EVIAN, France — A company is made of tangible and intangible parts, said Javier Cano, chairman and chief executive officer of Puig Beauty and Fashion Group, in his keynote address titled “The Value of a Company — Internal Ways to Grow.”
This story first appeared in the July 19, 2002 issue of WWD. Subscribe Today.
Cano said that the tactics generally used to generate internal growth require heavy investments in advertising as well as the development of new brands, activities and categories. He added that companies can also increase their international reach and enter new channels of distribution to drive this development.
Beyond these, Cano said firms have taken the acquisitions route. However, this latter method has become increasingly costly in recent years.
“The individual consequence of a market with a high demand and a comparatively low supply of adequate companies has been the higher and higher valuation of the companies acquired,” said Cano. “Some of the quantities paid last year would have seemed impossible only a few years ago. In some cases, it’s difficult to believe that even a distant return on investment can be obtained.
“What value does an investor feel they will receive when they pay a substantial amount of money for shares of a specific company?” he continued. “Why am I paying 50-times profits on a specific company and only 30-times on another, which is doing similar things?”
While costly, there are some upsides to acquiring a company. It can help drive pure growth, boost market share, reach new markets or act as a solid profit generator.
On the less tangible side, Cano said acquiring a new firm can also lead to acquiring new ideas and potential.
Before buying a firm, he explained, it is important to make sure it has had a good track record, history of growth and profitability, plus a promising future and intangible assets — such as employee know-how — that are full of potential.
“We will never fully understand the virtues of these assets if we don’t analyze the results of mixing them,” he said. “For instance, if we have a relationship with an external supplier and mix that with R&D that is an internal procedure, this could lead us to develop new products with high competitive advantage.”
By improving the intangible assets of a company, the firm’s value increases, said Cano.
“Remember, the most important intangible asset is people,” he noted. “It’s people and the sum of their knowledge.”
Cano said attracting executives with high potential takes more than a high salary and the promise of stock options. At a recent debate at IMD business school in Lausanne, Switzerland, MBA students discussed what makes firms attractive to business graduates. The results included:
l The company’s public image.
l The company’s growth and track record as an indicator of how employees’ opportunities can evolve within the firm.
l The possibility of doing a job requiring initiative and an element of freedom.
l How a career can develop within the firm.
l How a company handles its selection process and welcomes new employees.
As for how a firm can retain promising executives, Cano said internal transparency, the possibility of making a mark, the working environment and feedback are key.
“Once inside the company we have to use all the means we have to increase the level of knowledge and competence,” he explained. “And in as much as this level of competence increases, we will also increase our intangible assets — and therefore the value of the company.”