Q2 2018 Business Products and Services Industry Spotlight
INSIGHT ARTICLE |
Both private equity (PE) and mergers and acquisitions (M&A) activities continue apace in the business-to-business (B2B) space. Almost $60 billion of PE capital was invested in Q2 2018, in line with recent strong quarters, while another $212 billion was spent on B2B-related M&A deals last quarter, which was also in line with recent figures. It is unclear how either number will be affected by the tariffs imposed by the United States on China, Canada, Japan and several members of the EU. Some RSM clients are concerned about the impact on importing and exporting goods. RSM estimates that the U.S. tariff structure amounts to a cost of approximately $915,000 per job to protect the steel and aluminum industries; and the 25 percent tariffs on steel and 15 percent tariffs on aluminum on key trading partners are estimated to shave 0.2 percent from potential growth and put more than 2 million jobs at risk.
The uncertainty imposed on the U.S. industry due to the intensification of trade spats will likely cause MM businesses that have export exposure to China, or are consumers of steel and aluminum, to absorb higher prices in advance of full implementation. There are already signs that tariffs are impacting investment activity. The price of Canadian soft lumber has increased by 20 percent already this year, which has caused U.S. home prices to appreciate by more than 1 percent, an increase directly linked to the tariff. Similarly, aluminum prices are up more than 25 percent this year, while steel prices are up nearly 30 percent. As a result, MM businesses will likely need to adjust to narrower profit margins and net revenues going forward as they explore passing price increases on to customers.
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