Donna Alberico for The New York TimesThe preppy retailer Gant was one of L Capital’s successful investments.While it may share the same first letter as LVMH Moët Hennessy Louis Vuitton, and counts the French luxury conglomerate as an investor, L Capital would like everyone to know that it is its own firm.
That is an impression that has sometimes been difficult to make, given that L Capital was founded 11 years ago by LVMH, whose money still comprises 15 percent of the firm’s total funds. But as L Capital prepares on Friday to announce the closing of its third European investment fund at 400 million euros (about $535 million), the buyout shop is eager to demonstrate that it follows its own path.
Since its inception, the firm has defined as its main focus not the high fashion of Louis Vuitton or Christian Dior, but what the buyout shop calls “affordable luxury”: clothiers like the preppy retailer Gant and higher-ticket health and skin companies.
It is a principle that has endured through a decade of both global expansion and worldwide recession.
“When the crisis came, like everybody else we stopped to think about whether we should change,” Daniel Piette, the chairman of L Capital, told DealBook in a telephone interview on Thursday. “But we thought that we were absolutely right.”
Indeed, LVMH sponsored the formation of L Capital in 2001 with the express purpose of finding and growing luxury brands whose wares were a few levels below $1,000 canvas handbags and $1,800 floral-print parkas. LVMH’s longtime chief executive, Bernard Arnault, had believed that the affordable luxury sector had plenty of opportunity, but could not use his own company to invest in the area.
So he tapped Mr. Piette, a longtime LVMH veteran who had led several acquisitions for the conglomerate, to lead L Capital. Its mandate: Find midsized companies, those with sales of up to 400 million euros, and grow their businesses before selling them, hopefully to larger competitors. None of which, coincidentally, has ever been LVMH.
“The view was to create a machinery that was profitable in making money for the group and investors,” Mr. Piette said. “LVMH doesn’t want to be in that space, but it wants a fund to invest there.”
(While Mr. Piette, who sits on LVMH’s executive committee, said that he speaks with Mr. Arnault on a regular basis, the business of L Capital comes up very infrequently in conversation. “He doesn’t believe that he should have a view for many reasons,” Mr. Piette said. “One of them is that he doesn’t talk about what he doesn’t know.”)
Among Mr. Piette’s first goals was to grow L Capital into a credible global investor. The firm now manages more than 1 billion euros (about $1.35 billion), with its newest investors including the General Electric Pension Trust and Cambridge University‘s endowment fund, and runs six offices in Europe and Asia.
One of the firm’s most notable deals was the takeover of Gant, the Swedish clothier that produces American-style preppy wares like khakis and oxford shirts. L Capital helped buy back the company from the PVH Corporation in 2003, having already invested in Gant, and took it public four years later.
Among L Capital’s current investments are the TWC L’Amy Group, a French accessories purveyor, and Princess Yachts International, a British designer of yachts.
Mr. Piette concedes one mistake in L Capital’s history. The firm bought a 17 percent stake in Energy Brands, the maker of Vitaminwater, in 2001 — but sold its holdings in 2003. That happened to be four years before the Coca-Cola Company paid $4.1 billion for Energy Brands.
“We sold it much too early,” he bemoaned. “We should have stayed in a couple more years.”
Still, the firm has reaped what Mr. Piette decribed as “pretty good returns,” including a 33 percent gross internal rate of return for its first European fund. And at 400 million euros, L Capital’s latest fund surpassed fund-raising expectations.
Despite the continuing economic troubles plaguing Europe, Mr. Piette said L Capital continued to see opportunities on the Continent. While bank financing may not be as plentiful as it was before, the affordable luxury sector still draws in plenty of consumer euros.
“M.&A. over all is less active than it used to be,” he said. “But so far we haven’t suffered, because we’re so specialized.”