Tresor Capital partner Michael Gielkens on The Dutch Investors podcast
Anyone relying on standard financial screeners or a quick glance at traditional ratios risks making a crucial mistake: judging every company by the same yardstick. This one-size-fits-all approach is particularly misleading when analysing serial acquirers and family holding companies. These are not traditional companies but, in essence, investment machines. Their success depends on the art of capital allocation, a discipline that requires a different, deeper form of analysis than the usual ratios suggest.
Tresor Capital partner Michael Gielkens recently shared insights that underline the principles we apply when selecting these exceptional value creators. It is about finding the right partners for the long term, not about speculating on short-term market movements.
The selection process: what we look for
Identifying a superior investment holding company requires a rigorous and disciplined process. For us, a large part of the investment universe is already eliminated on the basis of a few fundamental criteria:
- Skin in the game: it is essential for us that management, the founder or the (founding) family holds a significant personal stake in the company. This creates an alignment between the interests of insiders and those of us, the co-shareholders.
- High return on invested capital (ROIC): a consistently high return demonstrates that management is able to (re)invest capital profitably, which is the engine of compounding.
- A strong balance sheet: we avoid companies with high levels of debt. A conservative balance sheet provides flexibility and enables a company to seize opportunities precisely in difficult times.
Equally important are the factors we regard as warning signs. A lack of skin in the game among management, a strategy focused on buying low-quality companies with too much debt, a high degree of cyclicality in business operations, or frequent management changes filled with external directors rather than internal talent are, for us, reasons to keep looking elsewhere.
A different view on goodwill and the discount at family holding companies
Traditional accounting measures can give a distorted picture when it comes to investment holding companies. Two concepts deserve particular attention.
For a serial acquirer, a substantial goodwill item on the balance sheet is not a red flag but a logical consequence of its business model. The question is not whether goodwill exists, but what management does with it. Does the acquisition generate a sustainable and high return on the total investment? That is the only question that matters.
The size of the discount at which a family holding company trades relative to its intrinsic value is not a simple buy signal. It is better regarded as the grade the market awards to the quality of the portfolio and management's capital allocation skill. A large discount can be entirely justified if management has destroyed value in the past. Conversely, a company trading at a small discount can still be an attractive investment if management has proven to be an exceptional value creator.
The most important yardstick: the power of incentives
Ultimately, everything comes back to one fundamental principle, perfectly expressed by Charlie Munger: "Show me the incentive and I'll show you the outcome." The way a management team is rewarded determines its behaviour, and with it, the fate of the company.
We scrutinise remuneration structures closely. Is management rewarded for sustainable long-term value creation, such as growth in free cash flow per share, or for short-term metrics such as absolute revenue growth? The answer to that question is often the most reliable predictor of future success. Combined with skin in the game, this forms the basis for a partnership in which we, as shareholders, can thrive.
All these topics are covered extensively in the English-language podcast by The Dutch Investors, which you can listen to by clicking the button below.
Receive weekly insights in your inbox
Exclusive analyses and updates on family holding companies and global market developments.
Would you like more information about our services? Feel free to get in touch.
Get in touch
No rights can be derived from this publication. This is a publication of Tresor Capital. Reproduction of this document, or parts of it, by third parties is only permitted after written consent and with reference to the source, Tresor Capital.
This publication has been compiled by Tresor Capital with the greatest possible care. The information is intended in a general sense and is not tailored to your individual situation. The information must therefore explicitly not be regarded as advice, an offer or a proposal to purchase or trade investment products and/or to obtain investment services, nor as investment advice. The authors, Tresor Capital and/or its employees may hold positions in the securities discussed, for their own account or on behalf of their clients.
You should carefully consider the risks before you start investing. The value of your investments may fluctuate. Past performance is no guarantee of future results. You may lose (part of) your investment. Tresor Capital disclaims any form of liability for any inaccuracies or errors. This information is purely indicative and subject to change.
Read the full disclaimer at tresorcapitalnieuws.nl/disclaimer .
This article was originally written in Dutch and automatically translated into English with the help of AI. In case of any difference, the Dutch original prevails.
