Impact of Tariffs on Private Equity EBITDA & How to Prepare

For private equity (PE) firms, tariffs bring significant financial consideration. As production costs skyrocket, supply chain ongoings become less predictable – and as market conditions shift, the impact of tariffs on EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) can be substantial.

To maintain profitability and stability, companies must take a proactive approach to mitigate the impact of tariffs, including evaluating risks, optimizing operations, and implementing strategic financial measures.

As experts in helping PE firms maximize growth, we have outlined the effects of tariffs on PE EBITDA and what your organization can do to mitigate them.

What is the Impact of Tariffs on EBITDA?

1. Tariffs increase production costs
2. Tariffs disrupt supply chains
3. Tariffs intensify competition and pricing pressure
4. Tariffs reduce revenue and market share
5. Tariffs lead to costly investment shifts and restructuring
6. Tariffs can cause retaliations and currency exchange volatility

Tariffs impact and increase production costs

Many PE-backed manufacturing companies rely on imported goods like steel, aluminum, and machinery. When tariffs drive up these costs, gross margins shrink – and so does EBITDA.

For organizations with thin operating margins, even the smallest of increases can be severe.

Tariffs impact and disrupt supply chains

Higher costs force companies to reassess their supplier networks – including whether or not to switch to domestic suppliers – leading to delays, inefficiencies, and additional renegotiation costs.

Additionally, those that make changes to their international suppliers may experience logistical hurdles or increased shipping costs.

Tariffs intensify competition and pricing pressure

With tariffs, businesses are faced with two tough choices: either they absorb the higher costs and reduce their EBITDA, or they pass these costs onto customers, potentially losing market share or damaging their reputation.

While competitors unaffected by tariffs increase their market share, tariff-imposed firms undergo further pricing pressure.

Tariffs reduce revenue and market share

As product prices increase due to tariffs, demand often decreases as customers turn to cheaper alternatives, reducing sales volume. Lower revenue means less EBITDA, especially for companies with seasonal or elastic demand.

Tariffs lead to costly investment shifts and restructuring

To avoid tariffs, some companies may decide to relocate their manufacturing operations, which requires considerable capital investment, operational downtime, and regulatory navigation.

Others may decide to invest in automation or alternative production methods, adding upfront costs that impact short-term EBITDA.

Tariffs can cause retaliations and currency exchange volatility

If foreign governments respond with counter-tariffs, U.S. companies’ access to international markets becomes more limited. Tariffs can also weaken the U.S. dollar, impacting firms that rely on global exports and creating currency hedging challenges.

How to Increase EBITDA: Tips, Strategies

What Organizations Can Do to Mitigate the Impact of Tariffs on Private Equity EBITDA

1. Maximize local production capability
2. Focus on cost containment and supply chain diversification
3. Implement strategic pricing and financial strategies
4. Explore hedging strategies
5. Negotiate fixed price contracts
6. Diversify procurement and sourcing
7. Consider an M&A or a restructuring

Maximize local production capability

PE firms must evaluate whether increasing domestic production is achievable. If manufacturing capacity permits, increasing local production capabilities can help offset some of the tariff-driven costs. However, this also requires careful balancing of raw material sourcing, labor costs, and investments in infrastructure.

Focus on cost containment and supply chain diversification

To manage rising costs, companies should consider identifying alternative suppliers who operate in tariff-free regions. This involves optimizing logistics, reducing transportation expenses, and streamlining production processes to improve efficiency.

Nearshoring strategies (re: moving supply chains closer to key markets) can also help mitigate global trade risks while ensuring timely delivery of products.

Implement strategic pricing and financial strategies

It is essential to utilize data analytics to assess price sensitivity and adjust prices accordingly. Companies may want to consider adopting AI-driven pricing models that adapt to real-time market shifts and help optimize profitability.

Some may want to consider bundling products or upselling premium services to offset tariff-related costs and maintain revenue streams – even as expenses rise.

Explore hedging strategies

Companies can also make use of hedging strategies: financial tools that help create stability during periods of economic uncertainty. With a commodity hedging technique that focuses on future contracts and forward agreements, companies can lock in stable prices and reduce exposure to cost fluctuations.

On the other hand, currency hedging (including currency futures, options, or swaps) can also protect against exchange rate fluctuations.

Negotiate fixed price contracts

By establishing fixed-price agreements with suppliers and distributors, companies can stabilize input costs and protect EBITDA from tariff-driven price volatility. These contracts provide predictability in cost structures, allowing businesses to plan more effectively for long-term financial performance.

Diversify procurement and sourcing

When a company engages with multiple suppliers, they can prevent over-reliance on tariff-affected regions. By leveraging global trade agreements to identify cost-effective sourcing opportunities, companies reduce exposure to unpredictable trade policies while strengthening their supply chain.

Consider an M&A or a restructuring

To offset tariff-related costs, organizations should consider reevaluating their portfolio companies’ exposure to tariffs. A strategic approach to mergers and acquisitions can help businesses maintain financial stability amid changing trade regulations.

In order to optimize EBITDA performance, companies should focus on exploring acquisitions that strengthen supply chain resilience while divesting from operations with high tariff risks.

How to Increase & Improve EBITDA Growth for PE Firms

Final Thoughts on the Impact of Tariffs on Private Equity EBITDA & How to Prepare

The impact of tariffs poses a serious challenge to EBITDA, but companies that act early can minimize financial strain. A comprehensive approach – one that balances cost containment, supply chain agility, pricing strategies, and financial hedging – will position businesses to navigate tariff-related uncertainty effectively.

With tariffs adding complexity to financial planning, turning to expert advisors can make the difference between margin compression and sustained profitability.

How Bridgepoint Consulting can help:

• Financial modeling to project EBITDA impact and identify cost-saving measures.
• Working capital management strategies to withstand tariff-driven cost increases.
• M&A advisory assesses tariff risks in potential acquisitions. (Can we really do this?)
• Operational restructuring to improve long-term profitability.