How to assess a potential of a company

How to assess a potential of a company

by Roman on May 16, 2008

Yesterday I had a chance to visit a seminar by one of Estonia’s newest asset management companies Avaron. They are only about a year old and are already managing around 77 million euros – that’s about 120 million dollars. Not bad for a year’s work!

In the seminar one of the founding partners Kristel Kivinurm-Priisalm gave an overview of how they screen and find companies they are willing to invest in. A lot of it was usual well known stuff but there was also a ton of interesting things that anyone of us can adopt and use in our own lives. Luckily for you – I took notes!

Since Avaron is a company that is focused only on Eastern-Europe they have about 1200 companies that qualify for an investment in terms of market capitalization (10 million euros). However they visit about 300 companies yearly in order to find the best of the best. These eye-to-eye meetings play an important role.

People from the States may find it difficult to believe, but here are some things that they look when visiting the companies. This is Eastern-Europe after all. :P

  • Handshake. How does it feel? Is it all sloppy or is it strong and confident? Interestingly, there is a correlation between a strong handshakes of the CEO and how well the company does in the long run.
  • Cars – What are the parked cars in front of the company alike? Is the management driving BMW-s while the production facilities are in instant need of repair? If so, they might have their priorities mixed up…
  • Restroom – What does the employee’s restroom look like? If it’s old and dirty it could mean that the company is not willing to take care of it’s workforce.
  • Insecure management – when the management leaves an unconfident impression they will probably do the same with their potential buyers. This means there could be problems selling their products.
  • Not using computers –  If you are not willing to use technology it is certain that there will be more productive competitors who will eventually take over your business.

Since I am a big fan of behavioral finance it was interesting for me to see that companies that manage multi-million dollar funds put such a big emphasize on the things that don’t show up from the numbers.

Knowing what professionals look for gives a great opportunity to get better at the things that matter.
Going to practice that handshake now! :twisted:

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{ 1 comment }

Hey Arnold August 21, 2008 at 10:51 am

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