Supply Chain Blues (Fourth of a Series)

Even in the ordinary course of business, private equity sponsors pay ruthless attention to the cost structures of their portfolio companies. It is a time-tested tool in sponsors’ kits and often on the first page of their due diligence playbook.

Covid has simultaneously raised the bar and challenged buyers in managing all aspects of companies’ supply chains. An informal survey of clients highlighted some of the difficulties.

“Eighteen months ago, Covid was a top-line issue; now it’s mostly a cost issue,” one managing partner told us. “It’s not that we can’t pass price increases along, but our contracts require 90-day notice. The speed at which they’re rising makes it hard to keep up.”

Another source agreed. “We’ve been playing catch-up all year,” he said. “Revenues are fine, but costs are out of whack. Which is surprising, since we began to experience these disruptions last summer. And here we are over a year later – we thought this would be fixed by now!”