LVMH affiliate seeks salon lift
Byline: Dennis Fitzgerald
As the TV series “Extreme Makeover” and “Nip/Tuck” have demonstrated, some people’s self-esteem can sag along with their facial features.
Hoping to tap into this desire for self-improvement, the private equity affiliate of French luxury goods purveyor LVMH Moet Hennessy Louis Vuitton SA is investing in a planned chain of U.S. salons providing a broad range of beauty services, including cosmetic plastic surgery.
The affiliate, Paris-based L Capital, agreed last week to take a 37% stake in Advanced Aesthetics Institute, a West Palm Beach, Fla.-based startup.
Through the deal, L Capital becomes one of the few investment firms that have taken a financial stake in the cosmetic surgery business, which is still highly fragmented.
Financial terms haven’t been made public, but L Capital said its typical investment in a company is between $10 million and $35 million.
Advanced Aesthetics maintains it is the first fully integrated appearance makeover provider in the U.S., offering the services of plastic surgery, cosmetic dentistry, dermatology, hair care, makeup and fashion consulting, in a spa-like setting.
A medical board of plastic surgeons, dermatologists and cosmetic dentists makes medical decisions.
In November, the company opened its first salon in West Palm Beach, near that venerable playground of the rich and famous, Palm Beach. Over the next five years, it plans to open 30 salons across the U.S. Proposed sites include Beverly Hills, Calif.; Boca Raton, Fla.; Dallas; Chicago and New York. There are no plans for Advanced Aesthetics to parlay the LVMH name, which has never been used as brand.
The first client of Advanced Aesthetics is 31-year-old Kara Geib, a Fort Lauderdale, Fla., librarian, who drew on many of its services, undergoing a nose job, a chin implant, liposuction for her neck and thighs and breast augmentation. Her teeth were whitened, and her hair was straightened and colored. And she was fitted with contact lenses and received advice on fashion and makeup. For before-and-after photos of her, see .
In 2002, 6.6 million people in the U.S. underwent cosmetic plastic surgery, down 12% from 2001, according to the American Society of Plastic Surgeons. Annual U.S. sales in the broad market that Advanced Aesthetics would like to serve — plastic surgery, cosmetic dentistry, hair and so on — total an estimated $84 billion.
Heading Advanced Aesthetics as chairman is Richard Rakowski, who is also a principal at Kidd & Co. LLC, a Greenwich, Conn.-based investment firm. Rakowski became interested in cosmetic surgery as a business proposition when he underwent cosmetic eyelid surgery a little over a year ago.
“At 50, I had a biological aesthetic dysfunction moment, and I said, ‘Who is that old guy in the mirror?'”
Rakowski, who turns 52 in January, says he has always felt 16.
About a year ago, L Capital had asked Lorenzo Weisman, a managing member of New York investment boutique Hill Street Capital LLC, to help it find a company in which to invest. Weisman and L Capital’s president, Daniel Piette, originally teamed up when Weisman was a London-based banker at Dillon, Read & Co., now part of UBS Investment Bank, and Piette was the group managing director of LVMH.
Weisman, who was familiar with Kidd & Co., decided that the firm and Advanced Aesthetics would be a good fit for L Capital. “They tend to research something for a long time, and they do that with their own money,” said Weisman, referring to Kidd & Co. “They have been working on this concept for a number of years.”
For legal advice in its Advanced Aesthetics investment, L Capital turned to Margaret Tahyar, a Paris-based Davis Polk & Wardwell partner (whose career includes clerking for Robert Bork when he was on the U.S. Court of Appeals for the D.C. Circuit, and for the late Supreme Court justice Thurgood Marshall).
The director at L Capital working on the Advanced Aesthetics investment is Philippe Franchet.
Outside counsel to Kidd & Co. is Edward Mandell, a partner at New York-based Jenkens & Gilchrist PC.
L Capital isn’t the first investment firm to take an interest in cosmetic surgery. In the late ’90s, Genus Aesthetic Medical & Dental Group of Birmingham, Ala., and Aesthetics Medical Management of Windsor, Conn., separately launched as physician practice management, or PPM, companies in the cosmetic surgery arena. Both closed not long after they opened.
Genus had attracted a reported $15.5 million from investors including Sprout Group, the Chicago-based venture capital affiliate of Credit Suisse First Boston. As the tech boom was heating up, Genus’ chairman, president and CEO, William Dexheimer, decided to transform the company into Genus.net Inc., an Internet-oriented marketing company serving aesthetic healthcare providers.
Scott Meadow, a former venture partner at Sprout who worked on the firm’s Genus investment and is now a clinical professor of entrepreneurship at the University of Chicago’s Graduate School of Business, said Dexheimer’s Internet play was a mistake. “Had he relaxed and stayed with the original ideal, I think we would have made a lot of money,” Meadow said.
Dexheimer, now president, COO and director of ValueCentric Marketing Group, a Birmingham-based loyalty-and-rewards marketing group, did not return calls.
Aesthetics Medical had the backing of the Chicago-based private equity firm Frontenac Co., which had made a couple of successful investments in other physician practice management companies.
The plan was for Aesthetics Medical to combine the services of a cosmetic surgery clinic and a day spa. But Aesthetics Medical shut down after investors determined that the best cosmetic surgeons they tried to recruit said they wanted to retain their independence and were not enamored of the idea of teaming up with a day spa, said Rodney Goldstein, a managing director at Frontenac who is familiar with the Aesthetics Medical investment.
L Capital was launched in 2001 with [Euro]264 million ($326 million) in capital, 40% of which came from LVMH and the rest from institutional and other investors.
Franchet, the L Capital director working on the Advanced Aesthetics investment, acknowledged the challenges facing the new company. “It is a tricky industry because you have to bring together a number of elements to maintain a high level of quality,” he said.
On the other hand, Franchet said that L Capital, whose portfolio companies include Gant Co. AB, a Swedish apparel group, sets high standards, and Advanced Aesthetics has met them. “We have been impressed by AAI and its team,” he said.
And what amounts to free advertising from “Extreme Makeover” and “Nip/Tuck” can’t hurt.
COMPANY: LVMH Moet Hennessy Louis Vuitton SA
COMPANY: L Capital
COMPANY: Advanced Aesthetics Institute
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