EMPEA Member Profile: L Catterton

Executive: Dirk Donath, Managing Partner, Latin America
Investor Name: L Catterton
Investor Type: Private Equity Fund Manager
AUM: USD20b
Year Founded: 1989
HQ: United States, with offices in Paris, London, Luxembourg, Milan, Mexico City, Bogotá, São Paulo, Buenos Aires, Mauritius, Mumbai, Singapore, Hong Kong, Shanghai, and Tokyo
Geo Focus: Latin America, Asia, North America, and Europe
Target Sectors: Consumer Products; Consumer Services; Consumer Health and Wellness; Retail; Restaurants; Food & Beverage.

L Catterton invests across both developed and emerging markets. How do you originate your investments in Latin America specifically, and what qualities do you look for when identifying scalable companies in this region?

Our presence on the ground in Latin America and the relationships we have established locally with influential families, businesses, and investors have been key in facilitating deal sourcing and in allowing us to bypass traditional auctions and other broad sale processes in favor of a more targeted approach. Our investment strategy follows an analytic methodology and is centered around the identification of consumer categories that are outgrowing regional GDP. Once our market research detects categories that fit our criteria, we proactively move to identify attractive businesses within these categories. It is our belief that our team members’ years of investment experience and understanding of the Latin American consumer allow for early identification of attractive and sustainable business models throughout economic cycles.

Please share an example from your portfolio that reflects the sectors and strategies you find most attractive in Latin America.

Espaçolaser, a hair removal company in Brazil, combines several themes and trends that we have followed for many years, including: wellness and beauty; products and services targeting women; and changing demographics and gender norms.

In August 2015, a year before our investment in Espaçolaser, L Catterton bought spa services provider Steiner Leisure Limited, which provides laser hair removal services in the US. This acquisition gave us further insight into the industry and helped us find the right strategic positioning for Espaçolaser. Furthermore, our market research on consumer dynamics in Brazil indicated that laser hair removal was a particularly attractive segment, with roughly 95% of surveyed consumers expressing that they would be willing to consider the treatment.

Once the investment was made, we worked closely with the company’s founders to create a unified strategy, with the goal of integrating the franchising division with the company-owned locations. We applied best practices and operational standards across the network of owned, joint venture, and franchise stores, with technology playing a key role in facilitating the company’s growth and the introduction of new services and locations. Espaçolaser, which was founded in 2002 with a single location in São Paulo, now counts 550 stores and is expanding into other markets across the region and branching out into additional services with the launch of Estudioface. In addition, we have also established Universidade do Laser, a training facility for physiotherapists, sales managers, and staff at the clinics, with more than 3,000 women trained at the center every year.

In addition to Espaçolaser, you have several investments that specifically target women consumers, including Laboratório da Mulher (FEMME). How important is this market segment to your investment strategy and do you have any women on your investment team?

At L Catterton we make continuous efforts to work with the best human talent available and we are proud to support women in business, both at our own firm and among our portfolio companies. Women represent a critical part of our workforce across all levels of our firm; in addition to having a woman as one of our Partners and a member of our Investment Committee, women also represent a key part of our broader team. Moreover, the majority of our Latin American portfolio companies have female leadership/founders and have women at the Board level, with women representing roughly 50% of our management teams and nearly 60% of our companies’ employees.

Women are an essential part of every facet of our business – as consumers, business leaders, and employees. While we believe that supporting women is the right thing to do, we also believe it is good for business and good for economies, particularly in Latin America. Addressing the gender gap in the region will help stimulate economic productivity, which, as a consumer growth investor, represents a clear investment opportunity. These economic incentives align with our sustained efforts to address gender imbalances and support women in our workforces.

The global pandemic is changing consumer dynamics and behavior. How has the pandemic affected your portfolio companies? Is technology specifically playing a new or increased role in reaching consumers during a time of limited mobility and/or in transforming your products and services?

We believe long-term term economic prospects remain positive for the Latin America region, supported by favorable demographics, consumption-driven growth, and the continued emergence of the middle class. However, short-term economic activity is being challenged by strict social distancing protocols and movement/activity restrictions adopted by governments and local authorities.

The impact of COVID-19 has varied across our portfolio. With the advantage of having seen the effects of the virus in Asia and Europe, our team moved swiftly to work with each company at the onset of the pandemic to take quick and decisive measures to maximize cash and manage liquidity. As a preventative measure to protect the health of both customers and employees we closed stores/units at numerous portfolio companies. These businesses have leveraged technology-enabled strategies to shift their focus to delivery and pick-up services, online sales, and to adapting marketing campaigns to the current environment while working closely with existing delivery platforms.

The current market environment, let alone a market defined by a recession, will undoubtedly create new and compelling investment opportunities. We believe this should be a very attractive vintage for new investments. As we pursue the initial investments in our latest fund, we are also seeking to identify new opportunities in categories that have gained enhanced prominence and market standing in the current environment. Ultimately, our investment strategy is underpinned by long-term consumer dynamics and trends, which we believe will persist despite current conditions.