Nik Thukral is looking for more than the next hot brand.
Growth for the managing partner at L Catterton — and for the private equity giant generally — is bigger than that. It’s a collision of large-scale trends in everything from demographics to technology that suggests a category is on the way up and has room to keep going.
Thukral is focusing on that momentum and looking for companies set to take advantage of it.
He focuses on L Catterton’s buyout fund, which this summer took a stake in The Honest Co., but also has investments in Intercos Group, StriVectin, John Hardy, Peloton, Equinox and more. Since 1989 the company has made more than 200 investments in consumer brands.
Thukral’s been on hand for 14 years of that run. He is a quiet presence and unfussy, but quick to dive into just about any topic — in the consumer realm — and precise.
He is a big part of the L Catterton machine, which has more than $15 billion in dedicated capital and about $6 billion in dry powder, ready to spend in the consumer space.
The company bills itself as the world’s largest consumer-focused fund, having expanded considerably with a 2016 deal bringing together Catterton and Bernard Arnault’s L Capital.
While there is continual confusion in the market as to the relationship, with rumors often flying that LVMH Moët Hennessy Louis Vuitton is close to making an acquisition when it’s actually L Catterton, or vice versa.
To clarify: Arnault’s LVMH and his family holding company, Groupe Arnault, own 40 percent of the investment house while the partners from the Catterton side hold the balance. Arnault does not make investment decisions at L Catterton, but is an investor in the firm.
If it’s a relationship that causes some mix-ups in the market, it’s also a useful connection for Thukral.
L Catterton and the maisons at LVMH have a “sister-company relationship,” but are operated independently, he said.
“That means they won’t do anything for us that’s not commercial, arm’s length, but it allows us to be able to at least have a meeting, have a discussion, get to the right people where that’s relevant,” Thukral said. “They’ll call us back, which is half the battle, trust me.”
The L Capital deal helped give Catterton a greater international reach and a refined finger on the global consumer pulse.
“We have a view that the global consumer is going to look very different in the next 10 years than it looked in the last 20 and we want to make sure that we are in a position to be able to execute on that, but in a real material way,” Thukral said.
L Catterton has a methodical, disciplined approach.
The idea is to gather a range of expertise, and make a decision about how some segment of the market will evolve.
“Most of my partners are operators, they come from industry, they come from consulting,” Thukral said. “A few of them have a financial background, but it’s more the exception than the rule, so it’s a good complement.”
In that framework, Thukral is one of the exceptions. He has a degree in finance from the University of Illinois, a master of business administration from the University of Chicago and time spent in investment banking at J.P. Morgan and then the private equity arm of Deutsche Bank and MidOcean Partners.
Despite starting off in the world of finance, people who have worked with Thukral say he’s a savvy operator with a distinctive perspective.
“Good decisions are a function of what everybody brings to the table,” Thukral said. “So what we try to do [at L Catterton] is create a culture that invites diverse perspectives and points of view and that is manifold. It’s different kinds of people around the table, it’s different skill sets around the table.
“Sometimes people who come at it with a fresh perspective come at it a bit less constrained than the existing operators might,” Thukral said. “The operators might tend to underestimate what the opportunity is and bringing in people from the outside helps you.
“Then there’s a pretty vigorous debate around strategy, around value and value creation, around making sure we’ve got the right people and the right resources up against the opportunity,” he said.
Everyone around the table, though, is usually coming from the same place, a shared belief about what parts of the business world are going to grow — and fast — and where the investment opportunities are ripe.
“If a banker calls us and says, ‘Hey, this is cheap,’ that doesn’t really interest us,” he said. “What we really start with is, ‘What’s the category?’ The category for us has to be a good growth category. It’s got to be growing better than two- to three-times GDP.”
L Catterton’s identified investment themes — the areas where the company focuses its energy — center around brands with authenticity, rapid technology transformation, the aging population, the growth of the Chinese consumer, growing concern for the environment and sustainability, health and wellness and more.
The investments in Peloton and Honest, for instance, jive with the belief that health and wellness will continue to be important, while beauty supplier Intercos feeds a host of brands that are benefiting from the rise of the Chinese consumer.
Men’s is another area of interest, as can be seen in the stake L Catterton’s North America Growth fund took in the premium activewear brand Rhone, which was founded in 2014.
That investment is outside of Thukral’s immediate purview, but is illustrative of the L Catterton way.
The philosophy is that betting on men’s, or the activewear aspect of health and wellness, or both, through an investment in a company like Rhone is easier and safer than trying to pick a fashion winner.
“Three or four years ago, you started to see men start to participate more in beauty and apparel,” Thukral said. “They care more about how they dress, they dress themselves. They reject, honestly, what my generation and the generation proceeding me would be wearing. You started to see pretty high growth rates in men’s apparel.
“There is the challenge of calling fashion,” he said. “That is hard to do and not something that we like to do or try to do. What we look at is the category and the concept of differentiation. What we look for is…what is this brand? Who does it serve? Who is the customer? How loyal are they?”
Five years ago, Catterton followed a similar line of thought and invested in the women’s brand Sweaty Betty, sensing moves toward ath-leisure and premium looks.
“We’re looking for something that is fundamentally buttressed by real secular drives where we’ve done a ton of work around it beforehand to make sure those drivers will keep the category sustained,” he said.
While the case for that can be hard to make for many apparel companies, it’s been much easier in beauty.
“The Asian market in color cosmetics last year grew north of 30 percent,” Thukral said. “We are long-term believers in color cosmetics, in beauty and skin care, absolutely on a global basis. And we have a fund that is set up and we have more investments in that space than anybody. We will be putting our money where our mouth is, we have global conviction in this category. The question is, ‘How do you play it differently than what everybody else is doing at the same time?’”
So while private equity firms of all stripes rushed into the beauty scrum, snatching up brands and flipping them to one of the big strategic players, L Catterton in 2014 invested in Intercos, which supplies the big beauty brands with production and research and development capabilities.
The deal let L Catterton bet on beauty without having to pick a winner. But it wasn’t necessarily a quick deal.
Thurkal said it took him a year and a half and 15 trips to Italy and “all kinds of calls in from everybody we knew who knew [founder] Dario [Ferrari]. It’s not about you, it’s about them, what they want to do. Typically, we get to know these operators over a long period of time, they get to know us, they know the people we know.”
Ferrari said he has worked with six or seven private equity firms, but that Thurkral stands out.
“Private equity [people], they are financial people, but not always do they really understand all the operational [aspects of] the business,” Ferrari said. “Nik is very good, an expert in terms of cosmetics. Nik is an open guy, very transparent, he likes to say what he thinks.”
Renato Semerari, who became chief executive officer of Intercos this year, said he was used to private equity backers wanting to get “the nitty gritty on numbers and what happened this week.”
“Nothing with that ever happened with Nik,” Semerari said. “We have monthly calls with them…the real discussions with Nik are very much, ‘How can we accelerate growth?’”
Semerari described Thukral as part of the team, but knows some day, as with every investor, it will be time for L Catterton to move on.
“The day they tell me that he’s ready to divest, I think I will have a couple of Scotches because it will be a difficult day for me,” Semerari said.
That is not necessarily a common sentiment for ceo’s with big money private equity backers looking over their shoulders.
But Thukral, examining first category and then company and management, is looking to get in ultimately by building a relationship.
“There are lots of smart people,” he said. “There’s lots of smart capital in the world. But, ultimately, people want to partner with people you trust and you have some rapport with because it is a marriage. It’s going to be a marriage for some period of time. These are relationships, they’re entrusting their baby, literally their surrogate child and for that there’s no substitute for personal rapport. You’ve got to invest the time.”