Author Topic: CSU - Constellation Software  (Read 126741 times)

no_free_lunch

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Re: CSU - Constellation Software
« Reply #20 on: June 08, 2015, 12:57:30 PM »
The CEO is great and I owned this one in 2014 but got out way too early it appears.   

Based on the last numbers I crunched aren't they around 32x owner earnings?   Not crazy expensive, but when I bought them, the multiple was about 17.


Liberty

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Re: CSU - Constellation Software
« Reply #21 on: June 08, 2015, 01:04:59 PM »
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 )

Exactly. Nate, what you did was like going to Berkshire's website to look up Dairy Queens specials.

If you go here: http://www.csisoftware.com/our-companies/

You can see some of the operating groups, and by following with them you can learn more about the businesses within each group. But most are selling pretty niche stuff, and probably tend to go to their potential customers rather than hope for customers to come to them, so they might not have big marketing presences.

I suggest you read the letters from the CEO chronologically and listen to the calls. Good way to learn more about what they're doing and how he thinks.
« Last Edit: June 08, 2015, 01:28:32 PM by Liberty »
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KCLarkin

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Re: CSU - Constellation Software
« Reply #22 on: June 08, 2015, 01:23:07 PM »
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.

From the 2009 letter:

Quote
We have been a serial acquirer of inherently attractive small vertical market software
businesses in a large number of different verticals. We try to be competent long-term
oriented owners of these businesses. Our maintenance attrition and organic maintenance
growth numbers, coupled with our profitability suggest that we have been successful. In the
vast majority of cases, the longer we have owned a small software business, the larger and
better it has become. If we persist in this strategy (let’s call it the “many verticals” strategy),
we will continue to add new verticals and to make many more small acquisitions each year.
We’ve handled our geometric growth to date by largely abdicating management to the
general managers of each of our vertical businesses. We have a very thin overlay of
infrastructure at CSI. We count on the fact that with each new acquisition will come general
managers who are steeped in their verticals… veterans who have built industry leading
(albeit small) vertical market software businesses with great economics. Having owned more
than a hundred vertical market software businesses, we also have some best practices that we
can share. We coach the managers of our newly acquired businesses in how to grow their
businesses and make them even better. As long as we compensate these managers
appropriately, and are not tempted to meddle too much, then I think we can scale up
Constellation for many years to come.

cubsfan

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Re: CSU - Constellation Software
« Reply #23 on: June 08, 2015, 01:29:56 PM »
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.

There is OptumHealth & OptumInsight from United Healthcare - their technology sub.
OptumHealth provides data analytics to help providers control costs.

Did they buy all of Optum from UNH? That would be a big acquisition!

netnet

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Re: CSU - Constellation Software
« Reply #24 on: June 08, 2015, 01:43:16 PM »

From the 2009 letter:
 As long as we compensate these managers
appropriately, and are not tempted to meddle too much, then I think we can scale up
Constellation for many years to come.

Okay that was 6 years ago, how many more years can they do this?

With Leonard reducing his involvement as well. (As I noted on the Great Managers thread, I sure wish I had known about this 10 years ago!!).  Leonard seems quite extraordinary.  Buffett like low compensation and attentive capital allocation with a good business model, in a field, software with often poor capital allocation.

Why is the model so good. Well virtually everyone in s/w thinks that growth is the key, in these verticals heavy R&D and large salesforce is wrong.

The problem with this company now is it is 11 billion and really expensive.  Can it grow or will he dividend out?  He seems rational enough to dividend out, but the price is so high.  I have a hard time seeing this as a 50 billion dollar company in say 10 years.
« Last Edit: June 08, 2015, 02:06:15 PM by netnet »

KCLarkin

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Re: CSU - Constellation Software
« Reply #25 on: June 08, 2015, 02:03:34 PM »
From the 2014 letter:

Quote
Our confidence is growing that we can compete effectively with Private Equity firms for larger vertical market
software company acquisitions. This feels like a much bigger opportunity for capital deployment than the
market in which we've historically played, and is not a market where we can finance the “equity” portion
of transactions from our revolver.

Jurgis

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Re: CSU - Constellation Software
« Reply #26 on: June 08, 2015, 02:20:40 PM »
The concern might be that the bigger acquisitions would be less moaty, have more competition, and more problems in terms of management and culture.

The price is expensive. netnet says "I sure wish I had known about this 10 years ago". Even if you knew it 2 years ago, you would have paid 4x less than right now. That 4x runup is destroying the margin of safety whatever we think about business.

But, yeah, it could be another VRX and go to 80B... maybe...
"Before you can be rich, you must be poor." - Nef Anyo

KCLarkin

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Re: CSU - Constellation Software
« Reply #27 on: June 08, 2015, 06:07:27 PM »
The concern might be that the bigger acquisitions would be less moaty, have more competition, and more problems in terms of management and culture.

The price is expensive. netnet says "I sure wish I had known about this 10 years ago". Even if you knew it 2 years ago, you would have paid 4x less than right now. That 4x runup is destroying the margin of safety whatever we think about business.

But, yeah, it could be another VRX and go to 80B... maybe...

Most of that 4x was justified. It is only the last 8 months where it went really parabolic.

Remember VRX has issued massive amounts of stock (and debt) to get to 80B. CSU can grow market cap at a much slower rate and still provide similar per share growth.

Jurgis

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Re: CSU - Constellation Software
« Reply #28 on: June 08, 2015, 09:07:17 PM »
I am sorry, I should not have compared CSU to VRX probably. :)
"Before you can be rich, you must be poor." - Nef Anyo

loganc

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Re: CSU - Constellation Software
« Reply #29 on: June 08, 2015, 09:22:04 PM »
The concern might be that the bigger acquisitions would be less moaty, have more competition, and more problems in terms of management and culture.

The price is expensive. netnet says "I sure wish I had known about this 10 years ago". Even if you knew it 2 years ago, you would have paid 4x less than right now. That 4x runup is destroying the margin of safety whatever we think about business.

But, yeah, it could be another VRX and go to 80B... maybe...

Most of that 4x was justified. It is only the last 8 months where it went really parabolic.

Remember VRX has issued massive amounts of stock (and debt) to get to 80B. CSU can grow market cap at a much slower rate and still provide similar per share growth.

VRX has issued "massive amounts of stock" ?  Are you serious?