Margin Defense in the Age of Tariffs: A Private Equity Playbook for Portfolio Resilience

Private equity has long thrived in cycles of disruption. But the latest wave of global trade volatility — fueled by escalating tariffs, shifting alliances, and rising economic nationalism — presents a uniquely complex challenge.

This is not a theoretical risk. Tariff actions now affect more than $1.1 trillion in goods globally, according to the WTO, and recent U.S. policy proposals suggest further expansions are on the horizon. China, Europe, Mexico — all are back in the headlines, with new duties poised to squeeze margins for import-heavy industries from manufacturing to consumer goods.

For PE-backed companies, the impacts are immediate and personal. Many portfolio companies operate on tight margins, already navigating higher debt servicing costs in a persistently elevated interest rate environment. Now, tariffs are compounding pressures, raising input costs, disrupting supply chains, and forcing urgent pricing decisions. Exit timelines are lengthening, and hold periods are extending. In this climate, operational excellence is not optional — it’s existential.

At Cicero/MGT, where we work shoulder-to-shoulder with deal teams and operating partners, we see this pressure play out daily. And we see clearly that the firms who act decisively now — embedding margin defense into every aspect of portfolio operations — will preserve and even grow value through this volatile cycle.

Understanding the Exposure

First, it’s essential to acknowledge the magnitude of exposure. In U.S. manufacturing alone, imported inputs account for roughly 21% of material costs, per data from the National Association of Manufacturers. For PE portfolios with global supply chains, that dependency often runs higher.

This exposure is not confined to industrials. Consumer brands, electronics, packaging, and even health products are deeply reliant on trade flows now subject to tariffs. Left unaddressed, portfolio companies risk margin compression of 150–300 basis points — a material impact on enterprise value, particularly when exit multiples remain compressed.

Playbook for Portfolio Defense

From our work across dozens of portfolios, we recommend a three-pronged strategy to proactively manage this moment: Pricing Agility, Supply Chain Regionalization, and Cost Structure Discipline.

Pricing Agility Must Become the Standard

Tariff-induced cost increases can rarely be absorbed quietly. Successful operators are not hesitating to engage customers early with transparent, data-backed pricing adjustments. Dynamic pricing models, once the domain of tech-first businesses, are becoming standard practice across sectors exposed to trade volatility.

A Bain study of industrial companies facing tariff impacts found that firms that moved quickly to adjust pricing preserved margins up to 2x better than slower-moving peers. This aligns with what we see in the field: decisive action, backed by clear cost justification, maintains customer trust while protecting profitability.

Supply Chain Regionalization is a Competitive Advantage

Regionalization is no longer a future consideration — it is a present necessity. The Kearney 2024 Reshoring Index reports an 8.4% increase in imports from nearshore countries to the U.S. year over year, with Mexico, Vietnam, and Eastern Europe emerging as favored alternatives.

For PE operators, this is both an operational and strategic opportunity. By diversifying supplier bases and reducing reliance on high-risk regions, portfolios gain not just tariff protection but improved lead times, reduced freight costs, and enhanced supply chain resilience — all of which contribute directly to EBITDA.

Reinforcing Cost Structure Discipline

Beyond pricing and supply chain moves, portfolio companies must tighten internal controls over working capital, contract terms, and cost-sharing mechanisms. Renegotiating supplier contracts to include shared tariff burdens or indexed pricing based on input costs is fast becoming best practice.

Moreover, operational efficiency improvements — from inventory optimization to smarter procurement strategies — remain critical. The cumulative effect of these actions can recover 30–50% of tariff-driven margin erosion, based on internal Cicero portfolio benchmarks.

A Moment for Operating Partners to Lead

We believe this environment represents a defining moment for PE operating partners. The firms that elevate trade and pricing strategy to the boardroom agenda, embed tariff scenarios into operational playbooks, and move proactively will emerge stronger, regardless of how geopolitical winds shift.

While we continue to see tactical opportunities in pre-deal diligence — identifying tariff exposure as part of valuation sensitivity — we also see additional opportunities in post-deal strategy and portfolio transformation. Now is the time to pressure-test portfolio company resilience, equip management teams with playbooks for pricing, and execute on supply chain diversification roadmaps.

It is tempting to view tariffs as cyclical noise. History, however, suggests otherwise. Trade tensions ebb and flow, but economic nationalism is proving durable. Building structural resilience today is the surest way to defend tomorrow’s enterprise value.

Closing Thought:

At Cicero/MGT, we’ve seen firsthand that operational excellence is the ultimate hedge in uncertain markets. Portfolio companies that take action now — embedding pricing agility, regionalized supply chains, and disciplined cost management — will not only weather the storm but position themselves to thrive on the other side of it.