Listen: Ep49: SKKY Partners Jay Sammons on Private Equity & Working with Kim Kardashian

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Joe Cass   00:00:00

Hello, and welcome. My name is Joe Cass, Director, S&P Global Ratings and the host and the creator of the FI15 podcast. On this episode, we have Jay Sammons, Co-Founder and Managing Partner of Sky Partners; and Raam Ratnam, Managing Director, S&P Global Ratings. Just a quick reminder that the views of the external guests are their views alone, and they do not represent the views of S&P Global Ratings. Jay, we'll kick off with you. Can you share with us a brief overview of your career thus far, including how you originally connected with Kim Kardashian and really the origin story of SKKY Partners?

Jay Sammons   00:00:33

Sure. Well, first, thanks again for having me today. It's nice to be with you both. I started in the finance business about twenty-six years ago, and I started investing twenty-four years ago. I spent the majority of that time at the Carlyle Group, where I helped build and then ultimately had the opportunity to lead the firm's global consumer investing practice based in New York the entire time. Our strategy was really focused on backing disruptive high-growth consumer brands, which we did successfully in a number of instances and generated great returns for our investors. But most importantly, I learned a lot about entrepreneurship, how founders build brands, how founders disrupt markets with new ideas in a really authentic way that ultimately delivers a great deal of value to consumers. And I have a great deal of passion for finding those opportunities to invest behind those great ideas. Through the course of my time at Carlyle, I had the opportunity to meet Kim. We were introduced by a mutual friend nearly a decade ago. And we were introduced by that friend because the friend saw an opportunity for Kim, hopefully, to benefit from knowing someone like me as she began to build further her entrepreneurial endeavors and evolve her career in the direction that she's now shown she's very capable of doing. At the same time, our mutual friend thought that I could benefit from having the opportunity to learn from Kim as we were investing behind great brands and helping them grow and win. And over the course of the next many years, she and I got to know each other, built a lot of trust in one another, built a lot of mutual respect for each other and ultimately had the opportunity to partner together to build what we hope will be the leading next-generation consumer investing platform called SKKY Partners.

Joe Cass   00:02:08

Fantastic. Thanks, Jay. Raam, could you give us an overview of your role at S&P Global Ratings and maybe also some kind of high-level perspectives on the global retail and consumer sectors.

Raam Ratnam   00:02:20

Thanks, Joe, and great to be here with Jay. Our sector leader in EMEA, consumer goods and retail practice, I'm responsible for sort of overseeing the analytical aspects of ratings in EMEA in the retail and consumer goods sector. And importantly, there's also an element where I lead the sector research and communication with the wider market and investors. So, in course of my work, I'm really fortunate to interact with a range of companies in the retail and consumer sector across the value chain. They are both big and small companies. They are multinational corporations, but they're also private sponsor-owned companies and across a wide range of subsectors. I mean we cover food, beverage, staples, but also apparel, personal luxury and also durables. So, a range of companies, range of subsectors. And again, going back to the sector outlook, the sector has seen a range of challenges, disruptions. We know since the pandemic, supply chain disruptions, geopolitical conflicts, and a period of slow economic growth and now quite recently a very high inflation, which is since now falling at varying speeds across different geographies. Now given the scale of challenges, the sector has been generally very resilient. The consumer has been pretty robust, although some cracks appearing in some segments. And the focus really for the company is to build back volumes. There's the cumulative effect of high prices, which are holding back some of the spending we've seen. And generally, there's greater pressure on discretionary retail, mainly apparel.

Joe Cass   00:04:01

Fantastic. Thanks, Ram. Jay, as managing partners, what do you and Kim really prioritize when evaluating potential investments?

Jay Sammons   00:04:12

Well, first and foremost, our strategy is very focused on backing great consumer brands. It's where we feel like we have an opportunity to win, leveraging what we believe is a highly complementary set of experiences that she and I bring as managing partners of the firm, her experiences as an entrepreneur, brand builder, cultural leader as an individual who knows what's happening in culture around the world as well as just about anybody in the consumer landscape and me bringing my experiences touching and helping win a number of great consumer brands over my experience over the last couple of decades. And that's precisely what we're trying to bring together for the benefit of our portfolio companies. When we think about what a great consumer brand is, we really focus on finding brands that have a balance between delivering consumers something that they really need, but also finding brands that have developed really deep emotional connectivity with their consumers, brands that make consumers feel good when they're using them. And the reason that's important is that, obviously, a brand or a product needs to deliver on a real consumer need state. That's the functional side of things and brands need to deliver really well there. But if they can also connect emotionally with their consumers, make their consumers feel great when they're using those products, and this is different in every category. That's what drives loyalty. That's what drives long lifetime value. That's what drives resilience during tough economic times. That's what causes consumers to prioritize those brands over others as they seek to deploy their scarce resources into the things that they care about the most. And we studied brands with this approach for many, many years, many of the great brands that I've had the opportunity to invest in, we've looked through that lens. And as Kim has built her brands, most notably Skims, it's exactly that approach. If you look at Skims, it's a phenomenally high-quality product that has expanded quite dramatically over the last five years, but it also has connected very emotionally with consumers in the way that it's delivered a highly inclusive brand, a brand that captures the needs and the emotional likes of consumers over many years. So that's really the lens that we look through and our first investment that we made earlier this year is precisely that. It's a company called Truff that is a high-growth flavor enhancement business that focuses on hot sauces and salts and oils, all with black and white truffle oil. It's making food taste great, but it also makes consumers feel really good when they gather together around the table and enjoy a great meal together. And that is why Truff will continue to be successful in the same way the brands that we've worked with in the past have been.

Joe Cass   00:06:40

Raam, we continue to hear about the ongoing disruption of online to the retail and consumer sectors. Now in 2024, what's the current view of how online is really making headway into these areas?

Raam Ratnam   00:06:53

So yes, I mean, e-commerce is indispensable now for global retail. I mean, we are looking at retail e-commerce sales exceeding USD Six trillion in terms of retail sales this year in '24. And, roughly worldwide, this should be about 20% of all retail purchases, so a significant component of the global retail landscape. Now, while this takes place, I mean, digitization has opened new markets for retailers and consumer goods companies. But on one hand, while this is great, the competition has significantly increased. And this goes back to what Jay was saying: we have companies that are able to glean deeper customer insights through retail media, looking at digital footprints we all leave, et cetera. So, there’s a lot of data and analysis behind this, and much greater visibility of the consumer now than ever before. So, again, this has caused a lot of changes in the landscape. And again, while companies are clearly investing in their digital capabilities, there’s also this link to how this all connects to the physical retail value chain. So, you're seeing a mix of strategies. Clearly, we see omnichannel models slightly outperforming pure-play, either pure-play brick-and-mortar or pure-play e-commerce. I think consumers value a range of things; they value experience, especially when it comes to luxury premium purchases, the emotional connection Jay was talking about, but also the flexibility and convenience, which are key factors. So, essentially, retailers and consumer goods companies are looking to rationalize their store footprint to get the maximum value out of the brick-and-mortar real estate, at the same time investing a lot into the digital capabilities to stay competitive and get to know the customers better, really.

Joe Cass   00:08:54

Great. Thanks, Raam. Jay, can you share examples of how SKKY Partners leverages its networks, its partnerships to add value to your portfolio companies beyond capital investment?

Jay Sammons   00:09:08

That's a great question, Joe, because capital is obviously very plentiful. And if we only are seeking to differentiate ourselves with our capital, that's a fairly limited strategy. We need to find businesses and brands that we can add a tremendous amount of value to in partnership with our founder and executive partners that we work with who run these portfolio companies every single day. This is why we started and I were highly aligned on this when we started building this firm, which was to start with building a great team that brings experiences from the world's best private equity firms investing in consumer brands over time, and we assembled a phenomenal team that brings collectively many decades of experience touching the consumer landscape, seeing how value can be added in a very, very customized way. And it's different in every set of circumstances. There is no one-size-fits-all approach given the unique nature of what these founders are trying to do in their unique marketplaces. And so, our goal is to listen and learn and understand what our portfolio company partners need, figure out what we know and what we don't know. And if we don't know something, how do we find someone who can help us. And it's a combination of our investment team, our operating team internally, operating advisers like Angela Ahrendts, who we brought on board, leveraging her decades of experience running companies like Burberry and a very large part of Apple, bringing all of that together for the benefit of our portfolio companies to help them solve problems, help them capture opportunities in their own unique ways is really the way we seek to add value the most.

Joe Cass   00:10:36

Great. Thanks, Jay. Raam, as part of your role, you spend a lot of time speaking to C-suite leadership in the retail and consumer companies. What's their sentiment right now? And what's on their mind?

Raam Ratnam   00:10:49

Yes. I mean it's a time when companies are sort of going back to basics in some ways and looking to build back volumes really. I think that's been the biggest sort of focus for most of the companies we're speaking to. And if you look at branded players in the CPP space, and they're investing in innovation. And I think to regain some of the grounds, they lost the private label products, which has seen some of the growth as consumers are more value focused on the last few months. But we also expect more promotions this year compared to previous years because there are issues around working capital in some parts of the consumer goods space and especially if you look at apparel or footwear and those kinds of categories, a lot of companies still have a huge amount of inventory on the balance sheet, which they need to liquidate. Now I think the bigger aspect we're looking at is as competition is quite intense, there will be some gross margin gains nevertheless in the sector because clearly, input costs are much lower now than before. There will be some cost efficiencies as companies are reprofiling, looking at their operational processes. And more importantly, there have also been some carryover pricing gains from previous price increases we've seen over the last Eighteen months. So essentially, we're looking at an uptick in gross margins across the sector. Now equally, when you look at the net sort of level effect, I mean, you will probably see most of these gross margin gains being deployed into strengthening brand equity to fight against competition. And this will mean more advertising, more promotions, more investment in the digital space that we talked about. So, from a capital allocation perspective, we expect most companies to have a relatively well-balanced financial policy there. I mean, as Jay was talking about it, capital has been quite easily available to most of the industry players in the sector. And I mean, we've seen spec-grade companies as well have come to market recently to push out maturities. There have been a lot of repricing’s and add on debt to essentially invest across their operational elements of the business. Now widely, again, looking at the sector at large, we expect there to be a significant number of reshaping portfolios as companies are looking at the environment. So, we expect disposals actually, a few disposals for big multinationals on noncore assets. There will also be bolt-on acquisitions now. Again, notably, I think close to sectors Jay was talking about in the food and ingredients sector. We've seen a lot of companies have recovered the credit metrics essentially through strong pricing gains. So, they may end up doing some acquisitions to realign their product portfolio. So, watch the space.

Joe Cass   00:13:42

Great. Thanks, Raam. Jay, how does SKKY Partners kind of stay on top of consumer culture, future trends and the growth of these potential new brands or even new sectors?

Jay Sammons   00:13:56

Yes. It's one of the most important things that we do. And I think it really starts with prioritizing building a great culture internally at our firm. Our firm is built with a high level of prioritization on diversity and inclusion. We've built a team that is a majority women, including at every level of our organization. We are focused on not only having a diverse team, but tapping into all those diverse perspectives by making sure that our culture is highly, highly inclusive. As leaders, Kim and I not only allow for every voice to be heard, but we also require that every voice is heard in the room because if not, then we, as leaders of the firm, will miss things that we can't afford to miss. And so that's really the first thing is creating a really, really inclusive culture. And then making sure that everybody on our team is as passionate as we are about understanding everything that's going on in the consumer marketplace and what's coming around the corner and what are the trends that are driving consumptive behavior across markets. It's one of the reasons why I believe a sector specialized firm in consumer is really, really important, and it's why we have chosen to focus in many ways, so narrowly on what we do. It's about being really great at a very specific investing strategy, and it's driven by having highly passionate people who want to be out in the world, seeing every brand that's being developed, not just the ones that we're going to invest in next month or next quarter, but over the next five to ten years, getting to know those founders, watching those companies grow and take market share and then being their partner of choice when they come. In terms of the big macro trends, Joe, they actually haven't changed that much over my career. They've evolved and we like to swim with the current rather than against the current. Many of the macro currents are things like health and wellness, things like the bifurcation of the consumer, things like the impact of technology, as Raam was talking about earlier. Twenty years ago, when I first started in this sector, it was about the threat of technology. Now it's about the opportunity of technology and how technology, digital communication, social platforms can all help brands build community and loyalty over long periods of time. And so, we study and watch those all really closely. But in terms of the day-to-day, it's about having a highly passionate team that's all very, very motivated to see the next thing that's coming.

Joe Cass   00:16:11

Great. Thanks, Jay. Jay, over the course of your career, you've personally worked on some real kind of mega deals. So, Dr Dre's Beat's sale to Apple, Vogue International sale to Johnson & Johnson. Are there any deals or just specific moments in your career that have been particularly memorable?

Jay Sammons   00:16:32

Yes. Joe, that's like asking someone to name their favorite child. We spend a lot of time with these companies. Over the course of a long period of time, you actually don't make a lot of investments. You make a few investments in brands and businesses that you believe very passionately in, and you see a real opportunity to partner with. And so, while there's no favorite, what I would say the common theme across some of those you mentioned is really what I had the opportunity to learn as an investor from these extraordinary entrepreneurs that I had the opportunity to partner with. And Jimmy Iovine and Dr. Dre, who started Beats by Dr. Dre and ultimately, as you noted, sold the company to Apple are very different entrepreneurs than Todd Christopher, who is a multigenerational hairdresser who started Vogue International. And together, we sold that company to Johnson & Johnson for $3.3 billion. That's very different from James Jebbia, who's the founder of Supreme that we had the privilege of partnering with for a few years before selling that company. All those founders are very different. They approach their value creation and their brand story in a very different way, and I had the opportunity to learn from all of them. And that's a real privilege for a person like me to be in the room with some of the biggest innovators in the consumer space, have the opportunity to learn from them and then hopefully contribute that knowledge and experience to the success of the next one.

Joe Cass   00:17:47

Great. Great stuff. Jay, throughout your career, you've fostered personal relationships that have been really critical in building brands, companies and partnerships. What kind of advice would you give to others when trying to build a relationship from scratch?

Jay Sammons   00:18:06

Yes. It's a tough question because it really comes down to personality and style and approach. But I think the way to build great partnerships and relationships is to be authentic, be transparent, be trustworthy, be honest, all the sort of human basics. I think a lot of people in business as they seek to accomplish business goals, they will do things that maybe protect some of those aspects of who they are, what their objectives are. And that only leads to bad partnerships because you've not put everything on the table. The best way to create a great partnership is when both sides of that partnership are putting everything on the table, being their true authentic selves, sharing what their objectives are, sharing what their fears and concerns are so that in the event that there's a conflict between those, you don't get into a bad partnership that goes the wrong way very quickly. But if you are straightforward and you are transparent and you're really authentic about who you are and what you're trying to accomplish, that leads to great things because like-minded people who share those objectives can partner together and go win together. So, I know it sounds quite basic, but that would be my most important suggestion.

Joe Cass   00:19:11

Great. Thanks. Raam, you're a trained accountant, and I recently came to know that you're also the Chairperson of your local tennis club, which is news to me. So how does an early accountancy career shape your role in credit analysis, but also your life outside of work?

Raam Ratnam   00:19:31

Yes. I mean accounting can be seen as slightly less glamorous. But again, but I think it laid a great foundation for critical thinking and these days where we're bombarded by data and financial transactions can be structured can be more complex than ever before. So having a firm grasp of accounting to me, cuts through complexity in a large part. And it helps us look at underlying economic reality, which is I think really an important trait when it comes to credit analysis, and then we train our analysts globally on looking at complicated accounting structures and capturing the key economic reality and reflect that into ratings. I think it's a really important trade. So that's helped me a lot in my career at S&P as well. I joined S&P many years ago as an accounting specialist really, and I was quite incredibly privileged to have had a role in shaping the ratios and adjustments criteria over many years and building the financial and forecasting models used by S&P analysts, corporate analysts globally. So that's been a great privilege. But again, as you say, outside work, I've been able to contribute and address some challenges in the community. Again, this focus in my case has been around tennis and some local sports organizations. But look, organizations these days are required to do more with less and more so than before. And the core principles of financial prudence, budgeting, sort of forward planning with those sorts of key cornerstones can add value at many levels.

Joe Cass   00:21:13

Jay, what opinion or view on investing do you have that may be considered unconventional?

Jay Sammons   00:21:22

Yes. I think the word unconventional is an important one because if you look at the types of businesses that we invest in and the founders who have created them, and I was referencing this earlier, they are almost by definition, unconventional. You need to be unconventional to disrupt markets because to come up with an idea and turn it into a great business, it requires a great deal of foresight and hard work and tenacity and often doing things differently than the incumbents are doing them in order to capture consumers' imagination and grow and win. And so having respect for their being unconventional is a cornerstone of what we do. I think the private equity industry broadly has sought to build playbooks and approaches that they take to leverage scale and leverage their capabilities. And I think those playbooks and that scale, and those resources work really well in certain sectors. But when you're trying to back disruptive high-growth consumer founders, they're actually quite fearful of playbooks. They're quite fearful of conventional approaches to their businesses because their success has come from being unconventional. So our approach to doing this is, as I was referencing earlier, spend a lot of time listening rather than a lot of time talking in the early stages of building a relationship, learning a lot about what our partners want and what they do not want, thinking a lot about what we can contribute and what we cannot contribute and simply not having a one-size-fits-all approach to every investment because if we come to companies with a one-size-fits-all approach, it's a very quick way to be dismissed from the room. And our job is instead to build trust and long-term relationships that show the respect that we have for what these founders and executives have done in such a unique and unconventional way to grow and win and take on the giants of the industry to take market share and create a lot of equity value.

Joe Cass   00:23:11

Great. Thanks, Jay. Jay, final question to you. What lessons have you learned from working alongside Kim? And how has she influenced your perspective on business and investing?

Jay Sammons   00:23:24

Yes. So, she is one of the most extraordinary entrepreneurs of our generation. And a lot of people in the world, certainly, she's a very well-known individual, but I think when you take a look deeper into what her business and entrepreneurial accomplishments are, particularly over the last decade or so, it is remarkable. And that has come from a tremendous amount of vision and a tremendous amount of understanding of the modern consumer, the modern platforms that are activating consumers. But I would say if I had to put my finger on one or two things that make Kim such an extraordinary entrepreneur and such a successful individual that I learn from every day are some of the things that I saw behind the scenes getting to know her over the last decade. Really, Kim is exceptionally good at knowing what she's good at, but also exceptionally good at knowing what she's not good at. And there are a lot of people with her level of success across industries who begin to believe that they're great at everything they do. And as we know, there's no human being who's great at everything that she does or that he does. And her success in many ways, has come from her recognition of where she needs help. And I think a lot of people in the finance world believe asking for help as a sign of weakness. I believe asking for help is a sign of strength. and it's a sign of confidence and conviction on what you're good at. And I think Kim is exceptionally good at that. And I think we're trying to continue to infuse our culture and our team and the executives that run the companies that we invest in that you don't have to be great at everything you do. You don't have to try to be good at the things you don't know how to do. In fact, when you try to do things that you don't know how to do without asking for help, it often creates risk and creates problems rather than amplifying the opportunities to be successful. And Kim, I think, is world-class in that, and I'm lucky to have learned a lot about that from her over a long period of time, and we're hoping that, that is a key part of how we continue to build SKKY Partners in the portfolio of companies that we invest in.

Joe Cass   00:25:11

Fantastic. Well, that's it. Thank you very much to Jay. Thank you to Raam for your time today, everyone watching, everyone listening. See you next time in FI15.