, distribution in Canada that have cross border exposure. Passed on an opportunity this week that had direct US revenue of ~15%,, not a deal breaker, but geography of the target made it hard to know what US exposure their Canadian customer base had; this was secondary to the decision to pursue. Have used earnout/VTB with threshold provisions in the past as a tool to deal with unkowns as an answer to your LOI question. I would expect that lenders would be wary of/looking for additional diligence in risk areas on exposure for cross border deals. With respect to level of M&A activity, adds a layer of complexity for sure, but well capitalized buyers with USD to spend have an advantage with the F/X that they may press on regardless. Personally wouldn't rule out an opportunity that has to navigate this challenge as the US market from a Canadian perspective is enviable in both breadth and depth.

Reply by a professional
from University of Toronto in Toronto, ON, Canada

^redacted‌, this is a time of international economic warfare where the U.S.A. has declared economic war on Canada. This is not the time to be thinking of doing deals and wondering what discount rate is sufficient to mitigate the risk of the impact of U.S. tariffs that may materially disrupt your supply chains and operating costs, and/or your customers' supply chains and operating costs. This is the time to avoid dealmaking. You are a civilian in a warspace where the warriors are federal-level politicians in Canad and the U.S.A. Every participant in the M&A dealspace in this macro environment runs the terminal risk of becoming collateral damage. Hunker down! Do not engage in this volatile and risky market! Be patient and gather market intelligence for the future when opportunities have a more attractive risk/reward profile!
[Thanks, ^redacted‌, for including me.]

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