When it comes to groups pursuing external growth strategies, there are three elements that need to be taken into account immediately by the prospective shareholder - or by the existing shareholder if he or she wishes to monitor the sound management of the companies he or she owns.

The first fundamental element is the return on investment of acquisitions: this is calculated by dividing the amounts invested in external growth by the additional profits they generate.

There's an inevitable degree of vagueness when it comes to separating organic growth from growth inherited from acquisitions, but the aim is to get a general impression. As the old adage goes, "it's better to be roughly right than precisely wrong".

The second fundamental element is the way in which the acquisitions were financed: it is typically preferable for them to be largely self-financed, as debt financing or capital increases raise the difficulty of making them profitable a notch.

In the case of companies that frequently increase capital, always evaluate earnings per share growth carefully. If consolidated profit is multiplied by a hundred, but the number of shares in circulation increases by the same amount, value creation is nil.

The third fundamental element is the evolution of margins and profitability over the long term: obviously, red alert when an acquirer piles up newcomers but loses efficiency...

The fourth fundamental element is management attitude: we are wary of management teams remunerated solely on the basis of growth or "adjusted" pseudo-profits calculated on dubious bases... All the more so if you see them immediately selling the shares they receive via their stock options.

A few examples of very good buyers discussed in our columns recently: LDC, Descartes Systems and, of course, Constellation Software. A less good example: Park Lawn.