Control Freak

The Business of Fashion

Certain regions of the world are known for their unbridled excellence in a given field.

France is known as the motherland for the business of luxury fashion.

It raised several notable children, including

• LVMH | $380B market cap

• Hermes | $230B market cap

• Dior | $127B market cap

• Kering | $43B market cap

Two of these cruisers are controlled by the same captain, Bernard Arnault

Also known as the Wolf in Cashmere, The Terminator, and the richest man in the world

Arnault sits on the throne of the LVMH empire, owning everything from Louis Vutton to Dior to Dom Perignon to Hennessy to Off-White to Fenty to Fendi to Givenchy to Tiffany to De Beers to Hublot to Tag Heuer to

Not to mention a minority stake in Hermes, the only fashion brand to rival LVMH and Dior.

Or L Catterton, the global private equity platform that Arnault created by merging Catteron Partners with his family office.

Butterfly Effect

Arnault started his career working for his father’s civil engineering company, which he took over in the 1970s, and changed its focus to real estate development.

A natural businessman, his efforts paid off and they soon became one of the wealthier families in the Northern region of France, with the business doing around $15M in revenue.

Then the 80s hit.

The 1980s in France marked the spread of socialism and led to an unfavorable business environment.

The 1980s in the U.S. marked the rise of Wall Street and unrestricted capitalism.

Arnault took his talents to the states. A decision to relocate to a more productive environment paid infinite dividends to the Frenchman.

He bought a condo complex in Florida and moved to New York, more specifically, New Rochelle. As fate would have it, his next door neighbor was John Kluge.

John Kluge was the richest man in America at the time.

Kluge made a fortune from accumulating ownership of media conglomerates and selling them.

When Arnault met him, Kluge was in the middle of the largest leveraged buyout in U.S. history, a bid to take MetroMedia private for $1.2B.

• He ended up selling the company for $6.5B just a few years later.

• Some of the TV stations Kluge spun out of MetroMedia built the foundation for Fox Network by Rupert Murdoch

• The transaction inspired the rest of Arnault’s career

Arnault was fascinated with the concept of leveraged buyouts - the level of aggression Americans displayed in these risky control investments was completely contrary to the conservative mannered way the French did business.

Dior.

So Arnault goes back to France with a new mindset, looking for an attractive business to buy. As fate would have it, Boussac Saint-Freres, the retail conglomerate that owned Christian Dior, was for sale.

Here’s how a 35-year old Bernard Arnault pulled off his most important win:

• Teams up with Lazard banker Antoine Bernheim and puts together a $60M bid to takeover Boussac from the French government, who controlled it at the time. Arnault puts up $15M and Lazard syndicates the $45M from investors and the investment bank’s balance sheet.

• Arnault controls 60% of the entity despite only putting up 25% of the capital. Boussac is doing around $1B in revenue but remains an unprofitable mess

• After a successful acquisition, Arnault taps Lazard’s restructuring team to help him clean up the kitchen. They lay off 45% of the workforce (~9,000 workers).

• In addition, they have quite the garage sale, recouping north of half a billion dollars after selling everything not named Dior. Arnault also keeps the Bon Marche department store in Paris

When it’s all said and done, Arnault cleans out Boussac and uses the proceeds to quadruple down on one of the strongest luxury fashion brands in the world.

After a few years, Dior is doing ~$100M annually in EBITDA.

But the story doesn't end there.

Instead of selling the asset like a rational corporate raider, Arnault holds tight to his Dior purse.

With new cash in hand, he gets involved in a hostile corporate takeover, teaming up with Guinness and Lazard to buy the largest luxury conglomerate at the time, LVMH. This is another story for another day

Before we exit the topic, let’s bring things full circle and examine the Tiffany & Co. transaction that took place post-pandemic

Shiny Things

Tiffany & Co is the most notable American luxury wearables brand, save Tom Ford

In early 2021, LVMH acquires the brand for $15.8B after negotiations that went back and forth.

But here’s the interesting part.

Right after the deal, LVMH revamps the Tiffany marketing strategy by bringing in Jay-Z and Beyonce

At the time, Jay-Z had ownership of the champagne brand, Armand de Brignac, colloquially known as Ace of Spades.

The story behind Ace of Spades is that an executive at Cristal wasn’t too happy with rappers embracing his champagne brand, so Jay-Z starts a public boycott of Cristal and buys Armand de Brignac, which he re-brands as Ace of Spades.

And so it’s no coincidence that right when LVMH brings in Jay-Z to lead the Tiffany campaign, they also buy 50% of Armand de Brignac.

This celebrity quid-pro-quo deal wasn’t LVMH’s first time

In 2017, LVMH’s beauty brand incubator - Kendo - launched Rihanna’s Fenty brand.

• LVMH invested $35M for 50.01% while Rihanna agreed to put in $35M worth of “in-kind” assets including her time, name, and energy, for 49.99%.

• Fenty’s valuation was last rumored to be $3B

In hindsight, Arnault took $15M of his personal capital and turned it into a $12B fortune just 16 years later

Which turned to $196B just 24 years later.

Bought Dior (1984) →

Bought LVMH and Givenchy (1989) →

Bought Celine, Marc Jacobs, Sephora, Tag Heuer (1990s) →

Bought Pucci, Hublot, Fendi, DKNY, + Hermes stake (2000s) →

Bought Off-White, Tiffany & Co., Armand de Brignac, Barton Perreira (past 5yrs)

A consistent characteristic across these transactions is the love of control.

Whether it’s controlling distribution, or controlling a company, or controlling the LLC that’s controlling the LLC that’s acquiring the company, Arnault finds a way to stay in charge.

After the Louis V takeover early in his career, he unveiled his mindset:

Headlines

• Apollo invests $700M in Sony Music. Reuters article here

• Bill Ackman slashes fundraising target for U.S. IPO from $25B to $2B. FT article here

• Siddhi Capital raises $135M for Fund II to invest in CPG startups. TC article here

• Researchers find online sports gambling leads to huge jump in bankruptcies. FOS article here