Author Topic: CSU - Constellation Software  (Read 149850 times)

Liberty

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 10027
  • twitter.com/libertyRPF
    • twitter.com/libertyRPF
Re: CSU - Constellation Software
« Reply #10 on: June 08, 2015, 08:59:36 AM »
I think what Phaceliacapital meant is that you could read all the letters and listen to all the calls and still not be sure what Constellation actually does except run vertical market software (VMS) businesses. You'd get all the financial details about performance, but not much talk about products, managers at the operations level, customers, etc. You have to dig by yourself to figure out more about all that stuff.

Personally, I think this is noise. You could spend a lot of time trying to understand the competitive dynamics of the golf course management software but I don't think it would improve your investment decision.

I agree on that level. No need to understand every single unit. But it's certainly good to understand enough of what VMS businesses do and what the dynamics are in the overall industry. There's a balance between trying to understand everything and understanding nothing...
"Most haystacks don't even have a needle." |  I'm on Twitter  | Interesting podcast (new link)


Liberty

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 10027
  • twitter.com/libertyRPF
    • twitter.com/libertyRPF
Re: CSU - Constellation Software
« Reply #11 on: June 08, 2015, 09:00:31 AM »
CSU is particularly attractive relative to other PE-type companies (3G, VRX) since it can fund acquisitions almost entirely from cash flow.

Historically that has been the case, but they've started raising more long-term debt (in a pretty innovative way), and have shown more comfort with debt (see TSS acquisition).
"Most haystacks don't even have a needle." |  I'm on Twitter  | Interesting podcast (new link)

KCLarkin

  • Hero Member
  • *****
  • Posts: 1575
Re: CSU - Constellation Software
« Reply #12 on: June 08, 2015, 09:11:47 AM »
Historically that has been the case, but they've started raising more long-term debt (in a pretty innovative way), and have shown more comfort with debt (see TSS acquisition).

Yes, as they start looking at larger (lower ROI) deals they plan to use leverage to compete with private equity firms.

KCLarkin

  • Hero Member
  • *****
  • Posts: 1575
Re: CSU - Constellation Software
« Reply #13 on: June 08, 2015, 09:32:00 AM »
I agree on that level. No need to understand every single unit. But it's certainly good to understand enough of what VMS businesses do and what the dynamics are in the overall industry. There's a balance between trying to understand everything and understanding nothing...

Sure you just need to be careful:
http://greenbackd.com/2010/03/10/simoleon-sense-interviews-james-montier/

Quote
Intuition suggests that having more information should increase the accuracy of predictions about uncertain outcomes. In reality, more information decreases the accuracy of predictions while simultaneously increasing the confidence that the prediction is correct.

Certainly I would have been better off buying a full position in CSU rather than scaling in as I gathered more information.

Liberty

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 10027
  • twitter.com/libertyRPF
    • twitter.com/libertyRPF
Re: CSU - Constellation Software
« Reply #14 on: June 08, 2015, 09:37:54 AM »
I agree on that level. No need to understand every single unit. But it's certainly good to understand enough of what VMS businesses do and what the dynamics are in the overall industry. There's a balance between trying to understand everything and understanding nothing...

Sure you just need to be careful:
http://greenbackd.com/2010/03/10/simoleon-sense-interviews-james-montier/

Quote
Intuition suggests that having more information should increase the accuracy of predictions about uncertain outcomes. In reality, more information decreases the accuracy of predictions while simultaneously increasing the confidence that the prediction is correct.

Certainly I would have been better off buying a full position in CSU rather than scaling in as I gathered more information.

That's a good point. Another good point is: be careful about hindsight bias. It's easy to say "I would have been better off buying a full position in CSU rather than scaling in as I gathered more information" after things turn out well, but in many other cases, I bet taking time to get comfortable and learn more has saved you from terrible mistakes.
"Most haystacks don't even have a needle." |  I'm on Twitter  | Interesting podcast (new link)

oddballstocks

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 2128
    • Oddball Stocks Blog
Re: CSU - Constellation Software
« Reply #15 on: June 08, 2015, 10:50:55 AM »
I spent 10-15 minutes trying to figure out a way to a) contact sales, and b) buy their software.  Their treasury management software had a site where I could get a sales brochure, but that was it.  All the manufacturing ERP stuff had nothing.  Weird that there's no online presence.

I get that enterprise sales is done differently and online presence isn't as necessary.  But I wonder if they're missing an opportunity for someone to find them, verses outbound sales only.  If I were a manufacturing company looking for an ERP system I'd never find them, there's no way to do it.  Rather I'd need to sit around and wait for someone from Constellation to call and tell me about their products.

Are these guys just selling consulting services?  They build custom ERP solutions for clients?

I'm inherently skeptical of companies that try to hide what they really do.  In most cases the IP is either protected via copyright, or the IP is the people and culture.  It's hard to protect people, but it's usually done via great benefits and a nice environment.  Software IP is much easier, it's patentable etc.

I don't see what these guys are doing that's so incredible.  I mean it's hard to know what they do at all.  So either they have some secret sauce that's making clients insanely profitable via their software, yet they don't want to broadcast it to the world.  Or they have a bang up sales team that is able to sell the heck out of a standard solution, and the secrecy makes clients feel like they purchased something magical. 

I'd like to learn more about them, not so I could dissect their competitive advantage, I just want to know what they're doing!
The ultimate edge for bank investors: http://www.completebankdata.com

gary17

  • Hero Member
  • *****
  • Posts: 1116
Re: CSU - Constellation Software
« Reply #16 on: June 08, 2015, 11:05:38 AM »
Great Canadian software company focusing on a variety of vertical software markets. Been one of my faves for a few years, though I've never really talked about it here. A few people felt it deserves a thread, so let's make one!

Mark Leonard, the CEO, is in my opinion one of the best managers and capital allocators out there. His letters to shareholders (used to be quarterly, now yearly) and calls are worth checking out.

A lot of people will no doubt consider it expensive as it tends to hover in the 20-25x FCF lately, but it all depends how much you think quality is worth and what future growth/capital deployment for it is going to look like...

I can't agree more

they grew sales without issuing any shares and no debt over the last few years -  the only other companies I know that's done this is Berkshire Hathaway , and RX (Biosyent) and Xpel (Dap-U)

Gary

oddballstocks

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 2128
    • Oddball Stocks Blog
Re: CSU - Constellation Software
« Reply #17 on: June 08, 2015, 11:08:23 AM »
I made it to about page 7 in Google...I get what they do.

They simply purchase small software companies with high margins and let them just run.  There is no synergy between their portfolio.  This is essentially a fund buying into software companies.  Not that there's anything wrong with it.

Glassdoor reviews weren't all that great.  Tried to dig into a few of their products, not much out there at all. 

Questions are:
1. Can they keep finding niche software companies to buy?
2. Is part of their strategy minimizing costs on the back-end?  Wonder if they buy a company, consolidate the accounting, HR etc and boost profits that way.
3. Was growth fueled by small companies and now they face the Buffett problem?  They need larger and larger deals to move the needle.
4. Wonder if there's any plan to consolidate down their product teams across their portfolio.  Seems like a win.
5. Do they ever spin-off any of these companies?  I'd love to see financial performance before an acquisition and after.  What do they do to enhance the company?
6. What's the lifetime of a holding?  Software changes quickly and either you're investing a lot in growth or you fall by the wayside.  Wonder how long these companies contribute?

Fascinating find either way.
The ultimate edge for bank investors: http://www.completebankdata.com

magno111

  • Jr. Member
  • **
  • Posts: 56
Re: CSU - Constellation Software
« Reply #18 on: June 08, 2015, 11:12:25 AM »
I spent 10-15 minutes trying to figure out a way to a) contact sales, and b) buy their software.  Their treasury management software had a site where I could get a sales brochure, but that was it.  All the manufacturing ERP stuff had nothing.  Weird that there's no online presence.

I get that enterprise sales is done differently and online presence isn't as necessary.  But I wonder if they're missing an opportunity for someone to find them, verses outbound sales only.  If I were a manufacturing company looking for an ERP system I'd never find them, there's no way to do it.  Rather I'd need to sit around and wait for someone from Constellation to call and tell me about their products.

Are these guys just selling consulting services?  They build custom ERP solutions for clients?

I'm inherently skeptical of companies that try to hide what they really do.  In most cases the IP is either protected via copyright, or the IP is the people and culture.  It's hard to protect people, but it's usually done via great benefits and a nice environment.  Software IP is much easier, it's patentable etc.

I don't see what these guys are doing that's so incredible.  I mean it's hard to know what they do at all.  So either they have some secret sauce that's making clients insanely profitable via their software, yet they don't want to broadcast it to the world.  Or they have a bang up sales team that is able to sell the heck out of a standard solution, and the secrecy makes clients feel like they purchased something magical. 

I'd like to learn more about them, not so I could dissect their competitive advantage, I just want to know what they're doing!

The CEO tries to operate like berkshire. If you visit Berkshire website you can't learn a lot about the dozens of companies they own, it is created just for shareholders. 

CSU is the same, it is holding company with 125+ plus business, if you look for individual companies you can learn a lot. For example they bought TSS last year   http://www.totalspecificsolutions.nl/

They bought this security software in Q1  http://www.interact911.com/

They bought this one few weeks ago  https://www.optum.com/providers/clinical-performance/critical-care.html ( formely called picis )




think by yourself

berkshire101

  • Sr. Member
  • ****
  • Posts: 364
Re: CSU - Constellation Software
« Reply #19 on: June 08, 2015, 11:29:32 AM »
Did CSU really just acquired Optum?  My department is really dependent on Optum.  Optum basically manages our data and provides services for us to extract it.  Employees just go to Optum staff and say I want this done and Optum will kindly perform the request.  Really good customer service as no one really knows how to use the database with Optum's help.  So I can see the moat that Optum has. 
The key to happiness is to have low expectations.