Robert J. Fioretti, W’91, WG’99
Managing Director, Palladin Consumer Retail Partners
Rob Fioretti, W’91, WG’99, is Managing Director at Palladin Consumer Retail Partners, a private equity firm that focuses on consumer goods and retailing. It recently had a successful exit for travel goods retailer InMotion, which it sold to WH Smith for $198 million. Rob is also the Founder and Managing General Partner at the social impact firm, Locust Walk Impact Partners.
How did you come to Wharton?
I had played a lot of sports growing up and was recruited by the soccer and baseball coach at Penn. I wound up not playing either for very long, but my experience at Penn built the foundation for both my professional and personal lives. Some of my lifelong friendships were made while I was an undergraduate student at Penn. In fact, a group of us just attended a few soccer matches in the U.K. a few weeks ago!
How have you gained experience that allows you to successfully invest?
When I graduated from Wharton in 1991, I began work at a boutique consulting firm that helped portfolio companies of private equity firms to create management, operating and incentive plans that focused executives on strategic priorities that were critical to their success.
Since I enjoyed consulting with these private equity portfolio companies, I decided I wanted to continue working with them in a greater capacity, as a principal. I returned to graduate school at Wharton to round out my educational background and to build relationships with friends and colleagues.
Upon graduating, I joined the Canadian Imperial Bank of Commerce in its leveraged finance group where I helped companies raise capital for leveraged buyouts, and later transitioned to the bank’s in-house private equity arm known as Trimaran. There, I gained exposure to investing in a variety of industries, including the consumer goods sector. I followed one of Trimaran’s managing partners to help start Mistral Equity Partners in 2007.
I have been focused on investing in middle market companies within the consumer sector, including retail, ever since. Two years ago, I transitioned to become a Managing Director at Palladin Consumer Retail Partners where I am partners with two other Wharton alumni, Mark J. Schwartz, W’79, and Anders Petersen, WG’09.
Retail is in a quandary these days. Some concepts are thriving, while others are crashing!
To a lot of investors, retail is a four-letter word these days, but it is one of the most dynamic areas in the economy. My partners and I at Palladin have decades of experience investing in retail businesses and realize that, for experienced investors, there are subsectors within retail where there are great opportunities. One example is an investment Palladin made in a retailer operating within airports. Although, today, I would likely not be interested in a pure brick-and-mortar retailer, nor would I be interested in an electronics retailer due to competition and low margins, we managed to do quite well with an investment in a brick-and-mortar retailer of electronics operating in airports!
How do you seek out opportunities?
I look for opportunities using both top-down and bottom-up approaches. By “top-down,” I mean looking at the trends that drive how the consumer population is spending its money. Demographic trends, such as aging baby boomers, coming-of-age millennials, the increasing ethnicity of the population, all affect consumer spending patterns. I focus on what consumers are thinking about and what they care about. These types of considerations are referred to as “psychographics,” and one example is the increasingly hurried nature of consumer lifestyles. People have less time.
Think how difficult it was for us to find time for this interview! It has implications for how people spend their money. They’re looking for convenience. They’re looking for accessibility. They’re looking for on-the-go packaging, and they’re looking for people to do things for them. These kinds of big-picture trends affect how people live their lives.
By “bottom-up,” I mean pounding the pavement to find specific companies benefiting from the identified trends. This means doing primary research, attending tradeshows and other industry events, and connecting with operators and other people on the ground in the industry with whom I’ve built relationships over many years. Having worked in the consumer sector for a long time, I also know lots of people in the intermediary world, bankers and brokers. My Wharton network is a tremendous help to identify opportunities.
How did this apply to the investment in InMotion?
Trends supporting an investment in InMotion include the increasing amount of travel that people are doing to have experiences. And travelers spend more time in airports due to increased security requirements. Passengers are bored and impatient, and they are pressed for time. Airports have been transforming themselves to address these issues, and InMotion has been part of that transformation.
After Palladin invested in 2014, the company grew from a relatively small operator to the leading electronics retailer in airports with over 115 stores operating in 30 airports. Last year, the company was approached by WH Smith. It is a big operator in Europe but with nothing in the U.S., and it was looking to add more verticals for growth. Since InMotion was the only operator of any scale here in the U.S., it was a good fit. It turned out to be a nice deal for us, and I think it’s going to be a very nice deal for them.
Now Palladin has invested in a car wash!
Yes. This is a perfect example of how our top-down and bottom-up approaches work together. Ever-busier consumers have less interest in taking time to wash their own cars. They would much rather pay someone else do it better and faster. Palladin began researching the industry by attending tradeshows, meeting operators and combing the landscape for investment targets. The cash flow of well-run companies in the industry is attractive, and the market is fragmented, creating an opportunity for a consolidation strategy.
We ended up identifying a platform with a top-notch operator who had built his company over the past few decades and shared our vision of executing a roll-up strategy. Since closing the transaction a few months ago, we have executed on several add-on acquisitions and are targeting several more.
How does Palladin make money?
When we buy a company, everybody thinks we celebrate. We don’t. It’s when the hard work begins. All we’ve done is spent a lot of money and established a strategy that we now need to execute. We are an operationally oriented firm, and much of our time is spent working with our portfolio companies executing the strategies we develop with them. We make money when we sell companies for more than we paid for them. We collect some fees along the way to keep the lights on, but our primary focus is on increasing the value of the companies we acquire.
The days are gone of loading up companies with debt and creating value through financial engineering. Today, successful investing in private equity requires dedicating the time, energy, relationships and expertise to build the portfolio company’s value. Normally, we do this over a three- to five-year hold period, but sometimes, things take longer.
What did you take from Wharton that you’re applying to business in the past few years?
First, my relationships. Both my partners are Wharton alumni, and I work with people I’ve met within or through the Wharton community. Second, the technical foundation that I built at Wharton is second to none, and I still recruit graduates based on this training. Third, while Wharton is well-known for finance, it also teaches students to effectively work with and manage people. Much of what I do comes down to evaluating, collaborating with and managing people. It is my favorite part of this profession, but also the most challenging and the most critical. I believe Wharton provided an ideal training ground for this essential skill.