Navigating new tariff regulations: How private equity can strengthen portfolio company resilience

The Trump administration’s latest round of tariffs — proposed 25% on imports from Canada and Mexico, an additional 10% on Chinese goods and recent news of 25% tariffs on aluminum and steel — has sent shockwaves through global supply chains. As companies scramble to adjust, private equity funds should consider the impact on their portfolio company value creation plans. Doing nothing and waiting it out is an option, however, it isn’t one that will create long term value.

Leading firms have found success in this type of environment by going through the following steps in improving portco tariff resiliency:

1. Review customer pricing and repositioned offerings. Analyze your portco’s pricing strategy to understand the exposure of your products and flexibility to execute on surge pricing.
2. Design products to thrive in this environment. Understand how your materials acquisitions are impacted by tariffs and determine a total cost manufacturing solution that can have a lower tariff impact.
3. Improve planning and supplier strategies. Focus on working capital and operations to find areas of potential impact as well as options to consider.
4. Evaluate make versus buy (contract manufacturing vs toll manufacturing). Review your manufacturing footprint to help determine if any shifts to insourcing or outsourcing are needed.
5. Develop logistics networks and tariff recovery. Build an active business logistics model to manage duty and tariff payments as part of total cost.

The goal in each of these steps is to identify in their modeling the most appropriate levers to pull in the short-, medium- and long-term, so that your portcos are prepared for whatever comes.

Keep in mind, this topic is a moving target. What’s true today could be better or worse for your portcos tomorrow. Continue to monitor the administration’s changes as they occur, and we will be here to provide our experience in these matters.