Luxury investment

LVMH Moët Hennessy Louis Vuitton head Bernard Arnault has recently overtaken Elon Musk as the richest person in the world. Starting his career as a real estate developer in Palm Beach, Florida, how did the French multi-billionaire invest his way to the top of the luxury industry?

For interested readers, the Acquired Podcast takes a deep dive into the story of Arnault’s empire building via mergers and acquisitions, a man with an eye for value similar to Warren Buffet. And what were some of Arnault’s key ingredients to investment and managerial success?

Podcast link:

LVMH: The Complete History and Strategy

In a nutshell, the first was strategic financial engineering. Arnault reportedly learnt the ways of leveraged buyouts from his next-door neighbour in the US. He then then went on to successfully acquire Christian Dior from the French government in 1984; followed by a string of other fashion houses. These included an aggressive takeover of Moët Hennessy Louis Vuitton itself, leveraging financial engineering of his publicly listed companies to extend his capital capabilities.

The second was understanding the role of synergies in his portfolio, knowing where to maximise and capitalize on synergies and where not to. Synergies within its portfolio are utilized in common areas like negotiating advertising, real estate, distribution deals and recruitment. However, the group streets very clear from synergies within the creative core of each of its businesses, as this would likely diminish the value of each individual business.

Finally, Arnault’s strategy was very much based on vertical integration, purchasing the upstream factories and downstream retailers (including 420 duty-free stores at 12 airports, including those in Auckland and Queenstown). Arnault states, “if you control your factories, you control your quality. If you control your distribution, you control your image”.