Platinum Equity Flexes Ops Muscles To Stay Ahead of the Curve on Tariffs

In the midst of such fast-moving developments and ongoing uncertainty over the final outcome, Cook said Platinum believes the best approach is to assess the situation in real time and make ongoing adjustments, rather than wait for a hardened resolution.

“We have no way of knowing when and how these trade policies will normalize, and it’s not in Platinum’s DNA to put our heads down and hope we’re still standing when the dust settles,” he said. “We’d much rather develop and execute action plans based on what we know now, and adjust as necessary when further information emerges.”

Platinum Equity has approximately 60 portfolio companies operating worldwide, most of them engaged in cross-border commerce that is influenced by global trade and tariff policies.

Cook said that over the 30-year life of the firm, Platinum’s operations playbook has been well-honed to execute through periods of economic dislocation and uncertainty, and is focused on helping management teams create value in all types of market conditions.

“Our knowledge of what’s going on operationally at each of our portfolio companies tends to be more granular than that of a typical private equity sponsor, and we have a deep bench of experienced operators we can bring to bear in support of our management teams,” Cook said.

Prior to the tenuous rapprochement with China, Platinum and its portfolio company management teams had identified (i) potential tariff exposure of more than $1 billion in aggregate across the portfolio, and (ii) potential mitigation steps that in the aggregate could offset roughly 100% of that exposure.

That impact and mitigation assessment will be assessed real-time in the coming days and weeks, and will drive contemporaneous refinements to ongoing action plans.  

In the meantime, following are some additional thoughts taken from broad discussions with Cook regarding the current state of the portfolio. (Questions and answers have been edited for length and clarity).

Q: There have been a number of significant economic disruptors over the past half-decade, including COVID and high interest rates. Looking back further, the economic crisis of 2008, was another period of dislocation. What has Platinum learned from those periods that’s applicable today?

Cook: Any time there’s so much dislocation happening simultaneously, predicting the future becomes very difficult. The best thing that you can do is know what’s happening in your business real time. Knowing where your customers are, knowing where your supply chain is, knowing what’s happening in your own operations, what’s happening in your own go-to-market, all live and real-time, that’s key. That visibility and transparency becomes valuable. And sharing knowledge real time across our portfolio becomes valuable as well.

Q: You mention transparency. Is that a product of our culture or a product of our dedicated Ops team?

Cook: Transparency across the portfolio, that’s achieved through a number of things but ultimately it starts with people. In theory, you could have a database that every portfolio company loads their data in which offers a large pool of information that we can analyze and we can slice and dice. But that just gives you the data. That doesn’t give you insight. It’s not just talking to supply chain executives, but the go-to-market executives to know where we’ve got a competitive advantage, which customers to go after, bringing that playbook in, that’s really the secret sauce.

Q: It’s not exactly the first rodeo with tariffs.  The Trump administration had a pretty aggressive stance toward China during his first term, with the Biden administration leaving many of those tariffs in place. What was our response then, and is there anything from that response that is applicable today?

Cook: Those tariffs changed cost structures, but the size of those tariffs did not offset or materially erode the competitiveness of a given supplier or manufacturing operation. That is radically different from where we are today. However, many of our companies had begun putting in place “China Plus 1” strategies and shortening supply chains, where they’d already begun to think about alternative sources and in some cases, began to move manufacturing operations. And since Liberation Day, it certainly has been an accelerated full-court press at many of our companies on how to respond and react to this unprecedented increase in tariff rates.

Q: How has tariff policy impacted some of our portfolio companies, and what are they doing about it?

Cook: If you just do the math and you look at the impact to our companies either in their own cost structures or where they’re buying something or where they’re manufacturing and they need to ship something across borders, for our North American companies alone in large cap and mid cap, the unmitigated total size of that impact from the previously announced tariffs is over $1 billion. The good news is we have plans to mitigate roughly 100% of that.  The first line of defense in that mitigation is price increases, surcharges, or tariff surcharges. The second is to renegotiate with suppliers.  The third is to move supplier production. The fourth would be to actually bring it back to the U. S.

Cook: As of now it appears that all of our North American companies are impacted by this, but it’s not hitting everybody evenly. As you would expect, large manufacturers or buyers of consumer-like goods are impacted the most. And of that billion in impact, there are four portfolio companies that are each impacted by over $100 million. 

Q: Are any common themes emerging as you mitigate tariff impacts?

Cook: Certainly with trade tensions high between the U.S. and China, it’s safe to assume that trade between the two countries is going to slow dramatically, so a “China Plus 1” sourcing strategy is certainly critical. But where is the “Plus 1?” Should that be another Asian low-cost country? Should that be nearshore in North America or Central America? Should that be Europe? Should that be the U.S.? That’s very difficult to say right now. And so being ready to move when it’s time to move is critical.

When we talk about mitigation strategies, it’s not just price, it’s not just re-source. In many cases, this is where we’re focused on cutting deals or landing new customers to drive more revenue where we’ve got an advantaged supply chain or advantaged manufacturing footprint.

 Q: What is Platinum Equity’s role when companies are instituting these mitigation practices?

Cook: Across all of our companies, there’s a point person assigned from our Portfolio Operations team that is helping these companies and is their liaison to their own tariff SWAT team. The supply base, transportation lanes, all of that is known today. We are collecting data from our companies, we’re sharing knowledge across our companies, and that Platinum Equity Portfolio Ops resource is the individual that is guiding that.

Q: There is a Platinum Equity internal group working on tariffs as well?

Cook: At the firm we’re collecting data, we’re sharing data, and a couple of months ago we accelerated our regular meeting cadence. We share what we’re seeing real time in our companies across the team. That’s critical because in many cases, we’ve got companies that are going on the offense where we’ve got a known competitor that has a large manufacturing facility, for example, in China. If our company has a manufacturing facility in the U.S., now is the time to get really aggressive on the go-to-market side and try and land new customers or gain a larger share of the wallet.

Q: What is the end goal?

Cook: As one of our executives said, we are trying to “tariff-proof” our portfolio companies. While there is no guarantee we can fully anticipate or mitigate, there’s a number of things that one can do in addition to just moving manufacturing around, such as service. Service is always a locally delivered product for many large manufacturers. Somebody’s got to go out and service the piece of equipment.

Many of our companies already had a China-for-China strategy, where you’re designing and manufacturing for the Chinese market in China. That’s continuing, but the flow of goods from China into the U.S., understanding mitigants on how to limit exposure to that particular lane, whether that be near, short, or bring it fully back. That’s the question.

Q: What’s the good news?

Cook: In any time of dislocation and disruption, somebody’s going to win. We are working hard to make that somebody us. We’re exchanging ideas real time, and I believe that gives us an edge. Also, inside the companies themselves, being creative in go-to-market, creative in ideas on how to “tariff-proof” the company. Maybe that’s new product lines, new business units. The world is changing fast, certainly in the U.S., and being able to capture that, being in a position to capture that, is going to be critical. We intend to do just that.