Private Equity Retrospective: Unveiling Protectionism's Impact and How It's Forcing Critical Adaptations

Once a titan in the global automotive industry, Marelli was brought to knees, revealing the biting impact of US tariffs on private equity (PE) portfolios. The burgeoning wave of protectionism, it seems, has left no shore untouched, sinking some sectors deeper than others.

Drowning in crippling tariffs, Marelli was compelled to seek Chapter 11 bankruptcy protection in mid-June. The roots of its misfortune can be traced back to the crippling tariffs on manufactures and suppliers that, according to CEO David Slump, took a heavy toll on Marelli’s import and export operations. This arrived at the heels of ‘Liberation Day’ tariffs which imposed a 25% tariff on automobiles and related parts imposed by the US two months earlier.

Still, the tempest didn’t quieten. The storm of tit-for-tat global tariffs worsened the situation, leaving Marelli gasping for air. Consequently, Marelli is now set to receive a $1.1 billion from its lenders, leading to ownership changes.

Marelli’s tale of struggle isn’t unique. A survey by Alix Partners, which consisted of 371 respondents from various industries across the globe, revealed that 66% of the participants anticipated automotive industry to face significant distress come 2025. A slew of problems from supply chain instability to structural changes has sunk the industry deep into survival mode. The ripple effect of this is felt across retail and manufacturing sectors as well.

However, amidst this mayhem, some are learning to paddle along the rebellious waves. For instance, Triton Partners, a London-based PE firm, manages tariff risks via local-for-local footprint, striving to strike the balance between pricing power and risk. Emphasizing on supply chain risks and companies’ pricing power, they remain steadfast during due diligence.

According to PwC’s US Tariff Industry Analysis, PE firms understanding the tariff impacts down to their portfolio companies’ individual imports can make a mark. The trick lies in assessing potential US domestic production and competitor pricing to remain relevant. Riding the rollercoaster of global trade, businesses must de-risk and prepare for various scenarios. Only then can they hope to resurface from the turbulent waters of protectionism.