Surviving the Chaos: The "Shit Happens Rule" and Cross-Border Business and M&A
By Tingyu (Brian) Ouyang, Blackmore Partners Inc. Analyst
Reframing Cross-Border M&A, Structural Design, and Realism
At our company’s bi-monthly internal conference, we facilitated meetings between investors and executives from a wide range of industries. Once again, we invited the founder of a U.S.-based investment firm, a seasoned private equity professional with over fifty years of experience. His previous interactions with executives left a profound impression on me, emphasizing the importance of maintaining curiosity and resilience through economic cycles.
In the current context of U.S.-China trade tensions, tariffs have become a significant topic of discussion. This environment has deepened my understanding of how to navigate uncertainty in business.
Executives at the conference shared candid insights:
"Tariff brings me back to COVID."
"It´s a huge percentage, not just 10 I´m talking about"
Their remarks, though delivered with humor, underscored the severe disruptions tariffs have caused, comparable to those experienced during major public health crises. For manufacturing leaders recovering from the pandemic, this feels like a resurgence of supply chain trauma.
"There's a rule in business I call the 'Shit Happens Rule'—no matter how well you plan, something will go wrong. So, structure it to survive."
In China, we might say "留一线" (leave a margin). In the U.S., it's the "Shit Happens Rule." The essence is the same: anticipate the unexpected and build resilience into your plans.
1. Tariffs, Market Freezes, and the Era of Decision Paralysis
Executives emphasized that tariffs have nearly frozen the automotive industry. Beyond profit margins, the more alarming consequence is the invalidation of business judgments, supply chain strategies, and capital allocations. One medical device company, for instance, markets its products as "Made in USA," yet relies heavily on Chinese raw materials. When Chinese supplies falter, the "Made in USA" label becomes meaningless.
Today's international relations transcend mere trade flows; they represent structural tensions between value chain dependencies and national strategies. The harsh reality is that these issues manifest not through headlines but through project delays, stalled deals, and devalued valuations, gradually eroding our control over the market.
Executives don't view U.S. tariff policies as impulsive. For example, Europe exports 300,000 cars to the U.S. annually, facing only a 2.5% tariff, while U.S. cars exported to Europe encounter a 10% tariff plus various non-tariff barriers. Thus, the seemingly aggressive "de-globalization" policies are seen as strategic corrections to longstanding trade asymmetries, rather than emotional reactions.
2. Structural Thinking: Beyond Negotiation Tactics
His solution isn't to lament policies but to design structures that withstand the "shit happens" moments:
- Utilizing convertible preferred stock to protect sellers on the downside while offering them a "second bite at the apple."
- Employing non-fund structures (using proprietary capital) to avoid LP pressures and allow for long-term commitments.
- Executing simultaneous acquisitions of multiple targets, closing on the same day, rather than the traditional "platform first, then bolt-ons" approach—not for speed, but to minimize vulnerabilities.
This isn't about financial engineering; it's about realism: in an inherently unstable world, don't concentrate risks at a single point or variable.
3. Rethinking U.S.-China Structural Realities from a Chinese Perspective
Current Realities (Fast Variables): U.S.-China tensions, tariffs, corporate relocations.
Structural Realities (Slow Variables): Enduring power and interest arrangements, long-term institutional, systemic, and resource distribution dynamics.
The founder approaches China with rationality, viewing it not as an adversary but as an indispensable part of the global supply chain. He notes that even if a U.S. company assembles bottle caps domestically, the plastic materials sourced from China expose it to global policy fluctuations.
This highlights that U.S.-China trade structures are not merely diplomatic issues but represent a clash between differing systems and resource allocation logics. As a Chinese professional in the U.S. investment sector, I've gleaned three clear insights:
- Never underestimate the interplay between politics and economics. In cross-border investments, structural designs must include "policy disruption buffers," such as convertible instruments, phased funding, and valuation anchors.
- Globalization doesn't equate to integration. Even with globally coordinated manufacturing, policies and tariffs are enacted on a national basis. Rules are dictated by strategy, not technology.
- Chinese manufacturing remains irreplaceable but not unassailable. While efforts to reduce dependence on China may face short-term challenges in efficiency, they will likely persist strategically. We must conduct worst-case stress tests and plan for contingencies.
"I never expected the world to be fair; I just ensured my structures could withstand the shocks."
As a Chinese Analyst working in the U.S., navigating this "gray era" means understanding that policies can be suddenly enacted or endlessly debated. We must build resilience amidst uncertainty, embed buffers before structures collapse, and position ourselves wisely before chaos subsides.
Thus, "going all in" often reflects an underestimation of the world's complexity. Not every market offers full predictability, not every identity can navigate policy shifts unscathed, and not every industry is worth a total bet.
What truly matters is constructing structural resilience, not chasing narrative-driven career fantasies. It's about making judicious decisions.