Quadrivio Group - Transforming SMEs into Small Multinationals

Italy’s small and medium-sized enterprises (SMEs) account for 99% of the country’s registered business and produce 68% of its GDP. Those companies play an indispensable role in oiling the wheels of the Italian economy, and their contribution has grown significantly over the past two decades.

Quadrivio Group, an innovative Milan-based private equity firm, has played a key role in helping many of those companies flourish. Founded in 1999 by Walter Ricciotti, a Procter & Gamble and Boston Consulting Group veteran, and Alessandro Binello, the company aimed to finance SME growth and provide the required assistance to those businesses needed to strengthen operations and increase their international presence.

“At the time we set up, most of the industry’s focus was on large deals between large companies, and its inputs were almost exclusively financial”, says Ricciotti. “ We realized that a lot of SMEs were lacking the wider support structure they needed to meet their full potential. So we began by asking ourselves if there was room for somebody specializing in helping them”.

The answer was a resounding yes. Over the last 23 years the Quadrivio Group has completed more than 100 deals and cumulatively raised and managed more than $2.2 billion form Italian and international institutional investors, family offices and high-net-worth individuals. The company’s consistently top-quartile performances have enabled it to achieve an average portfolio internal rate of return of a highly impressive 30%.

Ricciotti ascribes this success to a combination of factors. “family-run businesses are in danger of getting set in their ways and losing their original entrepreneurial flair”, he says. “They also may find it hard to attract the quality of management they need to fine-tune their structures.” Over the years Quadrivio has earned a reputation for the practical support and advice it provides on both counts.

Just as importantly, it has built the international network required to enable its mainly Italian-based portfolio companies to expand their geographical footprint. With offices in the main financial hubs of London, Milan, Luxembourg, New York, Los Angeles and Hong Kong, Quadrivio Group has a global presence. It is now looking to establish a presence in Shanghai as part of a move to increase its exposure in mainland China. “Italian SMEs need access to hubs in places like the U.S. and Asia that make it easier for them to find the reliable distributors, agents, and managers they require to expand in those markets”, says Ricciotti. “ We have made it our responsibility to help them”.

Over the years, Quadrivio Group has also developed a highly successful buy-and-build strategy through which it creates sector-specific groupings whose sums are greater than their constituent parts. The McIntosh Group (formerly the Fine Sounds Group) is a case in point. Its story begins in 2007 when Quadrivio acquired a majority stake in Sonus Faber, an Italian company specializing in high-end loudspeakers. Several similar acquisitions followed, culminating in the purchase of McIntosh Laboratories five years later. Today the company is one of the world’s leading high-end audio specialists.

Quadrivio Group has taken this strategy to another level altogether with the launch of three specialist “themed” funds, each employing its own dedicated investment team. The management is fully convinced that themed funds perform better than general ones.

Quadrivio’s Silver Economy Fund was the first of its kind to be wholly dedicated to investing in enterprises offering goods and services for all segments of the over-50’s demographic in the U.S. and Europe. Meanwhile the objective of its industry 4.0 Fund is to capitalize on the increase in the number of relatively small Italian companies making inroads into the digital economy. “We usually look to invest in companies whose sales have reached between 20 millionm euro and 80 million euro”, says Ricciotti. ”That is our sweet spot, and there are a growing number of these in the high-tech sector who need the funcional support that we have to offer.”

There is, finally, the Made in Italy Fund that focuses on SMEs operating in segments representing Italian excellence, including fashion, design, beauty, and the food and wine industries. “We considered other themes that we could see were extremely interesting but, in the end, you have to stick with what you know and understand”, says Ricciotti.

One thing that Quadrivio Group certainly knows and understands is the mindset of the SME owner, and their need to be mentored by a company whose judgement they respect. “We believe strongly in balancing entrepreneurial flair with a more pragmatic and logical approach”, Ricciotti says. “The combination of the two can be fantastic”.