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General Category => Investment Ideas => Topic started by: Liberty on June 08, 2015, 07:44:42 AM

Title: CSU - Constellation Software
Post by: Liberty on June 08, 2015, 07:44:42 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...
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 08, 2015, 07:59:24 AM
Thank you, Liberty! :)

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: Phaceliacapital on June 08, 2015, 08:00:48 AM
I looked at it and saw Mark speak at the Ivey conference (which was quite the presentation...).

CSU is indeed active in vertical software, but the guy is basically running a listed private equity company right? From the material I read or heard, he almost never discloses business specifics, it's all IRR, payback periods etc.. Obviously he's very smart, but I found it difficult to determine his competitive advantage, especially at this valuation. For what it's worth, I think it's also in Giverny's portfolio..
Title: Re: CSU - Constellation Software
Post by: Liberty on June 08, 2015, 08:11:14 AM
I looked at it and saw Mark speak at the Ivey conference (which was quite the presentation...).

CSU is indeed active in vertical software, but the guy is basically running a listed private equity company right? From the material I read or heard, he almost never discloses business specifics, it's all IRR, payback periods etc.. Obviously he's very smart, but I found it difficult to determine his competitive advantage, especially at this valuation. For what it's worth, I think it's also in Giverny's portfolio..

Yep, very little about operations is disclosed, which can be a turnoff for many.

But there are so many businesses (it's not a constellation for nothing...) in so many niches that I'm not sure how they could disclose things without it it being really clunky. There are also a lot of things that you want to keep quiet for competitive reasons.

I think the competitive advantage at the corporate level is capital allocation and M&A, and at the operational level, each tiny business tends to have very little competition because they operate in niches that are too small for the big software players to care about, and they are integrated into the mission-critical parts of various businesses with customized products (back-office stuff for a cab company, a hospital, a school district, whatever), stuff that doesn't change very often, very sticky once you're in, very recurring.
Title: Re: CSU - Constellation Software
Post by: abyli on June 08, 2015, 08:16:10 AM
Listening to how Mark talks in conference call reminds me of Warren Buffett, very rational thinking. Both can convert complicated things into a few key factors, very few people can do that. Most conference calls make my brain dizzy, especially when analysts ask stupid questions and CEOs just replied back with fuzzy answers. :-)
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 08, 2015, 08:34:03 AM
Yep, very little about operations is disclosed, which can be a turnoff for many.

I have just read Leonard's last AL and I have found it very complete. With much emphasis on the performance of existing businesses, which of course is what you want to see in any company that relies heavily on M&A.

Gio
Title: Re: CSU - Constellation Software
Post by: Liberty on June 08, 2015, 08:41:38 AM
Yep, very little about operations is disclosed, which can be a turnoff for many.

I have just read Leonard's last AL and I have found it very complete. With much emphasis on the performance of existing businesses, which of course is what you want to see in any company that relies heavily on M&A.

Gio

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.
Title: Re: CSU - Constellation Software
Post by: berkshire101 on June 08, 2015, 08:44:47 AM
Amazing company and management!  I wish I bought more a while back.  Oh wells.
Title: Re: CSU - Constellation Software
Post by: KCLarkin on June 08, 2015, 08:47:37 AM
The moat of this business is very easy to understand:
- Enterprise software in general is inherently sticky (it is very difficult to replace a mission critical vendor)
- Niche businesses limit competition
- Scale advantages - bolt-on acquisitions deepen the moat
- High level of recurring revenue
- Diversified products and customer base
- Disciplined capital allocation

CSU is particularly attractive relative to other PE-type companies (3G, VRX) since it can fund acquisitions almost entirely from cash flow. The cash ROI is phenomenal. The company does not issue stock (for acquisitions or options). The company has a tiny amount of debt relative to FCF.

The CEO is exceptional. He does not take any salary, bonus, options, and pays his own travel expenses. He is one of very few CEO's who writes an annual report that is actually helpful to investors. The 10 year growth rate for EPS is 32%.

The drawbacks:
- Price is elevated. It was relatively cheap in fall 2014 but has had a big run-up
- Limits to growth? As the company grows, it will need to look at bigger acquisitions with lower ROI
- Cloud: The company will be purchasing more SaaS companies in the future. Cloud economics are much worse than traditional enterprise software.
- CEO with one foot out the door? CEO stopped taking a salary so he wouldn't feel guilty about spending more time with family. I suspect he enjoys the game so much that he will never retire.

Even though this is my favorite company, I foolishly decided to average into it and it is only 4% of my portfolio. Now the price is high enough to give me pause.
Title: Re: CSU - Constellation Software
Post by: KCLarkin on June 08, 2015, 08:52:52 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.
Title: Re: CSU - Constellation Software
Post by: Liberty 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...
Title: Re: CSU - Constellation Software
Post by: Liberty 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).
Title: Re: CSU - Constellation Software
Post by: KCLarkin 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.
Title: Re: CSU - Constellation Software
Post by: KCLarkin 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.
Title: Re: CSU - Constellation Software
Post by: Liberty 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.
Title: Re: CSU - Constellation Software
Post by: oddballstocks 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!
Title: Re: CSU - Constellation Software
Post by: gary17 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
Title: Re: CSU - Constellation Software
Post by: oddballstocks 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.
Title: Re: CSU - Constellation Software
Post by: magno111 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 )




Title: Re: CSU - Constellation Software
Post by: berkshire101 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. 
Title: Re: CSU - Constellation Software
Post by: no_free_lunch 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.
Title: Re: CSU - Constellation Software
Post by: Liberty 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.
Title: Re: CSU - Constellation Software
Post by: KCLarkin 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.
Title: Re: CSU - Constellation Software
Post by: cubsfan 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!
Title: Re: CSU - Constellation Software
Post by: netnet 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.
Title: Re: CSU - Constellation Software
Post by: KCLarkin 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.
Title: Re: CSU - Constellation Software
Post by: Jurgis 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...
Title: Re: CSU - Constellation Software
Post by: KCLarkin 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.
Title: Re: CSU - Constellation Software
Post by: Jurgis on June 08, 2015, 09:07:17 PM
I am sorry, I should not have compared CSU to VRX probably. :)
Title: Re: CSU - Constellation Software
Post by: loganc 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? 
Title: Re: CSU - Constellation Software
Post by: gary17 on June 08, 2015, 09:45:23 PM
Relative to CSU   , VRX issued massive amount of shares...

CSU
Revenue went from $165M -> $1.65B  (10x)
while share count went from 20M to 21M

VRX
Revenue went from $936M -> 8.2B (8.7x)
160M shares -> 344M
Title: Re: CSU - Constellation Software
Post by: loganc on June 08, 2015, 10:17:11 PM
Relative to CSU   , VRX issued massive amount of shares...

CSU
Revenue went from $165M -> $1.65B  (10x)
while share count went from 20M to 21M

VRX
Revenue went from $936M -> 8.2B (8.7x)
160M shares -> 344M

From what time period?  You have to recall that the statements you see prior to (roughly) late 2010 are Biovail.  The reality is that Pearson has been extremely judicious in using VRX stock to do deals.  Look at the largest deals that have been done - B&L and Salix.  Have these deals been largely facilitated by stock?  That is obviously not the case.   
Title: Re: CSU - Constellation Software
Post by: gary17 on June 08, 2015, 10:22:41 PM
http://financials.morningstar.com/ratios/r.html?t=VRX&region=USA&culture=en_US

They also continue to have a lot of debt.
CSU used no debt
Title: Re: CSU - Constellation Software
Post by: loganc on June 08, 2015, 10:34:17 PM
http://financials.morningstar.com/ratios/r.html?t=VRX&region=USA&culture=en_US

They also continue to have a lot of debt.
CSU used no debt

Yes, Pearson has primarily used debt to fund the purchase of businesses for the benefit of equity holders.  That is my point.

Look, I am not trying to say VRX is better or worse than CSU.  I have stated previously that I think Leonard is amazing.  My point is that it really grates on me that people will make flippant claims that Pearson is flagrantly issuing a bunch of equity to do deals.  That is simply not true. 
Title: Re: CSU - Constellation Software
Post by: gary17 on June 08, 2015, 10:56:24 PM
Thanks.

Agreed.

I own 1 share of CSU because I am hesitant to pull the trigger.  Please some one tell me not buying now is like not buying BRK A at $500
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 08, 2015, 11:10:07 PM
Interesting article from last year.

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 08, 2015, 11:32:32 PM
I have two questions for people who are knowledgeable about CSU:
1)   In Table 3 of the 2014 AL we can see a column “Cash Flow from Operating Activities per Share”. Last year number was $16.11, and it has grown at a CAGR of 39% during the last 10 years. Immediately below that table Leonard writes:
Quote
In assessing CSI’s value, it is tempting to look at cash flows after tax, interest and capex as the “real” return on shareholders’ capital.
So, here is my first question: is “Cash Flow from Operating Activities per Share” on Table 3 cash flow after tax, interest and capex, or before them? If before, does anyone know the number per share after tax, interest and capex?
2)   My second question is relative to the size of CSU’s market: does anyone know the size of their market for new acquisitions?

Thank you very much! :)

Gio
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 09, 2015, 01:23:01 AM
CSU is in my “sweet spot” today:
1)   Leonard is not yet 60;
2)   He has a proven and amazing track record;
3)   Though not sure yet, I guess an $11 billion market cap is still very small if compared to its market;
4)   Software is an industry that will keep growing for a long time;
5)   Valuation:

“Cash Flow from Operating Activities” in 2014 has been $16.11 and has grown at a CAGR of 39% for the last 10 years. Now, that number simply is Net cash flows from operating activities divided by the number of shares outstanding. And it includes Income taxes paid, but excludes Interest paid and Property and equipment purchased. Which together have been 7.8% (8%) of Net cash flows from operating activities. This leads me to believe that what Leonard calls cash flow after tax, interest, and capex should have been $16.11 x 0.92 = $14.82 in 2014.
Now, let’s suppose it grows 30% this year, and the 2015 number gets to be: $14.82 x 1.3 = $19.27.
It means CSU is selling for a multiple of $531 / $19.27 = 27.6 x FCF.
Let’s also suppose FCF grows at a CAGR of 20% for the next 10 years: 10 years from now it will be $119.32 per share.
And let’s suppose 10 years from now CSU’s multiple has contracted from 27.6x to 20x: its share price will be $119.32 x 20 = $2,386.4.
If it actually goes from $531 today to $2,386.4 ten years from now, a CAGR of 16.2% will be achieved.

This valuation assumes an annual growth in FCF per share which is 50% what it has been on average during the last 10 years, and a 27.5% contraction in the multiple CSU is selling for today.

Therefore, imo the only question that remains is the following: is CSU’s market for new acquisitions large enough to make FCF per share grow at a CAGR of 20% for the next 10 years?

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: abyli on June 09, 2015, 04:12:42 AM
Gio:

Your calculation is wrong. CSU reports in US $, stock trading in Canada $, that is a difference of 24%.

Bing
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 09, 2015, 04:27:08 AM
Gio:

Your calculation is wrong. CSU reports in US $, stock trading in Canada $, that is a difference of 24%.

Bing

Ok... Thank you! :-[

Even better, don't you think? Is it therefore trading at a FCF multiple of 27.6 x (1 - 0.24) = 21?!... Am I right now?... Why do people say it is so much expensive then? ???

Gio
Title: Re: CSU - Constellation Software
Post by: gary17 on June 09, 2015, 05:19:43 AM
Would be good if people with skills can do a DCF analysis to estimate the intrinsic valuation !
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 09, 2015, 05:24:29 AM
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.

Ok... I guess this answers my question, doesn't it? ;)

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 09, 2015, 05:40:19 AM
Would be good if people with skills can do a DCF analysis to estimate the intrinsic valuation !

Well, it all depends on the future CAGR of FCF, doesn’t it? That’s what I have tried to do… though, of course, I am not knowledgeable about CSU yet! ;)

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: ap1234 on June 09, 2015, 07:02:10 AM
Gio,

I’ve been a shareholder for a while. It is a wonderful business. Mark Leonard is a very saavy capital allocator and he has a talented team of (relatively young) managers who run the different divisions. The decentralized business model and incentive structure are brilliant.

If you’re going to try and value the business, a good starting point is looking at adjusted net income (GAAP reported earnings are skewed by the non-cash amortization charges). You can look at the company’s historical record in their President’s Letters.

To value the business, I don’t think it’s as simple as saying that adjusted EPS grew at 40%/year so just slash it in half and grow it by 20%/year for the next decade. That is no easy feat! If you’re going to grow FCF/share at 20%/year, you should probably work backwards to see what is being implied in those growth rates.

For example, let’s assume that CSU has organic growth of 5%/annum over the next decade (this is not a simple task). That still leaves 15%/year of acquisition growth (assuming no margin expansion). Clearly, as you scale up the top line, you need to do significantly more deals (or fewer VERY large deals) to maintain the same growth rate.

You will need to make reasonable assumptions about the average deal size, # of deals, acquisition multiples, how much debt will be employed, terminal operating margin, etc.

Go out to Year 10 and look at the revenues in your model and ask yourself how many deals were implied to get there and whether that was a reasonable run rate. As you start walking through this exercise, I suspect you will find that 20%/share CAGR for the next decade (while very possible) is certainly not an easy task.

I think it's also a worthwhile reading the President's Letter in 2013. On pg. 4-5 of the letter, Mark discusses some of the different drivers of CSU's intrinsic value and provides some sensitivity analysis. 

I hope this helps as a starting point in your valuation exercise.
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 09, 2015, 07:26:23 AM
Go out to Year 10 and look at the revenues in your model and ask yourself how many deals were implied to get there and whether that was a reasonable run rate. As you start walking through this exercise, I suspect you will find that 20%/share CAGR for the next decade (while very possible) is certainly not an easy task.

It is no easy task to build a CAD11 billion market cap company either, is it? ;)

Those kinds of hypothesis are imo too difficult and I suspect that even for knowledgeable people in the software industry are nothing more that educated guesses… But of course I am reading all Leonard’s letters! And I hope to gain some useful hindsight! ;)

By the way, are you planning to hold your investment in CSU, increase it, or sell it?

In other words, at a multiple of 21x FCF do you think CSU is fairly valued, undervalued, or overvalued?

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 09, 2015, 08:22:15 AM
What I mean is that usually when I find a great entrepreneur, in a good business, at a fair price, I am satisfied and I invest my firm’s free cash. Then I concentrate on generating more free cash to buy more of the same!

Therefore:

Is Leonard a great entrepreneur? I think the answer is yes. And he is still young enough.

Is he in a good business? I think software is an industry that will grow for many years to come and in the article I have posted Leonard says at CSU they have a list of 10,000 possible acquisition candidates! It is hard to believe they might run out of options soon… Therefore, I think the answer is once again yes.

Is CSU stock price fair? If I am correct it is selling for 21x FCF, I don’t even see a meaningful multiple contraction from the current level… And it all depends on how CSU will perform in the future: a 5% organic growth + a 10% growth from acquisitions and CSU might turn out to be a very satisfying investment 10 years from now. Those imo are not easy goals, bet certainly not impossible either.

I think I am reading all Leonard’s letter, and then I am pulling the trigger… And go back to my businesses to generate more free cash! ;)

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: KCLarkin on June 09, 2015, 10:23:12 AM
Why do people say it is so much expensive then? ???

Oops, I accidentally used CAD not USD stock price in my model for 2015. I need to re-run my numbers. The multiple is still high relative to the historical multiple but not as bad as I thought.
Title: Re: CSU - Constellation Software
Post by: netnet on June 09, 2015, 11:02:27 AM
Quote
I think it's also a worthwhile reading the President's Letter in 2013. On pg. 4-5 of the letter, Mark discusses some of the different drivers of CSU's intrinsic value and provides some sensitivity analysis.
Thanks for the heads up.  I missed the implication of this when I read it the first time.  Basically, Leonard found that a year ago the company was trading at a fair price with little margin of safety!  So, given the growth, say 30% then a fair price would be on the order of 320-350 as an entry.

Quote
“Cash Flow from Operating Activities” in 2014 has been $16.11 and has grown at a CAGR of 39% for the last 10 years. Now, that number simply is Net cash flows from operating activities divided by the number of shares outstanding. And it includes Income taxes paid, but excludes Interest paid and Property and equipment purchased. Which together have been 7.8% (8%) of Net cash flows from operating activities. This leads me to believe that what Leonard calls cash flow after tax, interest, and capex should have been $16.11 x 0.92 = $14.82 in 2014.
Now, let’s suppose it grows 30% this year, and the 2015 number gets to be: $14.82 x 1.3 = $19.27.
It means CSU is selling for a multiple of $531 / $19.27 = 27.6 x FCF.
Let’s also suppose FCF grows at a CAGR of 20% for the next 10 years: 10 years from now it will be $119.32 per share.
And let’s suppose 10 years from now CSU’s multiple has contracted from 27.6x to 20x: its share price will be $119.32 x 20 = $2,386.4.
If it actually goes from $531 today to $2,386.4 ten years from now, a CAGR of 16.2% will be achieved.

This valuation assumes an annual growth in FCF per share which is 50% what it has been on average during the last 10 years, and a 27.5% contraction in the multiple CSU is selling for today.

Therefore, imo the only question that remains is the following: is CSU’s market for new acquisitions large enough to make FCF per share grow at a CAGR of 20% for the next 10 years?

Gio,  I used a similar model as yours, but I assumed a 50% multiple contraction, which makes the return below my hurdle.  (Ironically, I also was reading a study on the poor performance of glamor stocks versus cheap value stocks.  We know the ending--a basket of cheap value beats glamor, but you always hope to find the younger Buffett with a sustainable business model.)
Title: Re: CSU - Constellation Software
Post by: Liberty on June 09, 2015, 01:04:12 PM
Thanks for the heads up.  I missed the implication of this when I read it the first time.  Basically, Leonard found that a year ago the company was trading at a fair price with little margin of safety!  So, given the growth, say 30% then a fair price would be on the order of 320-350 as an entry.

Don't forget FX.
Title: Re: CSU - Constellation Software
Post by: Jurgis on June 09, 2015, 01:07:52 PM
Assuming US$16-19 FCF, discount rate of 15%, you need about 20% growth for 10 years to justify current price US$ price. FWIW.
Title: Re: CSU - Constellation Software
Post by: ap1234 on June 09, 2015, 02:49:31 PM
Netnet,

I should have been clearer in my previous post. I referenced the discussion from the 2013 President’s Letter as it provides important clues on how to think about the drivers of CSU’s intrinsic value. I was trying to caution Gio that 20% FCF/share growth over the next 10 years is not a simple feat.

That said, I wouldn’t necessarily rely on Mark’s value of the business either. He is an incredible investor with a phenomenal track record. But he has historically undervalued his own business. At various points in CSU's history, you could have asked him about the value of his own business and he would have suggested there wasn’t sufficient margin of safety to invest. 


Title: Re: CSU - Constellation Software
Post by: giofranchi on June 09, 2015, 11:39:59 PM
Gio,  I used a similar model as yours, but I assumed a 50% multiple contraction, which makes the return below my hurdle.  (Ironically, I also was reading a study on the poor performance of glamor stocks versus cheap value stocks.  We know the ending--a basket of cheap value beats glamor, but you always hope to find the younger Buffett with a sustainable business model.)

Well, I don’t know what’s your definition of a “glamorous stock”… But mine certainly doesn’t apply to a company which didn’t even have a thread on this board until a couple days ago! ;)

And my valuation was wrong, like abyli justly pointed out: today’s FCF multiple is 21x, and if you assume a 50% contraction in that multiple, you are implying the fair valuation for a business which grows FCF at a CAGR of 15%-20% to be a multiple of 10x FCF… Which obviously makes no sense.

From a philosophical point of view: you might be right that it could be financially more rewarding to constantly change your portfolio of businesses from stocks that are no longer cheap to stocks that have become cheap, and so on over and over again. But I find deeply satisfying my everyday job of managing a couple of businesses (hopefully more in the future!), and don’t have the time nor the inclination to constantly scan thousands of stocks in search of the cheapest… Therefore, I have only one option left to invest my firm’s free cash: to look for a great entrepreneur, in a good business, which I could buy at a fair price. And then let him/her do what he/she does best. This imo has nothing to do with the “vain” hope of finding the next Buffett!

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 10, 2015, 12:09:58 AM
I was trying to caution Gio that 20% FCF/share growth over the next 10 years is not a simple feat.

ap1234,
I have got the message, thank you! ;)

But you haven’t answered my question: do you think with a CAGR of 15% in FCF CSU might turn out to be a good investment still 10 years from now? And do you think a 5% annual organic growth + a 10% annual growth from acquisitions could be achieved?

Also, do you have an idea of how large is CSU’s market for new acquisitions? I find THIS single piece of information much more useful than any scenario I might try to conceive by myself: for instance, when I get to know that an $80 billion market cap company like VRX has a market for new acquisitions made up by $6.5 trillion of private + public companies, well that gives me comfort they are not running out of options anytime soon!
So, how do CSU and its market for new acquisitions compare?

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 10, 2015, 12:15:09 AM
The multiple is still high relative to the historical multiple but not as bad as I thought.

I get to a multiple of 21x FCF. Which multiple of FCF do you think might represent FV for a company that grows FCF at a CAGR of 15%-20%?

Gio
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 10, 2015, 12:23:48 AM
Assuming US$16-19 FCF, discount rate of 15%, you need about 20% growth for 10 years to justify current price US$ price. FWIW.

Of course to use a discount rate of 15% means you’ll get a return of 15% compounded annual. I invest wherever I see the “possibility” to get such a return, hoping that, if something goes wrong, I could still get a “minimum return” of 9%-10% compounded annual. It is not the “possibility” but the “minimum return” which I use as discount rate in a DCF analysis.

Gio
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 10, 2015, 04:46:47 AM
Also, do you have an idea of how large is CSU’s market for new acquisitions? I find THIS single piece of information much more useful than any scenario I might try to conceive by myself: for instance, when I get to know that an $80 billion market cap company like VRX has a market for new acquisitions made up by $6.5 trillion of private + public companies, well that gives me comfort they are not running out of options anytime soon!
So, how do CSU and its market for new acquisitions compare?

Liberty,
any idea?

Thank you!

Gio
Title: Re: CSU - Constellation Software
Post by: DCG on June 10, 2015, 05:21:07 AM
I have a hard time valuing this company anywhere close to $10B. For comparison, a work for a software company with comparable sales and net income, with a pretty strong moat, that is currently valued at $2B.
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 10, 2015, 05:30:07 AM
I have a hard time valuing this company anywhere close to $10B. For comparison, a work for a software company with comparable sales and net income, with a pretty strong moat, that is currently valued at $2B.

Mmm... In my valuation I suppose a FCF annual growth of 15%-20%, made by the sum of 5% organic growth and 10%-15% growth from acquisitions. If your company grows 5% organically, thanks to the strong moat you believe it has, it might still be far from the growth I suppose CSU could sustain for the next 10 years.

Gio
Title: Re: CSU - Constellation Software
Post by: Liberty on June 10, 2015, 05:35:08 AM
I have a hard time valuing this company anywhere close to $10B. For comparison, a work for a software company with comparable sales and net income, with a pretty strong moat, that is currently valued at $2B.

Maybe there's a deal to be made :)

http://www.csisoftware.com/about-us/being-acquired/
Title: Re: CSU - Constellation Software
Post by: ragu on June 10, 2015, 07:07:43 AM
But he has historically undervalued his own business. [...]

ap1234,

I am not sure the evidence supports it. Sure, the tone in the letters suggest caution re. the stock. However, I expect that comes from a desire (oft-stated too) to keep his current shareholder base mostly intact i.e. the price is at a level that potentially allows for continuing attractive returns.

I can see your case if he'd actually issued stock for acquisitions at some point, but seeing as he hasn't...

FWIW, I do think Mr. Market is not pricing in the risk of a big acquisition running into trouble. Given the lack of historical precedence here with respect to transactions of size, I am not sure this is warranted.

I will pass on price, even if the rest of the pieces look as if they are well in place.

Best,
Ragu
Title: Re: CSU - Constellation Software
Post by: Liberty on June 10, 2015, 07:16:40 AM
But he has historically undervalued his own business. [...]

ap1234,

I am not sure the evidence supports it. Sure, the tone in the letters suggest caution re. the stock. However, I expect that comes from a desire (oft-stated too) to keep his current shareholder base mostly intact i.e. the price is at a level that potentially allows for continuing attractive returns.

I can see your case if he'd actually issued stock for acquisitions at some point, but seeing as he hasn't...

FWIW, I do think Mr. Market is not pricing in the risk of a big acquisition running into trouble. Given the lack of historical precedence here with respect to transactions of size, I am not sure this is warranted.

I will pass on price, even if the rest of the pieces look as if they are well in place.

Best,
Ragu

Leonard doesn't believe in issuing stock or doing buybacks, he says that this gives an advantage to insiders and he finds it somewhat immoral. That's why his managers don't get stock options, but instead they have to buy stock in the open market with a % of their compensation and they can't sell it for a certain number of years.

He also doesn't want his stock to become too pricey because his managers own a lot of it, and he doesn't want them to cash out and retire, so he tends to talk his stock down when he can.
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 10, 2015, 07:21:49 AM
FWIW, I do think Mr. Market is not pricing in the risk of a big acquisition running into trouble. Given the lack of historical precedence here with respect to transactions of size, I am not sure this is warranted.

I agree. If a big acquisition runs into trouble, they won’t achieve a 15% CAGR in FCF.

Though, I would say that platform companies like VRX, TDG, and CSU are very focused on just one industry (pharmaceutical, aerospace, software), and they therefore stay very much within their so-called circle of competence. This of course imo lowers the risk of a major mistake.

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: Jurgis on June 10, 2015, 08:54:50 AM
Assuming US$16-19 FCF, discount rate of 15%, you need about 20% growth for 10 years to justify current price US$ price. FWIW.

If you use 10% discount rate, you need about 12-14% growth for 10 years to justify current price.
Title: Re: CSU - Constellation Software
Post by: KCLarkin on June 10, 2015, 09:07:33 AM
The multiple is still high relative to the historical multiple but not as bad as I thought.

I get to a multiple of 21x FCF. Which multiple of FCF do you think might represent FV for a company that grows FCF at a CAGR of 15%-20%?

Gio

Gio, I use a slightly different methodology:

2014 Cash EPS (Net Income + Amortization) = 13.04
Assume 25% EPS growth
2015 Cash EPS =  16.31
2015 PE = 26

FCF / Cash EPS has fluctuated above and below 1, so over time they will converge. Last year, FCF was 1.19x Cash EPS. It is not unreasonable to assume that Cash EPS will rise to meet FCF. Also, my growth forecast may be too low. So I think it is probably in a range of 20-25x 2015E.

20x is certainly reasonable for a compounding machine, assuming the moat is durable. However, there are two factors that cause some short term valuation risk:
- CSU has historically traded at much lower multiples (even in the single digits)
- Open Text, which is a reasonable comp, has typically traded at 15x

Over 10 years, you will certainly do well. Over 5 years, there is some valuation risk. The nice thing about CSU is that if industry multiples do contract, they will be able to make acquisitions with even higher ROI.

Title: Re: CSU - Constellation Software
Post by: magno111 on June 10, 2015, 10:27:31 AM
The multiple is still high relative to the historical multiple but not as bad as I thought.

I get to a multiple of 21x FCF. Which multiple of FCF do you think might represent FV for a company that grows FCF at a CAGR of 15%-20%?

Gio

Gio, I use a slightly different methodology:

2014 Cash EPS (Net Income + Amortization) = 13.04
Assume 25% EPS growth
2015 Cash EPS =  16.31
2015 PE = 26

FCF / Cash EPS has fluctuated above and below 1, so over time they will converge. Last year, FCF was 1.19x Cash EPS. It is not unreasonable to assume that Cash EPS will rise to meet FCF. Also, my growth forecast may be too low. So I think it is probably in a range of 20-25x 2015E.

20x is certainly reasonable for a compounding machine, assuming the moat is durable. However, there are two factors that cause some short term valuation risk:
- CSU has historically traded at much lower multiples (even in the single digits)
- Open Text, which is a reasonable comp, has typically traded at 15x

Over 10 years, you will certainly do well. Over 5 years, there is some valuation risk. The nice thing about CSU is that if industry multiples do contract, they will be able to make acquisitions with even higher ROI.

Remember they report in USD  but it is traded on CAD. IF they hit 17$USD  in 2015 that is equal to 21$CAD cash EPS
Title: Re: CSU - Constellation Software
Post by: KCLarkin on June 10, 2015, 10:59:13 AM
True but I am using USD for the price.
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 10, 2015, 11:14:50 PM
20x is certainly reasonable for a compounding machine, assuming the moat is durable. However, there are two factors that cause some short term valuation risk:
- CSU has historically traded at much lower multiples (even in the single digits)
- Open Text, which is a reasonable comp, has typically traded at 15x

I agree. And that’s why I am opening a position, leaving much room to average down (like I almost always do!).

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 11, 2015, 12:12:15 AM
Also, do you have an idea of how large is CSU’s market for new acquisitions? I find THIS single piece of information much more useful than any scenario I might try to conceive by myself: for instance, when I get to know that an $80 billion market cap company like VRX has a market for new acquisitions made up by $6.5 trillion of private + public companies, well that gives me comfort they are not running out of options anytime soon!
So, how do CSU and its market for new acquisitions compare?

Liberty,
any idea?

Thank you!

Gio

Liberty,
you are unusualy quiet about the future prospects of this company...

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: Liberty on June 11, 2015, 05:25:39 AM
Also, do you have an idea of how large is CSU’s market for new acquisitions? I find THIS single piece of information much more useful than any scenario I might try to conceive by myself: for instance, when I get to know that an $80 billion market cap company like VRX has a market for new acquisitions made up by $6.5 trillion of private + public companies, well that gives me comfort they are not running out of options anytime soon!
So, how do CSU and its market for new acquisitions compare?

Liberty,
any idea?

Thank you!

Gio

Liberty,
you are unusualy quiet about the future prospects of this company...

Cheers,

Gio

(http://www.valuewalk.com/wp-content/uploads/2013/05/Charlie-Munger.jpg)

I have nothing to add.
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 11, 2015, 05:30:00 AM
Ahahahah!!!!

 ;)

Gio
Title: Re: CSU - Constellation Software
Post by: netnet on June 11, 2015, 12:13:45 PM



(http://www.valuewalk.com/wp-content/uploads/2013/05/Charlie-Munger.jpg)

I have nothing to add.

 ;D

+1
Title: Re: CSU - Constellation Software
Post by: FiveSigma on June 11, 2015, 02:39:56 PM
Liberty is silently counting his CSU shares and smiling.
Title: Re: CSU - Constellation Software
Post by: Liberty on June 11, 2015, 05:01:03 PM
Liberty is silently counting his CSU shares and smiling.

I don't want to give the impression that I've been in since the IPO or  anything... But so far I'm satisfied with the investment, and I'm glad I made it a big position. Tomorrow could be different...
Title: Re: CSU - Constellation Software
Post by: loganc on June 11, 2015, 09:09:23 PM
Liberty is silently counting his CSU shares and smiling.

I don't want to give the impression that I've been in since the IPO or  anything... But so far I'm satisfied with the investment, and I'm glad I made it a big position. Tomorrow could be different...

I wonder if you could provide thoughts about the impact of Leonard ostensibly stepping back from the business to some extent.  He made mention of this on a recent call.  I am not sure if you commented about it earlier in the thread.   
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 12, 2015, 12:22:46 AM
I wonder if you could provide thoughts about the impact of Leonard ostensibly stepping back from the business to some extent.  He made mention of this on a recent call.  I am not sure if you commented about it earlier in the thread.   

All I have heard him saying is he would like to “spend more time with his family”… Given the fact his job imo requires more stability, rationality, and self-control, than very long hours at the office, I’d dare to suggest such a development could even be beneficial to CSU future business results! ;)

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: KCLarkin on June 12, 2015, 07:23:39 AM
Gio, found the chart here:
https://www.scribd.com/fullscreen/264532293?access_key=key-efu1kxR1RPc9rJDDeWNm&allow_share=true&escape=false&view_mode=scroll

I'm not sure how accurate it is but seems to indicate a large potential pool of acquisitions.
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 12, 2015, 07:34:57 AM
Gio, found the chart here:
https://www.scribd.com/fullscreen/264532293?access_key=key-efu1kxR1RPc9rJDDeWNm&allow_share=true&escape=false&view_mode=scroll

I'm not sure how accurate it is but seems to indicate a large potential pool of acquisitions.

Thank you very much! :)
This helps a lot!

Btw, I have just opened a 9% position.
And I will gladly average down whenever the multiple CSU is selling for contracts.

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: abyli on June 12, 2015, 07:55:03 AM
Welcome to CSU! I feel this is the best company I have ever seen, that is why pinged you a few days ago! Now let's hope the market crash. :)

Bing
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 13, 2015, 03:10:15 AM
Welcome to CSU! I feel this is the best company I have ever seen, that is why pinged you a few days ago! Now let's hope the market crash. :)

Bing

Yeah!... If a market crash is around the corner, CSU multiple will probably get cut in half... But... For what I have read, Leonard is litteraly praying for another 2008-2009... And I would say this company should be able to grow much faster in a very volatile environment than if this muddle through scenario goes on.

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: Liberty on June 13, 2015, 06:21:42 AM
Welcome to CSU! I feel this is the best company I have ever seen, that is why pinged you a few days ago! Now let's hope the market crash. :)

Bing

Yeah!... If a market crash is around the corner, CSU multiple will probably get cut in half... But... For what I have read, Leonard is litteraly praying for another 2008-2009... And I would say this company should be able to grow much faster in a very volatile environment than if this muddle through scenario goes on.

Cheers,

Gio

A downturn might help, but Leonard has said that he was surprised at how few VMS companies were distressed in 2008-2009, so in a lesser downturn than that, the bargain hunting probably wouldn't be all that exceptional. On the other hand, it means that the VMS businesses that they already have probably won't suffer as much as companies in other industries, so the defensive posture is solid.
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 15, 2015, 12:44:08 AM
On the other hand, it means that the VMS businesses that they already have probably won't suffer as much as companies in other industries, so the defensive posture is solid.

Yes, of course!
Anyway, this is what Leonard had to say during Q1 2015 conference call:
Quote
If we get another ’07 or ’08, we hope that we will be buying willy-nilly and if we get a bubble then one hopes to be out of the market entirely.
And I would also argue that the next downturn might probably be for technology more like 2001-2002 than 2007-2008.

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 17, 2015, 06:47:24 AM
Constellation Software’s Harris Division completes the acquisition of Picis

http://www.csisoftware.com/2015/06/constellation-softwares-harris-division-completes-the-acquisition-of-picis/


Gio
Title: Re: CSU - Constellation Software
Post by: oddballstocks on June 17, 2015, 07:00:35 AM
On the other hand, it means that the VMS businesses that they already have probably won't suffer as much as companies in other industries, so the defensive posture is solid.

Yes, of course!
Anyway, this is what Leonard had to say during Q1 2015 conference call:
Quote
If we get another ’07 or ’08, we hope that we will be buying willy-nilly and if we get a bubble then one hopes to be out of the market entirely.
And I would also argue that the next downturn might probably be for technology more like 2001-2002 than 2007-2008.

Cheers,

Gio

I don't think it'll be like either.  We're always looking forward thinking it'll be the same as the past.  In Zero to One by Thiel (loved the book by the way) he talks about how the past tech crisis has colored all of the market.  He presents some compelling arguments that I agree with.

Here's what you'll see in a downturn.  Companies trying to re-negotiate their pricing if it's a subscription service.  Some companies will cancel.

My experience in this space is that a downturn isn't "bad".  It's what happens after.  In 2008 what we saw in tech was companies preferred to contract for employees rather than hire.  Companies wanted IT solutions rather than people.  There was a consulting boom building new systems.  Once these systems are built or in place they aren't thrown you.  Software is one of the most incredible lock ins there is.

What could happen though is reduced demand after the recession as companies are afraid to buy a system.
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 17, 2015, 07:12:02 AM
Software is one of the most incredible lock ins there is.

Yeah! Mine was just a comment based on the fact the frothiness we see in tech today might be closer to what it was in 1999-2000 than in 2006-2007…
Anyway, thank you! :)

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: oddballstocks on June 17, 2015, 08:08:27 AM
Software is one of the most incredible lock ins there is.

Yeah! Mine was just a comment based on the fact the frothiness we see in tech today might be closer to what it was in 1999-2000 than in 2006-2007…
Anyway, thank you! :)

Cheers,

Gio

Frothy on what though?  Sure the consumer stuff is out there, the ubers and all.  But in the enterprise space (where the real money is made) it seems to be business as usual.  If things do pop I'm sure there will be thousands of websites ending with -ly that go under.  But the stalwarts who've entrenched themselves in the enterprise space will not.

I run my business on Quickbooks (I hate it) downloaded to my laptop.  There are some SaaS solutions out there.  I'm not using any.  Why?  What happens if one of them suddenly disappears.  I want to run my core accounting on a package that I own.  If Quickbooks goes under I can still run the program and I don't lose any data.  When you go SaaS your data is now living somewhere else, that's a risk that needs to be mitigated somehow.

I'm encouraged by the changes we're seeing in tech.  We're starting to realize some of the dreams we had 20 years ago, they're possible now.  But there is a lot of hype for some, and my gut says we're going to see a lot of acquisitions for the real game changers.  You get a company like IBM looking to grow, they're not going to develop new things, they just don't, that's not their culture.  But they buy the new changes, they go out and buy an innovative company and then essentially establish that this new thing isn't going away because they have IBM's backing.

Maybe I'm just talking in circles, I don't know. 

Title: Re: CSU - Constellation Software
Post by: giofranchi on June 17, 2015, 08:14:38 AM
There are some SaaS solutions out there.  I'm not using any.  Why?  What happens if one of them suddenly disappears.  I want to run my core accounting on a package that I own.  If Quickbooks goes under I can still run the program and I don't lose any data.  When you go SaaS your data is now living somewhere else, that's a risk that needs to be mitigated somehow.

So, have you a negative view on businesses that offer SaaS solutions? CSU owns lots of them, if I am not mistaken.

Gio
Title: Re: CSU - Constellation Software
Post by: oddballstocks on June 17, 2015, 08:23:28 AM
There are some SaaS solutions out there.  I'm not using any.  Why?  What happens if one of them suddenly disappears.  I want to run my core accounting on a package that I own.  If Quickbooks goes under I can still run the program and I don't lose any data.  When you go SaaS your data is now living somewhere else, that's a risk that needs to be mitigated somehow.

So, have you a negative view on businesses that offer SaaS solutions? CSU owns lots of them, if I am not mistaken.

Gio

I sound like an economist...it depends.  I own a SaaS business, so clearly I'm not that negative.  My business is a little different in that I'm providing a research solution and tools online vs replacing a company's core accounting system.

I use a GPS watch for running, it uploads my runs to Garmin.  I like looking at the reports on there, but in the back of my mind I view it as a throwaway, eventually this data will somehow disappear.  Compare that to the fact that I have zip files of all of my documents dating back to the 1990s including emails.  Why I have it, I don't know, but I can pull back an email I sent my brother in 1999.  Whereas the online stuff I was using back then is lost now.

Large companies are all still in-house.  I've seen a lot of projects around cloud integration.  Building connectors between the cloud and local systems.  But I haven't heard of a large company ditching their core systems for a cloud solution.  Maybe it's happening somewhere, not sure.

Many smaller companies don't need to manage an inhouse system though.  That's where SaaS shines.  Something like Salesforce is perfect for a small manufacturing company.  They can get a great CRM product and not have to deal with any maintenance or support, it's hosted for them.  Their data is hostage, but that's the trade-off.
Title: Re: CSU - Constellation Software
Post by: Liberty on June 17, 2015, 08:30:29 AM
There are some SaaS solutions out there.  I'm not using any.  Why?  What happens if one of them suddenly disappears.  I want to run my core accounting on a package that I own.  If Quickbooks goes under I can still run the program and I don't lose any data.  When you go SaaS your data is now living somewhere else, that's a risk that needs to be mitigated somehow.

So, have you a negative view on businesses that offer SaaS solutions? CSU owns lots of them, if I am not mistaken.

Gio

Mark Leonard has said multiple times that he doesn't think the economics of SaaS are as good as perpetual license software + maintenance in his VMS niches, but that many of his customers demand it, and they're providing it in many cases.

One of the downsides of SaaS is psychological; you don't have a big upfront cost, so you don't feel as tied to it (smaller sunk cost), you just pay your monthly or quarterly bill... But if you pay a lot of money on day 1 for expensive software (especially customized), you'll want to get your money's worth, so you'll likely keep using it for a while (and pay maintenance fees).

If you're a large bank or whatever, SaaS probably doesn't interest you too much because your data is sensitive and you already have internal IT capabilities. But if you're a small operation, chances are that you'll gladly outsource all that IT stuff to someone else, which makes SaaS attractive.
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 17, 2015, 08:38:32 AM
oddballstocks, Liberty, thank you! :)

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: gary17 on June 20, 2015, 11:35:50 AM
Liberty, Gio or anyone else
I am wondering if you are familiar with CSU's competitors and CSU's competitive advantage....  CSU now earns a high ROE - let's assume no growth  for a minute - how would investors evaluate whether they can continue to fight off competitors and maintain this high return ?
Title: Re: CSU - Constellation Software
Post by: KCLarkin on June 20, 2015, 11:51:02 AM
Gary, they have various competitors and I don't think that is the right way to look at the business. For BRK, you could look at See's or Geico's or BNSF competitors but it wouldn't tell you much given the diversification.

If you look at table 2 in the 2014 president's letter, they show organic growth. If that starts going negative, you should be concerned.
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 20, 2015, 12:17:46 PM
Gary, they have various competitors and I don't think that is the right way to look at the business. For BRK, you could look at See's or Geico's or BNSF competitors but it wouldn't tell you much given the diversification.

If you look at table 2 in the 2014 president's letter, they show organic growth. If that starts going negative, you should be concerned.

I agree!
What I liked right away about Leonard is his very clear way of talking about existing businesses, and therefore his focus on organic growth results.

I think an easy and clear view on organic growth is simply essential to make an investment in any business which makes lots of acquisitions. Actually, I have often said the lack of an easy way to judge organic growth has been the reason I decided to watch VRX from the sidelines for a while.

With CSU I have never had this problem! ;)

In 10 days more cash comes in, and I am buying more CSU.

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 24, 2015, 06:40:38 AM
Just bought more! ;)

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: gary17 on June 24, 2015, 04:43:41 PM
Gio / Liberty
I wonder if you have a # in mind for CSU's intrinsic valuation ... do you see a margin of safety of at least 50% at current prices ?

Title: Re: CSU - Constellation Software
Post by: rukawa on June 24, 2015, 08:39:10 PM
I feel like the assumptions needed to justify the price are fairly aggressive. Its basically trading at 422/16.5=25 time current operating cash flow. Its not cheap.

Title: Re: CSU - Constellation Software
Post by: Schwab711 on June 24, 2015, 09:04:07 PM
Has anyone subscribed to any of the debenture offerings? Are the debentures issued in the past traded at all? Has anyone sold their rights?

Looks like guaranteed money since it's CAD2.73 (10.5 rights) to be able to buy CAD100 debenture for CAD95 (8.5% first 9 months then 6.5% + CA CPI after).

http://www.csisoftware.com/2015/03/constellation-software-inc-announces-rights-offering-of-debentures-2/
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 24, 2015, 11:52:13 PM
Gio / Liberty
I wonder if you have a # in mind for CSU's intrinsic valuation ... do you see a margin of safety of at least 50% at current prices ?

$16.11 per share is 2014 operating cash flow. If you subtract interest and capex, you get $14.82 per share of FCF. Let’s suppose operating cash flow per share, and therefore also FCF per share, in 2015 grow in line with their growth rate of the last few years, let’s say 30% (ANI has already grown 40% in Q1 2015). Then, 2015 FCF per share might be $19.27.
Today’s multiple is $422 / $19.27 = 22x 2015 FCF.

Now, let’s suppose CSU grows FCF at a CAGR of 15% for the next 10 years. Can you see a company that increases FCF at a CAGR of 15% during the next decade selling for a multiple of 15x 2025 FCF? Of course! Right? Therefore, let’s also suppose CSU is selling for a multiple of 15x 10 years from now.

In this scenario, you would get a return of 10.5% compounded annually.

So, let me summarize:

Here we have a company operating in a growing market which already has:
-   17,144 companies with annual revenues below $200 million plus
-   16,536 companies with annual revenues below $100 million
That could be bought, just in the US, Canada, and Europe. Not to mention EM of course!
With $1.67 billion in 2014 revenues CSU imo is still a small company, at least if compared to the size of the market in which it operates.

Leonard is not yet 60.

There is no real reason why CSU should materially slow down: opportunities still abound and the quality of its management won’t change for the worse anytime soon.

We are assuming a CAGR in FCF per share that slows down from 39% to 15%, almost without justification (except perhaps no company that I know of has ever sustained a CAGR in FCF per share of 39% for a long time), and a multiple contraction from 22x to 15x… and still we get a return of 10.5% compounded annually… in a world where the cost of money is 5%... Really?! Well, I would be hard pressed to find a better definition of “margin of safety” in investing! ;)

Gio
Title: Re: CSU - Constellation Software
Post by: petec on June 25, 2015, 01:42:50 AM
Gio / Liberty
I wonder if you have a # in mind for CSU's intrinsic valuation ... do you see a margin of safety of at least 50% at current prices ?

$16.11 per share is 2014 operating cash flow. If you subtract interest and capex, you get $14.82 per share of FCF. Let’s suppose operating cash flow per share, and therefore also FCF per share, in 2015 grow in line with their growth rate of the last few years, let’s say 30% (ANI has already grown 40% in Q1 2015). Then, 2015 FCF per share might be $19.27.
Today’s multiple is $422 / $19.27 = 22x 2015 FCF.

Now, let’s suppose CSU grows FCF at a CAGR of 15% for the next 10 years. Can you see a company that increases FCF at a CAGR of 15% during the next decade selling for a multiple of 15x 2025 FCF? Of course! Right? Therefore, let’s also suppose CSU is selling for a multiple of 15x 10 years from now.

In this scenario, you would get a return of 10.5% compounded annually.

So, let me summarize:

Here we have a company operating in a growing market which already has:
-   17,144 companies with annual revenues below $200 million plus
-   16,536 companies with annual revenues below $100 million
That could be bought, just in the US, Canada, and Europe. Not to mention EM of course!
With $1.67 billion in 2014 revenues CSU imo is still a small company, at least if compared to the size of the market in which it operates.

Leonard is not yet 60.

There is no real reason why CSU should materially slow down: opportunities still abound and the quality of its management won’t change for the worse anytime soon.

We are assuming a CAGR in FCF per share that slows down from 39% to 15%, almost without justification (except perhaps no company that I know of has ever sustained a CAGR in FCF per share of 39% for a long time), and a multiple contraction from 22x to 15x… and still we get a return of 10.5% compounded annually… in a world where the cost of money is 5%... Really?! Well, I would be hard pressed to find a better definition of “margin of safety” in investing! ;)

Gio

Gio,

a couple of questions:

1. Is your FCF number before or after acquisition spend?   If a lot of the FCF has to be spent on acquisitions in order to get the growth, how does that affect your thinking?

2. Do you mean 17,144 companies below $200m revenues, or 17144 between $100m and $200m revenues?

Thanks!

Pete
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 25, 2015, 02:19:56 AM
Gio,

a couple of questions:

1. Is your FCF number before or after acquisition spend?   If a lot of the FCF has to be spent on acquisitions in order to get the growth, how does that affect your thinking?

2. Do you mean 17,144 companies below $200m revenues, or 17144 between $100m and $200m revenues?

Thanks!

Pete

Hi Pete,

1) I define FCF as cash flow from operations less interests paid, less capital expenditures (maintenance capex + organic growth capex). Acquisitions imo are investments for external growth. And of course any investment for external growth is capital that could be withdrawn by shareholders without affecting the already existing businesses at all. Not even their organic growth!
Therefore, it doesn’t affect my thinking at all.

2) Sorry! It was not clear. Let’s look at the slide in attachment (which had already been posted before):
There are in the US, Canada, and Europe 17,399 companies with annual revenues below $300 million. This is the overall number of companies that could be purchased. Compare this number with 131 acquisitions made by CSU during the last 5 years.

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 25, 2015, 02:59:32 AM
Therefore, it doesn’t affect my thinking at all.

Let me explain: a 5% organic growth alone might be enough to justify a multiple of 15x FCF, yet 10 years from now opportunities for acquisitions will be far from over! Therefore, in 2025 the market most probably will price CSU as a business that might still go on growing both organically and through acquisitions.

Gio
Title: Re: CSU - Constellation Software
Post by: petec on June 25, 2015, 03:01:07 AM
Gio,

a couple of questions:

1. Is your FCF number before or after acquisition spend?   If a lot of the FCF has to be spent on acquisitions in order to get the growth, how does that affect your thinking?

2. Do you mean 17,144 companies below $200m revenues, or 17144 between $100m and $200m revenues?

Thanks!

Pete

Hi Pete,

1) I define FCF as cash flow from operations less interests paid, less capital expenditures (maintenance capex + organic growth capex). Acquisitions imo are investments for external growth. And of course any investment for external growth is capital that could be withdrawn by shareholders without affecting the already existing businesses at all. Not even their organic growth!
Therefore, it doesn’t affect my thinking at all.

2) Sorry! It was not clear. Let’s look at the slide in attachment (which had already been posted before):
There are in the US, Canada, and Europe 17,399 companies with annual revenues below $300 million. This is the overall number of companies that could be purchased. Compare this number with 131 acquisitions made by CSU during the last 5 years.

Cheers,

Gio

Thanks Gio.   I hadn't seen the slide - very useful.

Re the FCF, my view is that if you are going to use that definition of FCF then you should only assume organic growth in your valuation.   If you are including acquisitive growth, then the cash spent on those acquisitions should be treated in the same way you treat capex.   You can't have both the cash and the growth, when the cash funds the growth!
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 25, 2015, 03:07:49 AM
Re the FCF, my view is that if you are going to use that definition of FCF then you should only assume organic growth in your valuation.   If you are including acquisitive growth, then the cash spent on those acquisitions should be treated in the same way you treat capex.   You can't have both the cash and the growth, when the cash funds the growth!

But I have never valued CSU with a sum of the parts analysis. Instead, I have just put a multiple on its FCF. And that multiple will be lower for a company than doesn’t grow FCF, will be higher for a company that grows FCF organically, and will be even higher for a company that grows FCF both organically and through acquisitions.

Gio
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 25, 2015, 03:58:18 AM
In other words, imo it doesn’t matter how you grow FCF, it only matters how fast you grow it. The faster, the higher the multiple you deserve.

Gio
Title: Re: CSU - Constellation Software
Post by: KCLarkin on June 25, 2015, 07:35:05 AM
Re the FCF, my view is that if you are going to use that definition of FCF then you should only assume organic growth in your valuation.   If you are including acquisitive growth, then the cash spent on those acquisitions should be treated in the same way you treat capex.   You can't have both the cash and the growth, when the cash funds the growth!

The important factor is the ROI from the reinvested cash. Let's assume that CSU gets 30% ROE on future investments. If they are growing 15%, they would only need to reinvest 50% of FCF. So that would be a 2% starting yield, growing 15% per year.

Compare that to a more mundane growth business also growing 15%/year but reinvesting with a 12% ROE. This company would need to issue shares or debt to fund their growth.

They might both trade at 25x FCF and grow 15% per year but CSU would be a much better investment.

But of course, those assumptions could be wrong so I would say that the price is high enough that there is little quantitative Margin of Safety. The moat of the businesses, the attractive business model, and the quality of management provide a qualitative Margin of Safety.
Title: Re: CSU - Constellation Software
Post by: giofranchi on June 25, 2015, 07:48:31 AM
But of course, those assumptions could be wrong so I would say that the price is high enough that there is little quantitative Margin of Safety. The moat of the businesses, the attractive business model, and the quality of management provide a qualitative Margin of Safety.

Yeah!... When I don’t see a “quantitative” margin of safety, I usually respond by leaving room to average down… Because I can never know when the market will hand me the opportunity of seeing a “quantitative” margin of safety… And in the meantime a very high quality business like CSU might have created lots of value! ;)

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: Travis Wiedower on July 07, 2015, 09:48:22 PM
I run my business on Quickbooks (I hate it) downloaded to my laptop.  There are some SaaS solutions out there.  I'm not using any.  Why?  What happens if one of them suddenly disappears.  I want to run my core accounting on a package that I own.  If Quickbooks goes under I can still run the program and I don't lose any data.  When you go SaaS your data is now living somewhere else, that's a risk that needs to be mitigated somehow.

Off-topic but you should check out Xero. It's SaaS but it's simple to export everything/backup to a Quickbooks-compatible file. Would be easy to do on a weekly basis or whatever if you were that concerned about it. I used to use Quickbooks and I absolutely hated it until I got so fed up I switched. Xero is soo much better, wish I switched a long time ago.
Title: Re: CSU - Constellation Software
Post by: KCLarkin on July 22, 2015, 07:02:22 AM
Quote
Constellation Software Inc. (TSX:CSU) will be removed from the S&P/TSX Completion Index and added to the S&P/TSX 60, 60 Capped and the 60 Equal Weight Indices.

This is why the stock is up today.
Title: Re: CSU - Constellation Software
Post by: Liberty on July 22, 2015, 07:05:11 AM
For those wondering why the big jump, it's on non-fundamental news unfortunately:

Quote
S&P Dow Jones Indices Announces Changes to the S&P/TSX Canadian Indices 17:15 EDT Tuesday, July 21, 2015 Constellation Software Inc. (TSX:CSU) will be removed from the S&P/TSX Completion Index and "added to the S&P/TSX 60, 60 Capped and the 60 Equal Weight Indices". Constellation Software will not be added to the S&P/TSX 60 ESG Index at this time. Also, Constellation Software will be added to the S&P/TSX 60 Equal Weight Index at a relative weight equal to the relative weight of Catamaran at the close on July 24, 2015. The shares of Catamaran will be removed from the S&P/TSX Composite, Capped Composite and Composite Equal Weight, the S&P/TSX 60, 60 Capped, 60 ESG and 60 Equal Weight and the S&P/TSX Capped Health Care Indices after the close of trading on Friday, July 24, 2015.
Title: Re: CSU - Constellation Software
Post by: giofranchi on July 27, 2015, 05:23:52 AM
CAE sells Datamine to Constellation Software

http://seekingalpha.com/news/2657935-cae-sells-datamine-to-constellation-software?app=1&uprof=25


Gio
Title: Re: CSU - Constellation Software
Post by: Simple Investor on July 29, 2015, 01:09:28 PM
Anyone know what percentage of the company Mark Leonard owns?

Also what is the SEDAR document type that displays that info?

Thanks.
Title: Re: CSU - Constellation Software
Post by: Liberty on July 29, 2015, 01:13:24 PM
Anyone know what percentage of the company Mark Leonard owns?

Also what is the SEDAR document type that displays that info?

Thanks.

He owns 1,436,136 shares.

http://www.csisoftware.com/wp-content/uploads/2015/04/MIC_Eng.pdf
Title: Re: CSU - Constellation Software
Post by: Simple Investor on July 29, 2015, 01:23:04 PM
THanks.
Title: Re: CSU - Constellation Software
Post by: gary17 on July 29, 2015, 01:56:34 PM
another simple way is to use SEDI

https://www.sedi.ca/sedi/SVTReportsAccessController?menukey=15.03.00&locale=en_CA

Click on "Insider Information by Issuer"
click 'next'
Type "Constellation"

Gary
Title: Re: CSU - Constellation Software
Post by: Liberty on July 29, 2015, 04:32:27 PM
Q2 is out:

http://www.csisoftware.com/wp-content/uploads/2015/07/SR_Q2_2015.pdf

http://www.csisoftware.com/wp-content/uploads/2015/07/PR_Q2_2015.pdf
Title: Re: CSU - Constellation Software
Post by: gary17 on July 29, 2015, 11:06:55 PM
seems like they missed analyst top and bottom line estimates - might be some buying opportunities coming    -    Gary
Title: Re: CSU - Constellation Software
Post by: giofranchi on July 30, 2015, 12:47:13 AM
seems like they missed analyst top and bottom line estimates - might be some buying opportunities coming    -    Gary

Maybe... Though Adjusted net income per share is up 30% for the first half of 2015: the overall preformance still seems to be very strong!

If a correction comes, I am buying more! ;)

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: Liberty on July 30, 2015, 03:52:01 AM
seems like they missed analyst top and bottom line estimates - might be some buying opportunities coming    -    Gary

-6% organic from FX. If you adjust for that, which isn't under the company's control, I'm very satisfied with the performance of the business. Who knows what Mr. Market will think, though. Expectations were obviously high.
Title: Re: CSU - Constellation Software
Post by: InvestingOnSale on August 06, 2015, 04:11:35 PM
Anyone know what percentage of the company Mark Leonard owns?

Also what is the SEDAR document type that displays that info?

Thanks.

He owns 1,436,136 shares.

http://www.csisoftware.com/wp-content/uploads/2015/04/MIC_Eng.pdf

Did Leonard just sell 1 million shares? I see on my Bloomberg terminal on 7/31 a "sell carried out privately" for 1 million shares. And it looks like he now owns 436,197 shares on SEDI. Strange. He held 1.4 million shares since at least 2006.
Title: Re: CSU - Constellation Software
Post by: FiveSigma on August 06, 2015, 04:27:17 PM
https://www.insidertracking.com/company?menu_tickersearch=CSU%2ACA%20%7C%7C%20Constellation%20Software

This site shows sale of debentures, rights, AND common shares. Strange.
Title: Re: CSU - Constellation Software
Post by: Liberty on August 06, 2015, 04:31:18 PM
Here is your answer:

http://www.csisoftware.com/2015/08/constellation-enters-agreement-with-1388369-ontario-inc/


Quote
Constellation Software Inc. (“Constellation”) (TSX: CSU) today announced that 1388369 Ontario Inc., an Ontario corporation (“1388”) which currently owns 1,000,000 common shares of Constellation (representing approximately 4.7% of the issued and outstanding common shares of Constellation) and which was previously  controlled by Mark Leonard, President and Chairman of the board of directors of Constellation, is now controlled exclusively by the adult children of Mr. Leonard.  Following the change in control of 1388, Constellation and 1388 entered into an agreement whereby 1388 will provide notice to Constellation within five days of any sale, transfer, or assignment by 1388 of its Constellation common shares.  Mr. Leonard continues to hold 436,136 common shares of Constellation (representing approximately 2.1% of the issued and outstanding common shares of Constellation) directly.
Title: Re: CSU - Constellation Software
Post by: gary17 on August 06, 2015, 04:58:32 PM
Wow - so this is really starting to sound like a retirement in planning....
Title: Re: CSU - Constellation Software
Post by: loganc on August 06, 2015, 05:09:46 PM
Wow - so this is really starting to sound like a retirement in planning....

Doesn't it seem more likely that this is simply a transfer that has occurred for purposes of estate planning?  I don't know the details of the tax code of Canada (I assume Leonard is a Canadian citizen), but something like this doesn't exactly seem like a sale to me.  It seems like a likely explanation would be getting the assets out of his taxable estate.  It would seem to me that such a transfer, if I am correct, would have no impact on his motivation or incentives. 
Title: Re: CSU - Constellation Software
Post by: KCLarkin on August 06, 2015, 05:47:46 PM
One reason to do this might be to avoid probate taxes.
Title: Re: CSU - Constellation Software
Post by: Liberty on August 06, 2015, 05:48:58 PM
I don't see it as a sale. He probably expects to keep the majority of the shares in his family for the long-term and this is probably the best way to do it (more tax efficient). Guy was flying economy or whatever until recently, I don't think he has an extravagant lifestyle and expects to be liquidating his holdings any time soon... but that's just my guess.
Title: Re: CSU - Constellation Software
Post by: FiveSigma on August 06, 2015, 06:18:32 PM
I bet there will be a question on the next earnings call about this transaction.
Title: Re: CSU - Constellation Software
Post by: bizaro86 on August 06, 2015, 06:38:46 PM
It could be an estate freeze. If you think a corporation you own is going to appreciate before your death, common tax planning in Canada is to switch the capital structure of the corporation to be very preferred share heavy. So a $100MM fair-value corp would be restructured into $1MM common and $99MM prefs. Then, the common can be gifted/sold to the future heirs. Then any future gains in value accrues to them, and on death only the value of the prefs is subject to capital gains taxes.

If that's the case, that would actually suggest he thinks there is future upside.
Title: Re: CSU - Constellation Software
Post by: rb on August 06, 2015, 08:07:26 PM
Wow - so this is really starting to sound like a retirement in planning....

Doesn't it seem more likely that this is simply a transfer that has occurred for purposes of estate planning?  I don't know the details of the tax code of Canada (I assume Leonard is a Canadian citizen), but something like this doesn't exactly seem like a sale to me.  It seems like a likely explanation would be getting the assets out of his taxable estate.  It would seem to me that such a transfer, if I am correct, would have no impact on his motivation or incentives.

Just a bit of flavour. There are no estate taxes in Canada. The probate tax is fairly low. Also you cannot gift shares tax free.

I agree with you that the transaction is a bit fishy and something to do with tax. My feeling is that it has to do with the taxation of the numbered holding company as Canada has very strict laws against holding companies.
Title: Re: CSU - Constellation Software
Post by: bizaro86 on August 07, 2015, 12:07:42 PM
No estate taxes, but capital gains are payable as death is a deemed disposition. Presumably his cost basis in those shares is low.
Title: Re: CSU - Constellation Software
Post by: KCLarkin on August 07, 2015, 12:55:45 PM
No estate taxes, but capital gains are payable as death is a deemed disposition. Presumably his cost basis in those shares is low.

Yes, cost basis would be zero. But if this is an estate freeze, is there a deemed disposition? Or is there a way to use trusts to avoid deemed disposition?
Title: Re: CSU - Constellation Software
Post by: glavacem on August 07, 2015, 08:26:21 PM
Glad to see a thread on this one.

I was very lucky and bought in three years ago and have never sold a share.
Title: Re: CSU - Constellation Software
Post by: bizaro86 on August 08, 2015, 09:16:45 AM
The purpose of an estate freeze is to avoid a deemed disposition on death of the future gains, while only realizing a small deemed disposition now.

From my example above, if you have a corp worth 100mm, you convert your common to 99 mm face in pref shares plus 1mm in new common. Then give/sell the new common to kids for 1mm, keep pref until death.

Effect is capital gains on 1mm now, 99 mm on death, and 0 on any gain in value from now until death.
Title: Re: CSU - Constellation Software
Post by: Liberty on September 03, 2015, 06:47:00 PM
http://www.prnewswire.com/news-releases/zillow-group-announces-sale-of-market-leader-to-the-perseus-division-of-constellation-software-300137912.html

Quote
Zillow Group (NASDAQ: Z and ZG), which houses a portfolio of the largest and most vibrant real estate and home-related brands on mobile and Web, today announced the pending sale of Market Leader to the Perseus Division of Constellation Software, Inc., an international provider of market-leading software and services, for $23 million USD. The sale is expected to close early in the fourth quarter.

This is a business that was acquired by another company in 2013 for $335m...

http://techcrunch.com/2013/05/08/trulia-to-buy-market-leader/
Title: Re: CSU - Constellation Software
Post by: giofranchi on September 04, 2015, 01:08:40 AM
This is a business that was acquired by another company in 2013 for $335m...

Yes! When I read that, it sort of reminded me of the Maxim purchase by Biglari… Except that I like software much better! ;)

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: gary17 on September 14, 2015, 03:04:34 PM
Does anyone have access to this Article ?

http://www.inman.com/2015/09/14/market-leaders-soon-to-be-owner-constellation-software-out-to-dominate-real-estate-software/



I am estimating this business is trading at about 25x next year's earning if it grows 30%
Title: Re: CSU - Constellation Software
Post by: no_thanks on September 14, 2015, 04:39:08 PM
Googled the title:



Takeaways:

The Perseus Division of Constellation Software Inc. is poised to become a major real estate software provider with its pending Market Leader acquisition.
The company has been in the real estate space for six years; it owns four real estate software firms, including website provider Z57.
Perseus’ parent company is a large global software provider best known for its transit software, Volaris.
The Perseus Division of Constellation Software Inc., which entered into an agreement to buy Market Leader for $23 million last week, is poised to become a real estate software powerhouse. A few days before, the Toronto-based software giant snapped up another real estate software provider, Zurple,

Launched 11 years ago, Perseus is a subsidiary of Constellation Software Inc. and currently serves approximately 3,000 brokerages and 35,000 agents with a rapidly growing portfolio of real estate agent software, which includes mobile and desktop websites, mapping solutions, lead management and voice-response tools.

Perseus powers the websites for its two biggest brokerage clients, Howard Hanna Real Estate and Coldwell Banker United, Realtors, under the “Constellation Web Solutions” brand.

Real estate brokers and agents hungry for website, customer relationship management and marketing software will soon have a big new provider in Perseus and Constellation.

Real estate brokers and agents will soon have a big new software provider in Constellation’s…
CLICK TO TWEET
The firm’s recent acquisitions extend its goal for real estate software domination, said Perseus’ president, Dexter Salna.

The company seems to be deploying a roll up strategy to fuel its growth.

Perseus rebranded from “Constellation Homebuilders Systems” last year and owns 34 firms that offer software to companies in eight different industries including paper processing, homebuilding, education and health care.

It has grown its homebuilder software into a market leader in 11 years; 40 percent of the nation’s top 200 homebuilders use its software, Salna said. He has similar hopes for Perseus’ real estate division.

Dexter Salna
Dexter Salna

Salna declined to delve into the specifics of Perseus’ Market Leader play, as the acquisition hasn’t closed yet (it’s expected to close early in the fourth quarter).

Market Leader — which provides real estate CRM, lead generation and marketing tools to a customer base of over 100,000 agents — has enterprise accounts with the nation’s largest franchisor and largest brokerage: Keller Williams Realty and NRT LLC.

Perseus first jumped into the real estate software game with its 2009 purchase of assets for Move Inc.’s real estate website firm, “The Enterprise,” which brought it vendor relationships with MLSs covering approximately 90 percent of the nation’s listings.

A year later, it acquired the real estate customer relationship management platform Birdview. In 2013, it bought Z57, which currently powers lead generation websites for 6,500 agents.

Although its real estate software holdings are multiplying, Perseus — following its parent company’s model — has no plans to merge them, Salna said.

Instead, it will grow them as separate units and support different client bases with different brands, even if there’s some overlap.

However, the firms share best practices and other resources, such as the MLS vendor relationships, he said.

Constellation Software is an international provider of market-leading software and services to a select number of industries.

Its mission is “to acquire, manage and build market-leading software businesses that develop specialized, mission-critical software solutions to address the specific needs of our particular industries.”

With its global reach, it has over 30,000 customers operating in over 30 countries, employing 9,200 workers and generating consolidated annual revenues exceeding $1.6 billion.
Title: Re: CSU - Constellation Software
Post by: Liberty on September 15, 2015, 10:02:07 AM
Digging around Sweden, apparently:

http://www.prnewswire.com/news-releases/netadmin-systems-acquired-by-volaris-group-527660901.html
Title: Re: CSU - Constellation Software
Post by: no_thanks on September 15, 2015, 10:06:26 AM
A similar company in Sweden.  Interesting.

https://www.google.com/finance?q=STO%3AVIT-B&ei=ok34VYLPOYOBmAGxmKLYBg
Title: Re: CSU - Constellation Software
Post by: gary17 on September 18, 2015, 04:18:13 PM
Considering what the market has been doing; I really can't complain about Constellation !

However, if the market continues to slide more ; to the extent that other 'good companies' become very attractive, I may have to trade in my CSU to go after those value stocks....

Does anyone have an opinion about why CSU has held up well in the market selloff recently and if CSU shareholders in similar situations as me would trigger some price decline ? (I hold very few shares LOL)


I like this to be a long term hold; but when sexier ideas come in... it's hard to hold on .....


Gary
Title: Re: CSU - Constellation Software
Post by: no_free_lunch on September 18, 2015, 05:52:42 PM
CEO has complained in the past that prices for the companies they bid on have worked their way up, which will certainly crimp his ability to grow without debt.  So it could actually be to the company's benefit if there is a global recession.  I mean look at the period over which the company was built.

That being said I think it is very expensive at these levels.
Title: Re: CSU - Constellation Software
Post by: gary17 on September 18, 2015, 06:01:42 PM
I guess my question is not just related to CSU but just general observation of weather at times like this we should train down the quality For Value
Title: Re: CSU - Constellation Software
Post by: no_free_lunch on September 18, 2015, 06:44:56 PM
All I know is if things get really ugly it is important to be comfortable with what is in your portfolio.

Right now I am usually trying to trade up in the quality chain. 
Title: Re: CSU - Constellation Software
Post by: Liberty on September 30, 2015, 02:10:31 PM
http://www.marketwatch.com/story/constellation-software-inc-completes-rights-offering-of-debentures-2015-09-30-17173113

Fresh cash infusion.
Title: Re: CSU - Constellation Software
Post by: gary17 on October 28, 2015, 04:31:57 PM
Q3 results -

Adjusted EPS 4.67$ USD / share -

-5% organic growth....

http://www.stockhouse.com/news/press-releases/2015/10/28/constellation-software-inc-announces-results-for-the-third-quarter-ended
Title: Re: CSU - Constellation Software
Post by: Liberty on October 28, 2015, 04:59:00 PM
Q3 results -

Adjusted EPS 4.67$ USD / share -

-5% organic growth....

http://www.stockhouse.com/news/press-releases/2015/10/28/constellation-software-inc-announces-results-for-the-third-quarter-ended

6% hit from FX on organic growth, so at least they would be positive without that. Not great, but that has always been lumpy, and they have no control over FX.  Last Q had -4% organic growth with same 6% FX impact.

Margins are up, adjusted net income up 43%.
Title: Re: CSU - Constellation Software
Post by: Jurgis on October 28, 2015, 07:22:17 PM
http://www.marketwatch.com/story/constellation-software-inc-completes-rights-offering-of-debentures-2015-09-30-17173113

Fresh cash infusion.

Never got rights with ADR...
Title: Re: CSU - Constellation Software
Post by: giofranchi on October 29, 2015, 02:07:38 AM
-5% organic growth....

Let’s see at the end of the year how much organic growth has been in 2015, and let’s wait for Leonard to comment on that result… I agree the last two quarters have not been very satisfactory, but overall growth is still good, and organic growth might fluctuate a lot. I think it is inevitable. Leonard will surely be able to shed more light on organic growth in 2015, and let us know how he sees that trend evolving.

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: gary17 on November 02, 2015, 07:54:34 AM
does anyone know if the CEO's insider transaction recorded on Sep 30 2015 means he took the debenture himself too ?   I don't quite understand what this all means !
Title: Re: CSU - Constellation Software
Post by: gary17 on November 02, 2015, 04:52:13 PM
Do shareholders of CSU think acquisition is a key ingredient to CSU's long term success ?

if CSU stops acquisition now... how sustainable are its existing software businesses ?

It'd be interesting to do an DCF analysis to see what CSU is worth , no future acquisitions, and only organic growth !
Title: Re: CSU - Constellation Software
Post by: Liberty on November 02, 2015, 06:05:24 PM
Do shareholders of CSU think acquisition is a key ingredient to CSU's long term success ?

if CSU stops acquisition now... how sustainable are its existing software businesses ?

It'd be interesting to do an DCF analysis to see what CSU is worth , no future acquisitions, and only organic growth !

It would grow significantly slower without M&A. Management doesn't believe in buybacks (doesn't see them as fair to shareholders), and the businesses are capital-light, so there would be fairly little reinvestment opportunities without M&A. They could probably increase organic growth somewhat by funding more of what they call 'initiatives', but they're already focusing a fair amount of organic growth, so I'm not sure how much more they could wring out. The cash would no doubt pile up and they'd probably end up with dividends or special-dividends to get rid of it.

That said, I think the businesses are very sustainble without M&A. They just won't grow nearly as fast on their own as the combination of organic + M&A does.

The CEO actually wrote about the value of organic growth and M&A in one of his recent letters. If you are interested in the topic, I recommend you try to find it. I'm fairly sure it was from 2-3 years ago, but I don't have them here to check at this time.

One company in the space that does very well with organic growth is Tyler Technologies (TYL). Slightly different focus than CSU; I think it might be interesting if it wasn't so expensive, but I haven't yet studied it closely.
Title: Re: CSU - Constellation Software
Post by: gary17 on November 02, 2015, 06:49:02 PM
Thanks Liberty !

Yes, I saw Tyler from the Q3 call transcript; will study more !




Gary
Title: Re: CSU - Constellation Software
Post by: frommi on November 02, 2015, 08:24:29 PM
if CSU stops acquisition now... how sustainable are its existing software businesses ?

It'd be interesting to do an DCF analysis to see what CSU is worth , no future acquisitions, and only organic growth !

They are not able to stop it as far as i understood it, its in their DNA now since every new division is taught in capital allocation.
Title: Re: CSU - Constellation Software
Post by: gary17 on November 02, 2015, 08:36:45 PM
I'm not suggesting CSU should stop M and A activities. I love the business model.  but just for argument sake , in light of what's happening at VRX, I like to explore this hypothetical question.

IF it were to stop

a) is the business sustainable
B) how much cash can shareholders juice from this cash generating machine , reliably for how long?

if this is. very attractive number , then we know the cash we would have gotten is in better hands with Mark Leonard and company , then this would be a satisfactory investment. 
Title: Re: CSU - Constellation Software
Post by: bonechip1 on November 02, 2015, 09:27:13 PM
This might help Gary
From Q1 2015 cc:

Richard Tse - Cormark Securities
So Mark, I just want to get a high level of picture what you think the sustainable level or growth for this business could be here if we look out the next call it three to five years?

Mark Leonard - Chairman and President
It’s so hard to call, Richard, because it’s dependent upon acquisitions. Ex the acquisitions I would hope that we could grow organically in the GDP plus percent or two kind of range.

http://seekingalpha.com/article/3121856-constellation-software-cnswf-q1-2015-results-earnings-call-transcript?part=single
Title: Re: CSU - Constellation Software
Post by: gary17 on November 02, 2015, 10:15:01 PM
Thanks !!

saves me time to dig this  up !

So based on the last 3 quarters, I estimate current adjusted income is roughly $16US / share / year...   which is more or less free cash flow....

If it's not growing, and the organic growth rate is keeping up with inflation... may be that's about the same as the discount rate... so  I can almost estimate the current value of the sum of future earnings as about 30x 16USD x 1.3 = $624 CAD / share

If instead of giving the shareholders the cash.... they use it for acquisition and achieve 10 ~ 15% , we'd do well :)
Title: Re: CSU - Constellation Software
Post by: giofranchi on November 02, 2015, 11:50:31 PM
in light of what's happening at VRX

Gary,
VRX has been accused of fraud…
That imo has nothing to do with the ability of growing both organically and through acquisitions. If you are able to grow both ways, what shouldn’t be liked about it? That’s the best business model as far as I am concerned because:
1)   Usually it is tough to grow only organically at the same rate of those who are good at growing both organically and through acquisitions;
2)   The ability to grow both ways puts less pressure on the business: if you strive too much in either strategy, you might end up making unnecessary mistakes… Instead, the right mix of organic growth and growth through acquisitions leaves the manager free to pursue both without the need to push too much in either strategy, because they complement each other;
3)   Finally, when organic growth happens to falter a bit, growth through acquisitions might come to the rescue, and vice versa. In other words, though results in business are always lumpy, the right mix of organic growth and growth through acquisitions might mitigate those inevitable fluctuations.
This is CSU business model, and it is also VRX’s. If you ask me, the shorts have shown nothing against VRX’s business model. What they have is an accusation of fraud. My best guess is: if the accusation of fraud is proven unfounded, in a few months the media will get bored about VRX, we will get back to business as usual, and VRX’s stock price will swiftly recover. Of course, don’t ask me about the accusation of fraud, because my ideas are as confused as everyone else’s…
If VRX’s business model has something that I was never very comfortable with, it is its very high debt load… But CSU has no such load, therefore the comparison is pointless.

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: giofranchi on November 03, 2015, 12:20:47 AM
If it's not growing, and the organic growth rate is keeping up with inflation...

That is what has happened during the last two quarters… I don’t think it is indicative of the organic growth we might expect in the future… Historically they have achieved an higher rate of organic growth. We will see!

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: Liberty on November 03, 2015, 05:34:28 AM
The same thing that makes the VMS businesses resilient in downturns is what makes it hard to grow very fast organically; when a large fraction of your revenues are recurring (maintenance contracts, and now increasingly some SaaS), with churn rates in the single-digit range, it means that customers tend to stick around for 15-25 years. This makes it hard to rapidly gain market share at the expense of a competitor, unless they really screw up. And the niches where they operate don't tend to be in fast-growing, glamorous corners of the economy.

A lot of the organic growth actually comes from price increases. Over the past decade, I'd say they've been increasing prices about 5-6% a year on average.
Title: Re: CSU - Constellation Software
Post by: giofranchi on November 03, 2015, 06:38:09 AM
The same thing that makes the VMS businesses resilient in downturns is what makes it hard to grow very fast organically

+1

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: gary17 on November 03, 2015, 08:13:23 AM
I think a business that focuses its growth strategy mainly on acquisition lends itself to opportunities for fraudulent activities.... IMO!  This is not to say CSU is this.  I think FFH and BRK are classic examples of good and exceptional businesses that grow by deploying excess capital to acquire new businesses.   Folks in this business are clearly very intelligent and have a lot of energy - the key is if they have the integrity / ethics. 

Other than this share transfer I saw a few months ago to a numbered Ontario company controlled by Mark's adult children.... I see no 'weird' arrangements. 

But how well do we all know about the businesses that CSU own? What's their competitive position and sustainability ?    I guess no one was asking these questions until Hempton and Left started to.   

I know large tech companies like Microsoft and Apple do acquisitions as well; but they do to acquire new technologies for the purpose of maintaining a competitive position.

My point about CSU is simply that in light of what's happening with VRX; has anyone taken a very large magnifying glass to look at their business?     They've grown quite fast having 10 times their revenue from 165m to more than 1.6B in 10 years.   

Gary
Title: Re: CSU - Constellation Software
Post by: KCLarkin on November 03, 2015, 08:29:45 AM
Gary, CSU largely pays cash to fund acquisitions. It is hard to fake cash. There is a small amount of debt, but I would argue that is more to support an unnecessay dividend. They don't issue shares. They have zero reliance on capital markets.

Frankly, CSU and that pharma co are not even remotely similar. One hint, look at the cash conversion cycle.
Title: Re: CSU - Constellation Software
Post by: gary17 on November 03, 2015, 08:34:08 AM
Gary, CSU largely pays cash to fund acquisitions. It is hard to fake cash. There is a small amount of debt, but I would argue that is more to support an unnecessay dividend. They don't issue shares. They have zero reliance on capital markets.

Frankly, CSU and that pharma co are not even remotely similar. One hint, look at the cash conversion cycle. Otherwise, leave CSU alone.

Hi KCLarkin, yes ! I realize they do; hence my question how sustainable their current businesses are if they were to stop M&A.   

I am not sure where I am going with this - perhaps no where LOL     
Just a box in my mind I need to check it off -   


Gary
Title: Re: CSU - Constellation Software
Post by: Liberty on November 03, 2015, 08:34:29 AM
I think a business that focuses its growth strategy mainly on acquisition lends itself to opportunities for fraudulent activities.... IMO!  This is not to say CSU is this.  I think FFH and BRK are classic examples of good and exceptional businesses that grow by deploying excess capital to acquire new businesses.     

I know large tech companies like Microsoft and Apple do acquisitions as well; but they do to acquire new technologies for the purpose of maintaining a competitive position.

My point about CSU is simply that in light of what's happening with VRX; has anyone taken a very large magnifying glass to look at their financials?   They've grown quite fast having 10 times their revenue from 165m to more than 1.6B in 10 years.

Gary

Complexity certainly makes you more vulnerable to attacks. After all, 10 years ago Fairfax was accused of being the next Enron and a few decades prior Berkshire was investigated by the SEC because its cross-ownership structure (Bluechip stamps, etc) was so convoluted that it was hard to know what was going on.

It's important to do the work to build confidence in an idea, but it's also impossible to be 100% certain of anything in investing. It's a probabilistic game. Fairfax wasn't the next Enron, but David Sokol had a great reputation and was probably Buffett's successor according to many people, until he wasn't...

That said, I think CSU is less vulnerable than most. It's not easy to understand, but it's also not that easy to successfully attack, I think.
Title: Re: CSU - Constellation Software
Post by: giofranchi on November 03, 2015, 08:43:50 AM
I think a business that focuses its growth strategy mainly on acquisition lends itself to opportunities for fraudulent activities.... IMO! 

Maybe… But Leonard’s integrity seems to me almost beyond doubt. His letters are among the best I have ever read, his compensation is probably unique, and the fact he has always used very little debt tells me he is very conservative in his dealings.
This is what I always look for. And when I find it, I invest.
Then, of course, you can never be 100% sure… And that’s why I never put all my eggs in just one basket! ;)

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: KCLarkin on November 03, 2015, 09:07:01 AM
hence my question how sustainable their current businesses are if they were to stop M&A.

My point was -- this is a false pretext. The pharma co needs to stop M&A because they have so much debt and are locked out of capital markets. Most of their cash flow will go to pay down debt over the next few years. CSU can happily pay cash. Worst case, they stop the useless dividend.

The main risk here is valuation.

--
I won't discuss the other important differences from the pharma co because I have banned myself from that other thread.
Title: Re: CSU - Constellation Software
Post by: vinod1 on November 03, 2015, 09:31:04 AM
I think a business that focuses its growth strategy mainly on acquisition lends itself to opportunities for fraudulent activities.... IMO! 

Maybe… But Leonard’s integrity seems to me almost beyond doubt. His letters are among the best I have ever read, his compensation is probably unique, and the fact he has always used very little debt tells me he is very conservative in his dealings.
This is what I always look for. And when I find it, I invest.
Then, of course, you can never be 100% sure… And that’s why I never put all my eggs in just one basket! ;)

Cheers,

Gio

+1

Add to that, take a look at the presentation of the income statement. It is to me the gold standard of how an income statement should be prepared. Almost in every other company I need to look at the foot notes to decipher or break down the details of the expenses, but at Constellation, there is hardly any need to do so. This is not something one would do if they are trying to hide something.

Vinod
Title: Re: CSU - Constellation Software
Post by: snowball82 on November 03, 2015, 06:55:15 PM
hence my question how sustainable their current businesses are if they were to stop M&A.

My point was -- this is a false pretext. The pharma co needs to stop M&A because they have so much debt and are locked out of capital markets. Most of their cash flow will go to pay down debt over the next few years. CSU can happily pay cash. Worst case, they stop the useless dividend.

The main risk here is valuation.

--
I won't discuss the other important differences from the pharma co because I have banned myself from that other thread.

Good point ! What do you think about the current valuation ? would you buy today ?
Title: Re: CSU - Constellation Software
Post by: gary17 on November 03, 2015, 07:33:20 PM
Hi Snowball82!  I think it is 'fairly' valued and I'd be a buy/holder - but won't be a full position. 

I think based on 4.67 USD / share  , annualized = $18 USD = $24 CAD / share

And today's share price = $550 CAD... this is trading about 23x P/E

If we use Graham formula ... 15 % growth rate..... 

v = 24 x (8.5 + 2 x 15) = $924/ share.....   
Title: Re: CSU - Constellation Software
Post by: Phaceliacapital on November 04, 2015, 12:00:22 AM
I don't think Graham would ever plug in g = 15%...
Title: Re: CSU - Constellation Software
Post by: giofranchi on November 04, 2015, 12:26:08 AM
I don't think Graham would ever plug in g = 15%...

Though I believe CSU deserves an higher multiple than the general market, I also agree with KCLarkin that valuation is the main risk here.

Cheers,

Gio
Title: Re: CSU - Constellation Software
Post by: KCLarkin on November 04, 2015, 08:41:59 AM
Good point ! What do you think about the current valuation ? would you buy today ?

To clarify, I think there is a risk that Mr. Market reprices this stock at some point. I won't comment on current valuation as it highly depends on your growth assumptions. But I suspect the multiple will contract at some point. But if growth continues, you will have a lower multiple on much higher earnings.

I last bought in June @ $525 but that is only because I decided to average into my position. For now, I am holding with a 5% position and hoping for either a meaningful pullback or compounding to get me to a 10% position.
Title: Re: CSU - Constellation Software
Post by: Liberty on November 04, 2015, 04:16:52 PM
New acquisiton: http://www.csisoftware.com/2015/11/constellation-softwares-jonas-division-completes-acquisition-of-par-springer-miller-systems/
Title: Re: CSU - Constellation Software
Post by: netnet on February 05, 2016, 08:18:15 PM
At these prices I'm starting to get interested, as in they are no longer in the nose bleed section 8)
Title: Re: CSU - Constellation Software
Post by: PSV_Cannibal on February 06, 2016, 06:07:28 AM
same here netnet... forward P/CF now in the teens instead of the twenties. 

Can anyone share the recent Veritas report that recommended this as a sell?  Curious to read their points.
Title: Re: CSU - Constellation Software
Post by: rishig on February 06, 2016, 01:20:01 PM
same here netnet... forward P/CF now in the teens instead of the twenties. 

Can anyone share the recent Veritas report that recommended this as a sell?  Curious to read their points.

Adjusted net income (adjusting for amortization of intangibles) on TTM is ~$15USD or $20CAD. See page 12:
http://www.csisoftware.com/wp-content/uploads/2015/10/SR_Q3_2015.pdf

That gets you ~22x P/E. How do you get teens?
Title: Re: CSU - Constellation Software
Post by: KJP on February 06, 2016, 05:05:41 PM
same here netnet... forward P/CF now in the teens instead of the twenties. 

Can anyone share the recent Veritas report that recommended this as a sell?  Curious to read their points.

Adjusted net income (adjusting for amortization of intangibles) on TTM is ~$15USD or $20CAD. See page 12:
http://www.csisoftware.com/wp-content/uploads/2015/10/SR_Q3_2015.pdf

That gets you ~22x P/E. How do you get teens?

I couldn't get to teens either.  But the comment was about a forward multiple, rather than TTM.  So, I assume there is some projected growth.
Title: Re: CSU - Constellation Software
Post by: Picasso on February 06, 2016, 06:24:08 PM
I'm sort of curious about the sell-side take on Constellation.  There are no buys, eight holds and two sells.  Looking back at the previous valuation history it definitely seems to be on the high side.  I show a Bloomberg estimate of $20 CDN which seems high (seems like all these analysts report adjusted EPS estimates these days) but that would put this at 22x. 

Anyone long have a take on why the sell-side is wrong?  There seems to be a new cult following of the stock given the low usage of debt/stock and Buffett similarities (along with new shareholders like Sequoia).  I prefer stocks with sell-side hatred but I haven't seen anyone discuss why they're wrong, particularly as their estimates seem to line up with the threads thinking.

Also what kind of long-term earnings growth are the bulls expecting here?  Any other levers they can pull besides scaling into a new market (SaaS) which I'm assuming won't be as great as their previous strategy? 
Title: Re: CSU - Constellation Software
Post by: KCLarkin on February 06, 2016, 06:59:55 PM
Anyone long have a take on why the sell-side is wrong?  There seems to be a new cult following of the stock given the low usage of debt/stock and Buffett similarities (along with new shareholders like Sequoia).

Analyst ratings don't reflect the 22% YTD drop.

Here is what I have from Scotia:
Target Price: $585 CAD (+26.8%)
Sector Perform (Oct 29, 2015)
2015E Adj EPS: $16.80USD
2016E: 20.84USD
2017E: 25.75USD

Current Price: $323.35USD
P/E (2016 adj): 15.5
--
Title: Re: CSU - Constellation Software
Post by: Picasso on February 06, 2016, 07:18:11 PM
Sorry I was using USD by accident.  I attached the average estimates in CAD.

The sell-side, if you exclude a couple outliers, is saying the 52-week highs are fair value.  You'd think they would be more in love when adjusted EPS goes from around a $1 to $28 in ten years.  I'm just trying to get my arms around something that clearly compounds cash.  The big things is the "adjusted" which is maybe no longer a good indicator of long-term earnings so we need to give it a lower multiple at this point.  I understand the supposed moat but having a hard time verifying the long-term competitive advantage across so many different products other than a few anecdotal examples.
Title: Re: CSU - Constellation Software
Post by: KJP on February 07, 2016, 04:58:45 AM
Sorry I was using USD by accident.  I attached the average estimates in CAD.

The big things is the "adjusted" which is maybe no longer a good indicator of long-term earnings so we need to give it a lower multiple at this point. 

Why do you think eliminating the intangible amortization no longer reflects economic reality?  Slowing (negative) organic growth?
Title: Re: CSU - Constellation Software
Post by: Picasso on February 07, 2016, 07:19:31 AM
Sorry I was using USD by accident.  I attached the average estimates in CAD.

The big things is the "adjusted" which is maybe no longer a good indicator of long-term earnings so we need to give it a lower multiple at this point. 

Why do you think eliminating the intangible amortization no longer reflects economic reality?  Slowing (negative) organic growth?

We're seeing slower organic growth but world economies have been weakening so I don't know how to interpret that. There's a big gap between trailing 12m net income and adjusted net income so just trying to get my arms around the right multiple for the adjusted net income. So far the adjusted net income has been a good indicator of cash generation but I'm wondering if anything has changed. Otherwise you can see on my estimates screen grab that it's trading low-mid teens adjusted multiples going out a couple years and obviously that would mean the stock is getting inexpensive here.

It would be nice to understand the products beyond some anecdotal information.
Title: Re: CSU - Constellation Software
Post by: Schwab711 on February 07, 2016, 01:02:34 PM
I'm a big fan of Mark's writing and CSU seems like a shareholder-friendly company for both equity holders and acquired businesses [and I'm usually pretty careful about handing out that compliment]. Just started doing a deeper dive. I still think they are too expensive right now but I'd like to be comfortable with them in case they continue to decline.

I haven't finished reading through the thread but a few initial questions:
1) What happened to operating margins in 2011 and beyond? Seems like they recovered some in the past 12-18 months but they nose-dived from 17%+ to 10%+.
2) Why is service revenue declining while license/maintenance rev is up >10%? Seems like these should grow relatively proportional to each other. Could it be a negative sign or just normal variance?
3) Why is the valuation so high for a collection of software businesses with little cross-sale  opportunities? Is there an argument for any "platform value" here (for a lack of a better phrase)? I like their acquisition strategy but CSU sells for ~2x as much as what I think their individual companies would trade for. Their individual companies kind of remind me of FICO's software business, which has a dozen software titles that are #1 or #2 in their niche and earns similar margins (maybe a little higher). A collection like that is not unique and they don't garner much more than market multiples.
4) What is long-run organic growth? I think 0%-5% is a fair estimate (not overly conservative) and I'm not sure how many more acquisitions they can do that will move the needle while keeping the historic risk profile (they seem to prioritize stable businesses, which I like).
5) What is the argument for adding back amortized acquisition costs? This gets into the VRX debate, but I just don't think it's conservative accounting so I'm interested to hear why others do it. If the businesses really do remain relevant beyond the amortization period then profits will increase at that time. In my opinion, adding back these costs distorts the discounting that should be done, which inflates value. I'd obviously rather buy the stock on a fair multiple of net income and sell it when net income begins to approach adj EBITDA (many years from now).
6) Does anyone have projections for how much of the amortized charges will convert to permanent software maintenance expenses after the amortization period? Is 25% reasonable or should I model for closer to 75%-100%? My thinking is that as the software ages they will have to pay to "modernize" it, which is an expense (possibly capitalized as well) that is above and beyond current "normal" maintenance
7) What are the debentures trading at? Above or below par?
8) How much is a reasonable amount to model for annual acquisitions? I want to have a secondary model that adds back amortization (basically, their adj EBITDA) but also includes annual acquisitions. Do others believe they will need to spend > 50% of OCF on acquisitions going forward? Anyone worried about costs of modernization on top of this in a few years? This probably ties-in with #4 but is there any chance LT growth (ex-acq) is negative in a few years? This is why I want to know more about their individual software units?

9) Does anyone have any research on their individual software units they'd be willing to share? A breakdown of proj market share or market size, what regions they predominately operate in, segment growth, competitors, ect? I know they don't report a lot of this info but I was hoping someone had started to research this on their own. If you want to pm me instead, that works too. I'd be really grateful for whatever you can provide and I'll definitely send whatever I find in return.
Title: Re: CSU - Constellation Software
Post by: KJP on February 07, 2016, 01:58:19 PM

5) What is the argument for adding back amortized acquisition costs? This gets into the VRX debate, but I just don't think it's conservative accounting so I'm interested to hear why others do it. If the businesses really do remain relevant beyond the amortization period then profits will increase at that time. In my opinion, adding back these costs distorts the discounting that should be done, which inflates value. I'd obviously rather buy the stock on a fair multiple of net income and sell it when net income begins to approach adj EBITDA (many years from now).


The intangibles being amortized are software and customer relationships.  Constellation expenses (rather than capitalizes) its internal R&D, which amounted to $250 million in 2014.  (See page 6 here:  http://www.csisoftware.com/wp-content/uploads/2015/02/SR_Q4_2014.pdf).  And it expenses, rather than capitalizes, its sales and marketing costs, which are intended to replace churned off customer relationships.  To date, reported organic growth has been positive. 

In light of those accounting policies, why isn't it double counting to also subtract the intangible amortization expense to get a net income figure?  Put another way, what real world expense not already captured by other expenses does the intangible amortization expense capture?
Title: Re: CSU - Constellation Software
Post by: Schwab711 on February 07, 2016, 02:50:28 PM
Thanks for pointing me to the capitalized vs expensed costs. Very much appreciated.


5) What is the argument for adding back amortized acquisition costs? This gets into the VRX debate, but I just don't think it's conservative accounting so I'm interested to hear why others do it. If the businesses really do remain relevant beyond the amortization period then profits will increase at that time. In my opinion, adding back these costs distorts the discounting that should be done, which inflates value. I'd obviously rather buy the stock on a fair multiple of net income and sell it when net income begins to approach adj EBITDA (many years from now).


The intangibles being amortized are software and customer relationships.  Constellation expenses (rather than capitalizes) its internal R&D, which amounted to $250 million in 2014.  (See page 6 here:  http://www.csisoftware.com/wp-content/uploads/2015/02/SR_Q4_2014.pdf).  And it expenses, rather than capitalizes, its sales and marketing costs, which are intended to replace churned off customer relationships.  To date, reported organic growth has been positive. 

In light of those accounting policies, why isn't it double counting to also subtract the intangible amortization expense to get a net income figure?  Put another way, what real world expense not already captured by other expenses does the intangible amortization expense capture?

Acquisition of the code, employees, customers, contracts, ect were real expenses. How else did they come to own these operating businesses? If the business is as wonderful as they should be (based on acq criteria) then we will see earnings increase after these expenses are fully amortized. It's unreasonable to pay for those undiscounted higher earnings when I will surely need to repay the associated debt. Subtracting them out now acts as if they acquired these businesses/growth with indefinite bonds (which is not the case). I'm ok with subtracting out these costs to see what NI *might* look like after fully amortized, but only as a curiosity; the expense is included in GAAP accounting for a reason.

There are shades of VRX in this investment but I like Mark Leonard A LOT more than I ever liked Pearson. The similarities could be the quality of the individual software segments not being as great as implied (means acquisitions might need to continue to maintain growth) and the market valuing the company on a non-GAAP metric that I don't think is representative of what a new investor could pull out of the company (as mentioned, I believe at lease some portion of those amortization costs will eventually be converted to higher operating costs for software modernization - pretty common in the industry from what I understand). I'm a huge fan of FICO, which is also valued on a non-GAAP metric. I am not adverse to such metrics, but I want to limit their use to situations where I think they represent what a new investor buying 100% of the company would be able recoup or pull out of the business. In this case, at the moment, I think they could only recoup part of the amortization (see #6).
Title: Re: CSU - Constellation Software
Post by: Picasso on February 07, 2016, 04:16:39 PM
Constellation reports under IFRS not GAAP. I'm more curious if there's a difference of adjusted versus economic going forward as SaaS becomes a larger mix. 
Title: Re: CSU - Constellation Software
Post by: KJP on February 07, 2016, 04:18:04 PM

Acquisition of the code, employees, customers, contracts, ect were real expenses. How else did they come to own these operating businesses? If the business is as wonderful as they should be (based on acq criteria) then we will see earnings increase after these expenses are fully amortized. It's unreasonable to pay for those undiscounted higher earnings when I will surely need to repay the associated debt. Subtracting them out now acts as if they acquired these businesses/growth with indefinite bonds (which is not the case). I'm ok with subtracting out these costs to see what NI *might* look like after fully amortized, but only as a curiosity; the expense is included in GAAP accounting for a reason.


This debate has been had many times, so there's no sense rehashing it all here.  I referred to the numbers suggesting that Constellation is already expensing, through R&D and sales and marketing, the amounts necessary to replace the acquired "customer relationship" and "software" assets as they wear out.  That's why it appears to me that, with respect to Constellation specifically, adjusted net income is an appropriate metric.  But I could be wrong.  I would be very interested in data suggesting that the amounts the company is already expensing are inadequate to maintain current operations.

The money spent to acquire businesses is, of course, a real expense like any other growth capex.  I evaluate the success or failure of the acquisition strategy of a serial acquirer by looking at RONIC.  On that metric, Constellation's acquisitions have been great.  They'll need to continue that success for an investment at today's prices to be a home run. 



     
Title: Re: CSU - Constellation Software
Post by: KCLarkin on February 12, 2016, 09:04:51 AM
I'm sort of curious about the sell-side take on Constellation.

The attached article gives a good overview of analyst opinion.

Title: Re: CSU - Constellation Software
Post by: Picasso on February 12, 2016, 10:21:17 AM
Thanks KC.  I think the lack of sell-side love is a positive if they're wrong because you have new marginal buyers of CSU in the future and less is priced in.  I'm more curious about what the sell-side is missing because if you can figure that out and it's not priced into the shares then its probably going to do well in the future.  It seems to be a mix of issues and disbelief over the future growth looking anything like the past.

But I think it's super (maybe even super duper) important to kill the bear thesis because this stock checks off a lot of boxes on a short sellers list.  Just to name a few:

1) EPS of $7 in 2015 but $20 adjusted EPS in 2016. 
2) It's a rollup
3) It's in Canada
4) Donville Kent likes it
5) Software accounting treatment gets the attention short sellers
6) Bulls probably can't name the top ten CSU products making them susceptible to a bear raid (potentially weak hands)

There's a pretty simple playbook with the short sellers and this ticks off a lot of boxes.  Whether they get enough juice to launch an attack (they're already doing this with a decent quality rollup Ametek) is another story but I think you have to know this business inside out.  I personally think its legit but it wouldn't surprise me to see this become a battleground.
Title: Re: CSU - Constellation Software
Post by: physcdisp on February 12, 2016, 11:13:04 AM
I believe the company is legit, but then the business plan loses its relevance as it grows larger.  It worked wonderfully when small.  Leonard is a great capital allocator, and that is probably why the company did this long.  Most acquisition are small and the decisions are done at business unit level.  I doubt whether new crop of folks are as incentivized as a founder did and therefore motivations are different.  Also, based of memory, there is negative organic growth (partly due to strengthening of dollar), and the company operates in more than dozen verticals.  I think the conglomerates have had good run, historically have performed poorly in bear markets.  FWIW
Title: Re: CSU - Constellation Software
Post by: KCLarkin on February 12, 2016, 11:29:22 AM
I don't think sell-side is a good representation of the short thesis.

Here is a good summary of the short thesis:
http://www.valuewalk.com/wp-content/uploads/2016/01/Conglomerate-Boom-2.0-JHL-Capital-Group-10-20-15.pdf
Title: Re: CSU - Constellation Software
Post by: Liberty on February 17, 2016, 05:05:07 PM
Q4 http://www.csisoftware.com/wp-content/uploads/2016/02/PR_Q4_2015.pdf

http://www.csisoftware.com/wp-content/uploads/2016/02/SR_Q4_2015.pdf
Title: Re: CSU - Constellation Software
Post by: gary17 on April 10, 2016, 09:18:54 PM
Hi there
can someone please help me with a concept -

Mark said ROIC + organic growth is a good proxy for increase in shareholder value...
So if ROIC + organic growth is around 30 ~ 40%; is he implying that the intrinsic value has increased by 30 ~ 40%?

I also don't quite understand the term "average invested capital" - he defined it as the capital investors initially invested in CSU- i guess from the IPO; and adjusted for adjusted net incomes and dividends paid...   essentially it's a way of keeping track of the 'cash' in the business -
Why is this number not the same as the "book value" ?
### I guess I found my own answer -  average invested capital is based on adjusted earnings which includes amortization & depreciation ... whereas book value would not have included that.



Thanks
Gary
Title: Re: CSU - Constellation Software
Post by: Patmo on April 11, 2016, 05:46:56 AM
Book value includes depreciation & amortization... Capital assets are shown net of those...
Title: Re: CSU - Constellation Software
Post by: KCLarkin on April 11, 2016, 07:47:59 AM
Gary, this was discussed here:
http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/roic-organic-new-revenue-growth/
Title: Re: CSU - Constellation Software
Post by: gary17 on April 20, 2016, 07:12:14 PM
What are people's thoughts on the DE Commons ?
Title: Re: CSU - Constellation Software
Post by: KCLarkin on April 21, 2016, 07:55:58 AM
What are people's thoughts on the DE Commons ?

I like the idea. But I'm not sure it is worthwhile for most shareholders since you trade tax efficiency for liquidity. The dividend yield is only 1%. The added complexity is a drawback. Wish they would just scrap the dividend.
Title: Re: CSU - Constellation Software
Post by: Liberty on April 26, 2016, 06:02:39 PM
Another masterclass:

http://www.csisoftware.com/wp-content/uploads/2016/04/PL_2015.pdf
Title: Re: CSU - Constellation Software
Post by: KCLarkin on April 26, 2016, 07:34:06 PM
Anyone else coming to the AGM?
Title: Re: CSU - Constellation Software
Post by: snowball82 on April 27, 2016, 03:30:44 AM
Yes KC, I will be there.
Title: Re: CSU - Constellation Software
Post by: netnet on April 27, 2016, 10:02:42 AM
Another masterclass:

http://www.csisoftware.com/wp-content/uploads/2016/04/PL_2015.pdf

Truly a master class.  This guy is awesome,  I just wish the stock were cheaper.

He speaks directly to the problem, referencing another software company he admires that is also acquisitive and well run:

Quote
Great Companies Are Not Always Great Stocks

There ’s one last lesson from JKHY that I’d like to share. It relates to you as shareholders. There was a ten year period during which
JKHY’s shares both underperformed the S&P 500 (2000 until 2010) and didn’t make any money for shareholders. The underperformance
vs the S&P 500 was minor ... approximately 1%. JKHY’s revenues per share and ANI [net income] per share had compound average annual growth rates of 14% and 21%, respectively during that decade. Why did stock results and operating results diverge so widely for such a long period? It had to do with shareholder expectations and market exuberance. The general mania which gripped the market in 2000, and the more specific enthusiasm for JKHY ’s stock which then traded at well over 60 times ANI, left shareholders incredibly vulnerable. When the market “corrected” the JKHY stock had no margin of safety. When really good companies start trading at 5 and 6 times revenues, it’s time to start worrying.

I hope our shareholders are never in that position.

The last statement is, well, ironic and CEO's are not supposed do irony.  CSU shareholders are precisely in this position at a 60 P/E and 6X revenues. Basically he is saying, well guys I'm growing the company but you have no margin of safety.  Plus I'm not working as hard as I used to, so....
Title: Re: CSU - Constellation Software
Post by: Liberty on April 27, 2016, 11:18:58 AM
The last statement is, well, ironic and CEO's are not supposed do irony.  CSU shareholders are precisely in this position at a 60 P/E and 6X revenues. Basically he is saying, well guys I'm growing the company but you have no margin of safety.  Plus I'm not working as hard as I used to, so....

P/E ratio is only 60x if you don't take into account that the stock is trading in CAD and the earnings are in USD, and that they are depressed by a lot of non-cash amortization (after all it's a very acquisitive company) that might not have an actual economic impact (your call to decide if that's the case, but organic growth has been positive over the long-term (including this year, ex-FX)).

FCF multiple has been closer to 20-25x lately.
Title: Re: CSU - Constellation Software
Post by: Poor Charlie on April 27, 2016, 11:56:45 AM
It's inspiring (& telling) that Mark Leonard, after all his and CSU's success, still wants to learn from people like Jack Henry.

BTW, for those interested the JKHY book (You Don't Know Jack) that Leonard mentions is a good read.  It was (is? Might have gone up after the ML mention) available on AMZN for under $1.

Interesting factoid:  When Jack was expanding JKHY he was so cautious/conservative that he built the new office so that it doubled as a home for his son.  If things went bad he could shut the business down and convert the office into a home.  Talk about contingency planning.

Title: Re: CSU - Constellation Software
Post by: Jurgis on April 27, 2016, 12:23:31 PM
BTW, for those interested the JKHY book (You Don't Know Jack) that Leonard mentions is a good read.  It was (is? Might have gone up after the ML mention) available on AMZN for under $1.

Bought the book for Kindle for $0.99 http://smile.amazon.com/Bought-Love-Dont-Know-Jack-ebook/dp/B00KEGP65O/ref=sr_1_4?s=books&ie=UTF8&qid=1461784742&sr=1-4&keywords=you+don%27t+know+jack

Edit: Hold on. Must be wrong book. This one is about Wohl Capital.

Edit 2: No copies left, ML fans on rampage: http://smile.amazon.com/You-Dont-Know-Jack-Jerry/dp/0977601838/ref=sr_1_1?s=books&ie=UTF8&qid=1461785106&sr=1-1&keywords=you+don%27t+know+jack+or+jerry

Edit 3: The Wohl Capital book is probably still better.
Title: Re: CSU - Constellation Software
Post by: Picasso on April 27, 2016, 12:46:53 PM
Don't forget to do a review on this forum of that first Jack book.  I want to see a nice long review.  Lots of details...
Title: Re: CSU - Constellation Software
Post by: KCLarkin on April 27, 2016, 01:06:27 PM
The last statement is, well, ironic and CEO's are not supposed do irony.  CSU shareholders are precisely in this position at a 60 P/E and 6X revenues. Basically he is saying, well guys I'm growing the company but you have no margin of safety.  Plus I'm not working as hard as I used to, so....

He is saying that  CSU is a great company but the stock is overpriced, there is no margin of safety, and growth and ROIC are likely to slow. He has said similar things at much lower prices, so you need to do your own work.
Title: Re: CSU - Constellation Software
Post by: KCLarkin on April 27, 2016, 03:59:49 PM
He speaks directly to the problem, referencing another software company he admires that is also acquisitive and well run:
...
The last statement is, well, ironic and CEO's are not supposed do irony.  CSU shareholders are precisely in this position at a 60 P/E and 6X revenues. Basically he is saying, well guys I'm growing the company but you have no margin of safety.  Plus I'm not working as hard as I used to, so....

For fun, I took a quick look at the JKHY 2001 annual report. It looks like it was actually trading at 10x sales. I think the 5-6x he is referring to is actually CSU.

In many ways, CSU is much better (purely based on numbers). JKHY had really high capex and stock dilution (options weren't expensed back then). CSU has float. So CSU has much better ROIC.

JKHY had better organic growth and probably a longer runway.

I will spend some more time on this once earning season quiets down.
Title: Re: CSU - Constellation Software
Post by: Poor Charlie on April 27, 2016, 05:48:03 PM
In many ways, CSU is much better (purely based on numbers). JKHY had really high capex and stock dilution (options weren't expensed back then). CSU has float. So CSU has much better ROIC.

Dilution - JKHY's dilution is par for the course in the software industry.  Many good/great software businesses (ADBE/MSFT/ADSK/ORCL/VRSK/etc) all went crazy with stock options.  The adjustments that had to be made to prior years' earnings when they began expensing them in 04/05 was absurd (just take a look at MSFT's AR from that period).

Capex -  Core processing systems normally invest around 5%-10% of revenue in capex which I agree is high.  However, contracts are multi-year and retention is close to 100% (excluding attrition due to M&A).  This gives them a ton of visibility into the returns they will be getting on incremental capital investments (returns have been around 25% with low variance for decades).  Also consider that software companies with decent organic growth and strong market positions often have to make surprisingly large capex commitments.  VRSK, with as close to a bulletproof business as you can get, usually invests between 4%-10% of sales in capex. 

JKHY had better organic growth and probably a longer runway.

In general I tend to favor growing business with high (and highly visible) incremental returns over no-growth businesses with low (or negative) capital requirements.  Retaining capital at 25% returns even if you're only growing at mid-to-high single digits is incredibly valuable over a multi-year period.   



 
Title: Re: CSU - Constellation Software
Post by: KCLarkin on April 27, 2016, 06:44:11 PM
In general I tend to favor growing business with high (and highly visible) incremental returns over no-growth businesses with low (or negative) capital requirements.  Retaining capital at 25% returns even if you're only growing at mid-to-high single digits is incredibly valuable over a multi-year period.   

I'm just trying to reverse engineer the mistake that investors made when they bought JKHY at 10x sales in 2001. Am I making the same mistake buying CSU at the current price. One obvious difference is that JKHY had basically no FCF if you factor in dilution.

But this is really back of the envelope stuff. Not making any judgement on JKHY. Just saying that it is not immediately obvious that JKHY's lost decade is directly relevant to CSU shareholders.
Title: Re: CSU - Constellation Software
Post by: KCLarkin on April 28, 2016, 10:44:02 AM
Just returned from the AGM. Great Q&A. I didn't keep notes, but one question that might interest the board. Mark was asked about investing in public companies (discussed in his letter). His rationale is that CSU has lot's of cash to deploy during downturns but it is hard to buy whole businesses at the bottom (presumably sellers are reluctant at the bottom). Much easier to buy shares of publicly traded vertical software at the bottom.

Also, he really dislikes buybacks. So any cash returns are likely to be special dividends (which would make the DE shares more enticing). DE shares won't be listed. He doesn't want to create arbitrage situation.

They really emphasized the pyramid structure of capital allocation. Pushing down capital allocation knowledge deeper into the organization.

He wasn't asked about the over-valuation alluded to in the letter, but he said he wants to foster a shareholder base that will carefully follow the company and then buy in size (he mentioned a 10% portfolio weighting). He encouraged waiting for dips though. This was in response to a question about a stock split to make the stock more appealing to retail investors.

Snowball, anything to add?

--
Unfortunately, I missed the dip in the stock price since I was at the AGM. So my 10% weighting will need to wait.
Title: Re: CSU - Constellation Software
Post by: Liberty on April 28, 2016, 11:29:43 AM
Thanks for sharing, KCLarkin. I'm considering going to the AGM next year.. or maybe the Fairfax one just because there will probably be more people from the board and Twitter. Not decided yet.
Title: Re: CSU - Constellation Software
Post by: KCLarkin on April 28, 2016, 12:50:08 PM
I'm considering going to the AGM next year.. or maybe the Fairfax one just because there will probably be more people from the board and Twitter. Not decided yet.

Two very different events. Fairfax is a great event for value groupies with many social events. CSU is very specific to the company. It is a great opportunity to hear from the managers of the various business units. But the audience is a bunch of white guys in suits sitting in a law office boardroom. You will have way more fun at Fairfax.
Title: Re: CSU - Constellation Software
Post by: gary17 on April 28, 2016, 01:51:23 PM
the lesson these days seems to be to buy good / strong businesses that will endure over time, but never overpay -     
it's the message repeated by so many great investors & i often forget

i am amazed to learn when Ichan bought Apple - and now sold - still made $2B      nice

Title: Re: CSU - Constellation Software
Post by: Liberty on May 09, 2016, 05:58:17 PM
Good writeup on CSU by @jnvest (on Twitter):

http://www.jnvestor.com/csu/
Title: Re: CSU - Constellation Software
Post by: snowball82 on May 10, 2016, 05:28:53 AM
Just returned from the AGM. Great Q&A. I didn't keep notes, but one question that might interest the board. Mark was asked about investing in public companies (discussed in his letter). His rationale is that CSU has lot's of cash to deploy during downturns but it is hard to buy whole businesses at the bottom (presumably sellers are reluctant at the bottom). Much easier to buy shares of publicly traded vertical software at the bottom.

Also, he really dislikes buybacks. So any cash returns are likely to be special dividends (which would make the DE shares more enticing). DE shares won't be listed. He doesn't want to create arbitrage situation.

They really emphasized the pyramid structure of capital allocation. Pushing down capital allocation knowledge deeper into the organization.

He wasn't asked about the over-valuation alluded to in the letter, but he said he wants to foster a shareholder base that will carefully follow the company and then buy in size (he mentioned a 10% portfolio weighting). He encouraged waiting for dips though. This was in response to a question about a stock split to make the stock more appealing to retail investors.

Snowball, anything to add?

--
Unfortunately, I missed the dip in the stock price since I was at the AGM. So my 10% weighting will need to wait.

KC,

You added most importants points.

That said I have doubt about the enterprise culture when Leonard will leave.

For now, the management seems honest, they said we can't repeat past return over next years.
 
So we have to think about valuation. Leonard himself said he thinks the current stock price is too high and investors should only buy on big dips.

What are your expected return at this price $ 495  ?

Title: Re: CSU - Constellation Software
Post by: netnet on May 10, 2016, 12:25:52 PM
Two year old profile of Leonard, will remove if this has been posted before:

http://www.theglobeandmail.com/report-on-business/rob-magazine/the-most-successful-canadian-dealmaker-youve-never-heard-of-and-will-never-see/article18134950/?page=all

Here are the first few paragraphs:

Globe and Mail Magazine, April 2014,
by Chidley


In this age of zero privacy, Mark Leonard has managed to maintain a practically unthinkable level of anonymity for just about any individual—let alone an IT executive who runs one of Canada’s most dynamic, fastest-growing and most acquisitive software companies, and who has been compared favourably with Warren Buffett and Prem Watsa. So it’s no surprise that Leonard would probably prefer not to be the subject of a profile in this magazine. For that matter, he would prefer not to be the subject of a profile in any magazine. Or newspaper. Or trade publication. Or television show (you know, if there were a television show devoted to profiling Canadian business leaders). No, the founder, president and chairman of Constellation Software Inc.—a Toronto-based, publicly traded software company with a $5-billion-plus market cap and one of the best-performing stocks on the TSX—would prefer not to be profiled at all. And so far, in the nearly 20-year history of Constellation, he’s done a pretty good job of staying out of the spotlight.

In fact, you could say he’s done a strangely effective job of it. Search “Mark Leonard” on Google Images and you get nowhere. Scan the Web, or even the company’s website, for basic biographical information and you’ll find, well, not much. One source from England, where Leonard sits on corporate boards, says that he was born in 1956. A person close to Constellation says he was born in the United Kingdom; another seems to think he comes from South Africa, but “I really can’t remember.” The company’s online bio-graphy (no photo) notes that “Mr. Leonard founded CSI in 1995,” and before that worked in “the venture capital business for eleven years”; it also records that he has a BSc from the University of Guelph and “a MBA” from Western University. And that’s about it. Social media? Well, he’s on LinkedIn (no photo, of course), which duly notes his job title and that he attended Western’s Ivey Business School from 1980 to 1982. At the time of this writing, he had 311 LinkedIn connections—so somebody knows him. And what do those people have to say? “He is probably the most intensely private individual in IT,” says one long-time associate who, like nearly everybody else contacted for this article, spoke on condition of anonymity. “He’s one of the smartest tech executives I’ve met in my entire career.”

And there’s an irony in that. Because if anyone is deserving of whatever celebrity the business pages can bestow on a Canadian corporate leader, then Leonard is probably the guy.

With an initial $25-million investment from OMERS and his old associates at Ventures West Capital in 1995, he has built Constellation into a world-leading consolidator of vertical market software (VMS) companies—firms that create products to help run businesses in specific industries. Over the years, Constellation has made scores of acquisitions and, through its six operating groups, now provides software to over 60 industries, from health care to law to public transit. For instance, Markham, Ontario-based Jonas Club Management makes the programs that run golf courses’ payroll, tee-time reservations and food-and-beverage operations. Emphasys makes software for various public housing authorities. Constellation’s customers need the kind of stuff that’s too specialized to merit much attention from the big guns of enterprise software, and all these VMS firms under its umbrella give Constellation a strong competitive position in the North American marketplace—that is, there isn’t much competition at all.

Typically, Constellation’s acquisitions are small—in the $2-million to $4-million range—but add them all up, slip in a dose of Constellation’s financial and oper-ational discipline, and you have a company with $1.2 billion (U.S.) in sales in 2013 and an EBITDA margin of 20%. A tidy proxy for Leonard’s accomplishment lies in the company’s stock performance: From its initial public offering in 2006 to the end of the first quarter of this year, CSI returned more than 1,300%. Add in dividends and that number soars to 1,535%. That’s equivalent to a compound annual return of almost 43%.
Title: Re: CSU - Constellation Software
Post by: Phaceliacapital on May 19, 2016, 12:49:21 AM
fyi:

https://janav.files.wordpress.com/2016/05/constellationsoftware.pdf
Title: Re: CSU - Constellation Software
Post by: magno111 on May 19, 2016, 01:23:07 AM
That write up is funny.

He forgot to adjust the FX. CSU reports on USD but trades on CAD...

That would mean a 1200$ share price in 2020 more than 15% CAGR...

Title: Re: CSU - Constellation Software
Post by: netnet on May 21, 2016, 09:23:26 PM
That write up is funny.

He forgot to adjust the FX. CSU reports on USD but trades on CAD...

That would mean a 1200$ share price in 2020 more than 15% CAGR...

Funny how? incorrect or odd or wierdly forgot to do the currency conversion?
Title: Re: CSU - Constellation Software
Post by: Liberty on June 30, 2016, 09:05:19 AM
http://www.marketwired.com/press-release/constellation-software-inc-cash-offer-for-bond-international-software-plc-bond-tsx-csu-2138921.htm

Quote
Constellation Software Inc. (TSX:CSU) ("Constellation" or the "Company") today announced its firm intention to make a cash offer through a wholly owned subsidiary for all the issued share capital of Bond that Constellation and parties acting in concert with Constellation (the "CSI Group") do not currently own at a price of £1.05 per ordinary share. The offer values the existing issued ordinary share capital of Bond at approximately £44 million in aggregate.

The CSI Group collectively own 12,475,911 Bond Shares representing approximately 29.6 per cent of the existing issued ordinary share capital of Bond. In addition the CSI Group owns 100% of the non-voting convertible shares outstanding in Bond.

A bit less expensive than when the intention to bid was first announced a month ago thanks to Brexit...
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on July 14, 2016, 09:55:18 AM
I've been doing a lot of work on this name recently.  I tracked it for a few years but I just thought it was too complicated and I wasn't sure how they were growing 30%+ a year.  And I generally didn't understand the software space.  The math finally clicked and i'm much poorer for not seeing it earlier.

capex lite / negative working capital due to upfront revenue payments / highly fragmented market with tons of ability to deploy capital internally and through acquisitions / high recurring revenue businesses / phenomenal CEO and management....all of these combine to make for a fantastic compounding machine, with Berkshire like returns.
 
I think in one earnings call they said they were tracking over 25k vertical eligible software acquisition targets and growing.  it's very likely to me that they will be able to keep plowing 100% (plus leverage) of available capital (including deferred revenue but excluding dividends) into acquisitions and organic initiatives for at least the next 5-7 years.

It seems to me if I normalize earnings, then this stock is trading at ~20x TTM earnings and ~17x NTM earnings.  If they maintain low to mid single digit organic revenue growth, and acquire other software companies at even 12-15% hurdle rates on average ( I know they target 25%+), then I don't see how this company's earnings don't grow at least 20% a year for a while (and my base case is much higher)...

in other words, it seems relatively cheap right now.  Anyone disagree? Also anyone have any idea roughly what margins organic revenue from new initiatives comes in at?  Is it just sales commissions they have to pay?

Thanks for your feedback. 
Title: Re: CSU - Constellation Software
Post by: Liberty on July 14, 2016, 10:32:25 AM
I think the last time I heard it mentioned, they were tracking 30k VMS businesses now. The acquisition of TSS has opened new possibilities in Europe where they were less active before, and they've been trying to teach capital allocation/M&A to more of their operating units so that more smaller acquisitions can happen while management keeps looking for bigger one (said they'd like something of the size of TSS every year or two). Now that they've raised more long-term capital with the debentures and upsized the revolver, they certainly have more dry powder. They've also restarted their public securities investment program, which I think did pretty well in the past. Of course, it always depends on what opportunities are available...

It varies by unit, but they certainly have high incremental margins, and they are highest on maintenance revenue, which grows organically faster than the overall (they mentioned that they tend to drop professional service revenues after an acquisition if those aren't profitable, while other companies tend to use them as a marketing tool -- so this can depress overall reported organic numbers after acquisitions even if they're actually cutting unprofitable stuff, increasing overall margins). a year or two ago in the president's letter, the CEO mentioned that if he assumed organic growth 2.5% higher than consensus of analyst models, the estimate of IV doubled.
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on July 14, 2016, 11:11:14 AM
Liberty,

Very helpful.  Thank you.

I'm trying to dig in on the economics for software sales commissions.  it's making my head spin!  And further complicated with SaaS sales.  The punchline is that there will be sales commissions paid out on maintenance revenues for a number of years.  But still i think that's the only real incremental cost to their organic growth.
Title: Re: CSU - Constellation Software
Post by: Liberty on July 27, 2016, 02:29:16 PM
Q2: http://www.csisoftware.com/wp-content/uploads/2016/07/PR_Q2_2016.pdf

Quote
Q2 2016 Headlines:
 Revenue grew 19% (2% organic growth, 3% after adjusting for changes in foreign exchange rates) to $529 million compared to $444 million in Q2 2015.
 Adjusted EBITA increased $32 million or 32% to $131 million as compared to $99 million in Q2 2015.
 Adjusted Net Income increased 13% to $90 million ($4.24 on a diluted per share basis) from $80 million ($3.76 on a diluted per share basis) in Q2 2015.
 Net income increased 68% to $55 million ($2.60 on a diluted per share basis) from $33 million ($1.54 on a diluted per share basis) in Q2 2015.
 Ten acquisitions were completed for aggregate cash consideration of $49 million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $5 million.
 Cash flows from operations were $73 million, an increase of 14%, or $9 million, compared to $64 million for the comparable period in 2015.
Title: Re: CSU - Constellation Software
Post by: gary17 on July 27, 2016, 03:13:41 PM
excellent results ?????
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on July 27, 2016, 03:18:39 PM
a quarterly read in which there are a series of acquisitions is pretty difficult to really process. It looks like organic growth ex-fx at 3% is fine and CSU is able to keep plowing money into acquisitions.  We'll see if Bond International closes.

Adj. EBITA up 32% / organic revenue up 3% ex-fx, and maintenance revenue up 20%+ is kinda what my brain is focusing on.

looks like adjusted Net income is up 13%  vs. 32% for EBITA.  it doesn't exclude the impact of the derivative fx gains, and there was an unusual tax accrual in the quarter.....but on an annualized basis , the normalized tax rate should level be mid teens.

so a pretty good quarter overall.

Title: Re: CSU - Constellation Software
Post by: Liberty on August 21, 2016, 06:52:17 PM
Bid for Bond International in the UK:

http://www.lse.co.uk/regulatory-news-article.asp?ArticleCode=hgg3zr0i&ArticleHeadline=Posting_of_Offer_Document
Title: Re: CSU - Constellation Software
Post by: Liberty on September 23, 2016, 05:39:32 AM
Bid for Bond International in the UK:

http://www.lse.co.uk/regulatory-news-article.asp?ArticleCode=hgg3zr0i&ArticleHeadline=Posting_of_Offer_Document

And here's a revised bid:

http://www.marketwired.com/press-release/constellation-software-inc-constellation-company-revised-cash-offer-bond-international-tsx-csu-2160974.htm

Quote
Constellation has made a revised cash offer (the "Revised Offer") today, through a wholly owned subsidiary, for all the issued share capital of Bond that the CSI Group does not currently own, at a price of £1.15.5 per ordinary share. The Revised Offer values the existing ordinary share capital of Bond at approximately £48.7 million.
Title: Re: CSU - Constellation Software
Post by: Liberty on October 26, 2016, 04:04:37 PM
Q3: http://www.csisoftware.com/wp-content/uploads/2016/10/PR_Q3_2016.pdf

Quote
Q3 2016 Headlines:
 Revenue grew 19% (4% organic growth, 5% after adjusting for changes in foreign exchange rates) to $546 million compared to $460 million in Q3 2015.
 Adjusted EBITA increased $20 million or 17% to $140 million as compared to $120 million in Q3 2015.
 Adjusted Net Income increased 22% to $121 million ($5.70 on a diluted per share basis) from $99 million
($4.67 on a diluted per share basis) in Q3 2015.
 Net income increased 48% to $68 million ($3.18 on a diluted per share basis) from $46 million ($2.16 on
a diluted per share basis) in Q3 2015.
 Fifteen acquisitions were completed for aggregate cash consideration of $42 million (which includes
acquired cash). Deferred payments associated with these acquisitions have an estimated value of $8
million.
 Cash flows from operations were $138 million, an increase of 31%, or $33 million, compared to $105
million for the comparable period in 2015.

Nice to see maintenance and recurring revenues grow faster than overall in both public and private. This means they're growing faster on the more sticky and high-margin side, which creates more value.
Title: Re: CSU - Constellation Software
Post by: gary17 on October 26, 2016, 05:01:58 PM
agreed - very nice quarter
Title: Re: CSU - Constellation Software
Post by: Alex.N.B on December 09, 2016, 03:17:42 PM
Short write-up on CSU by Grant's .. looks like it came out today
Title: Re: CSU - Constellation Software
Post by: thefatbaboon on December 10, 2016, 01:57:57 AM
Short write-up on CSU by Grant's .. looks like it came out today

Some of this seems misleading. 

For example, where the author is writing of the declining quality of acquisitions he find a Leonard quote that is made about new entrants into the 30,000 company funnel and makes it seem Leonard is talking about new acquisitions. Perhaps Leonard does think that the new acquisitions are worse - but it isn't what he is saying in this quote.

Then there is talk about the booking of an acquisitions initial price increase into organic growth.  In the annual report CSI then break this organic growth into a) new maintenance, b) price increases, c) lost customers d) lost modules. So where does the analyst and Grants think it should go? I haven't a problem with this.

The math they do on the inconsistency between the reported organic growth rate in the 3Q and the $ added to prior year from acquisitions seems right. Although they have picked examples that have the manual adjustment giving lower organic rates.  If you do the same for some of the 9m numbers they have reported a lower % from 9m Private Sector as compare to the % implied by making the $ adjust to prior year rev oneself.  Constellation should explain what it is that causes the inconsistencies. 
Title: Re: CSU - Constellation Software
Post by: Alex.N.B on December 11, 2016, 01:41:17 PM
Related to the Grant write-up, just some thoughts:

I think some of their points are valid but I think you could argue the same thing about disclosure at Berkshire sometimes.. don't think that is necessarily a good point. The fact that Mark Leonard writes a very detailed investor letter every year is greater disclosure than most companies I would argue. I think the Grant write-up is a little biased - I am not sure that CSU "maintains that it jacks up the prices on the acquired software" .. they probably do it over time because the business model allows them to do so + any other software company with a recurring revenue business model would do the same.

They do have a lot of businesses and it's hard to know about all of them. I think looking at maintenance revenue growth over time is a good indication of how well the overall business is doing, if that is increasing and value is being created in the business I also think Adj. EPS is the right metric - so ~20x earnings for a business that can probably double in the next 4 to 5 years. They've been scaling up their acquisitions over time and they have some long-term shareholders who will probably help the company take on some long term debt as well to make larger acquisitions. This is a company with a track record, built from the ground up by Mark Leonard and executives are shareholders of the company along with him. I generally don't like platform companies but I think CSU has clearly developed a successful process for making acquisitions.

I do think there are some risks, obviously the market might have gotten a little ahead of itself given the strong recent performance so maybe something happens and there is a good opportunity to buy.. but I don't think it's a good short.
Title: Re: CSU - Constellation Software
Post by: thepupil on December 11, 2016, 02:57:14 PM
I think some of their points are valid but I think you could argue the same thing about disclosure at Berkshire sometimes..

Berkshire Balance Sheet = $604B of assets,
$80B of cash
$24B of mostly soveriegn fixed income,
$100B of equities
$15B in other which includes warrants/prefs/ stuff linked to public companies
$169B in Utilities and Railroads which are seperate filing companies with 10-k's and 10-q's

$400B / $600b of the asset side is pretty transparent, of the remaining $200, $53B is goodwill (nothing to verify) and there PCP is in there (which was recently a public company)

Of the $331B of liabilities
$73B related to railroads and utilites which are separate public companies
$73B is deferred income tax related to unrealized gains and accelerated depreciation / capex > depreciation
$105B is the insurance business <---where there would be shenanigans as this is obviously the most subjective.

I would say that the bulk of Berkshire is very transparent and not at all comparable to how this company is portrayed. I'm not saying that something bad can't happen at Berkshire because it can, but in terms of the material drivers of value, there is a pretty good amount of info out there and public assets.

 I have no opinion of constellation and have never really looked at it, but just saying that I think the Berkshire comparison is off from a purely "how much of the balance sheet / revenue / net income is somewhat verifiable" perspective.


Title: Re: CSU - Constellation Software
Post by: Schwab711 on December 11, 2016, 05:06:41 PM
I know very little about CSU but going off Grant's: if 2/3 of revenue is from US/CAD government (public) entities then are tax payers paying the price hikes/providing the outstanding returns?
Title: Re: CSU - Constellation Software
Post by: DooDiligence on December 12, 2016, 12:25:02 AM
Speaking anecdotally regarding forced software upgrades.

I recently upgraded to Mac OS Sierra only to discover that QuickBooks didn't support it.

Here I was, locked out of nearly 20 years of data @&$?!

They did this to us before except it wasn't a total lockout; you had to upgrade in order to import data to TurboTax (I promptly stopped using TurboTax in favor of HR Blocks Tax Cut.)

It wouldn't be so bad if the upgrade actually provided value but it doesn't.

As the Grants article claimed similar issues, I tend to believe them (although by their own admission, a lot of their short calls get c0k blocked...)
Title: Re: CSU - Constellation Software
Post by: vinod1 on December 13, 2016, 08:19:44 AM
I see two problems with the way the company is reporting adjusted earnings

a) Assuming 100% of amortization expenses are non-economic.

To take an example, if the company has say 250 different vertical market software products, it is tough to accept that nearly all of them would remain viable, even with R&D, 25 years from now. I would assume some of them would be supplanted by other firms and new technologies may obviate the need for the software.

The company logic seems to be that, fine even if 50 of these products are supplanted, if the remaining 200 products have revenue growth that can exceed the combined revenue of the 250 products, then in aggregate there is no need for amortization.

This is a very reasonable view and I cannot disagree all that much, but for conservatism sake I would incorporate a small portion of the amortization expense as economic.

2. No tax adjustment for amortization expenses.

I find it surprising that the adjusted net income figure does not deduct for taxes for the amortization expenses. I have always adjusted for non-economic amortization charges by deducting for taxes and adding it back to get normalized earnings.

Constellation is adding back the full amortization expense to get adjusted net income. The logic seems to be that the company gets tax deduction anyway and cash flow would equal amortization expense so "cash earnings" would equal net income + amortization expenses. There are other minor adjustments but let us leave them out for now.

It seems rather aggressive to me to assume a temporary tax break to be a perpetual tax break. The company is amortizing its intangibles for about 9 years in aggregate. So instead of valuing the 9 year tax break the company assumes that the tax break would be forever.

I might be missing or misunderstanding something and would love to hear others thoughts on this.

My current view is to treat all amortization expense as non-economic but adjust for taxes on amortization expense. This way I am not even giving the company the benefit of 9 years of tax breaks but that should roughly make up for treating the entire amortization expense as non-economic.

Vinod
Title: Re: CSU - Constellation Software
Post by: Liberty on December 30, 2016, 06:41:05 PM
Japanese JV announced:

http://www.csisoftware.com/2016/12/constellation-software-announces-agreement-with-hikari-tsushin/

Quote
announced today that it has entered into an agreement with Hikari Tsushin, Inc. for the incorporation, management and operation of a joint venture company.  The joint venture company, to be named Constellation Software Japan, will seek to invest in, acquire and manage vertical market software companies with a primary place of business in Japan.
Title: Re: CSU - Constellation Software
Post by: snowball82 on December 31, 2016, 09:11:19 AM
Japanese JV announced:

http://www.csisoftware.com/2016/12/constellation-software-announces-agreement-with-hikari-tsushin/

Quote
announced today that it has entered into an agreement with Hikari Tsushin, Inc. for the incorporation, management and operation of a joint venture company.  The joint venture company, to be named Constellation Software Japan, will seek to invest in, acquire and manage vertical market software companies with a primary place of business in Japan.

Thanks for the post Liberty, it will be interesting to see if they will have opportunities to invest significant capital there. HIKARI TSUSHIN seems to be positionned in many segments :

https://eng.hikari.co.jp/wp-content/uploads/Side-presentation160815-3.pdf
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on January 03, 2017, 12:22:14 PM
I see two problems with the way the company is reporting adjusted earnings

a) Assuming 100% of amortization expenses are non-economic.

To take an example, if the company has say 250 different vertical market software products, it is tough to accept that nearly all of them would remain viable, even with R&D, 25 years from now. I would assume some of them would be supplanted by other firms and new technologies may obviate the need for the software.

The company logic seems to be that, fine even if 50 of these products are supplanted, if the remaining 200 products have revenue growth that can exceed the combined revenue of the 250 products, then in aggregate there is no need for amortization.

This is a very reasonable view and I cannot disagree all that much, but for conservatism sake I would incorporate a small portion of the amortization expense as economic.

2. No tax adjustment for amortization expenses.

I find it surprising that the adjusted net income figure does not deduct for taxes for the amortization expenses. I have always adjusted for non-economic amortization charges by deducting for taxes and adding it back to get normalized earnings.

Constellation is adding back the full amortization expense to get adjusted net income. The logic seems to be that the company gets tax deduction anyway and cash flow would equal amortization expense so "cash earnings" would equal net income + amortization expenses. There are other minor adjustments but let us leave them out for now.

It seems rather aggressive to me to assume a temporary tax break to be a perpetual tax break. The company is amortizing its intangibles for about 9 years in aggregate. So instead of valuing the 9 year tax break the company assumes that the tax break would be forever.

I might be missing or misunderstanding something and would love to hear others thoughts on this.

My current view is to treat all amortization expense as non-economic but adjust for taxes on amortization expense. This way I am not even giving the company the benefit of 9 years of tax breaks but that should roughly make up for treating the entire amortization expense as non-economic.

Vinod

Vinod,

On your first point, I'm not terribly worried about this.  I think it's valid, though its probably not too meaningful to amortize a small portion of their software.  Mark himself tells shareholders to not give them an add back on amortization if you start to see the  maintenance revenue metrics go south. However, the majority of the amortization is from acquired intangibles, not internally developed software.  Internally developed R&D is mostly expensed in the current period unlike at most other software companies.  Since these guys are very acquisitive, I think it's unclear if what is reflected on the balance sheet for intangibles is remotely close to economic reality. Consequently, I'm not sure that stated amortization can accurately reflect economic reality (even if there is some economic amortization).  Mark says to judge this, look and see if maintenance revenue is going down.  Of course, it's still not a perfect solution because they have been buying declining businesses for very low prices.  At the end of the day its about IRR.

On the second, I think this a valid question.  I wonder, though I don't know, if you are allowed to take a tax deduction on the amortization of acquired intangibles.  I believe you are for US tax purposes. However, I think this would be a good question for them.  In other words, maybe they're not deducting the majority of it for tax purposes to begin with.  I don't know. 
Title: Re: CSU - Constellation Software
Post by: Liberty on January 03, 2017, 01:02:06 PM
CSU acquisition in the communication towers management business:

http://www.marketwired.com/press-release/volaris-group-expands-position-communications-vertical-with-acquisition-tarantula-global-2186008.htm

Quote
Tarantula's Tower Management Solutions are sold to mobile "towercos and telcos" that operate their own tower networks. Towers are vertical structures built on a parcel of land designed to accommodate multiple tenants using different technologies including telephony, mobile data, broadcast, television and radio to a geographical area surrounding the tower. Tarantula's solution enables tower portfolio operators to rollout new towers, mange colocation contracts, manage location details, manage site access and leases, acquire new towers, manage site inventory, bill for colocation tenants, manage field workforce, and manage operations and maintenance activities. In essence, and end-to-end ERP system for tower portfolio operators.

http://www.tarantula.net
Title: Re: CSU - Constellation Software
Post by: maybe4less on January 03, 2017, 01:53:58 PM
CSU acquisition in the communication towers management business:

http://www.marketwired.com/press-release/volaris-group-expands-position-communications-vertical-with-acquisition-tarantula-global-2186008.htm

Quote
Tarantula's Tower Management Solutions are sold to mobile "towercos and telcos" that operate their own tower networks. Towers are vertical structures built on a parcel of land designed to accommodate multiple tenants using different technologies including telephony, mobile data, broadcast, television and radio to a geographical area surrounding the tower. Tarantula's solution enables tower portfolio operators to rollout new towers, mange colocation contracts, manage location details, manage site access and leases, acquire new towers, manage site inventory, bill for colocation tenants, manage field workforce, and manage operations and maintenance activities. In essence, and end-to-end ERP system for tower portfolio operators.

http://www.tarantula.net

I like the fact this company is headquartered in Singapore. Hopefully more quality Asian acquisitions for them in the near future.
Title: Re: CSU - Constellation Software
Post by: Liberty on February 16, 2017, 08:15:28 AM
Bit of a slower quarter for CSU:

http://www.csisoftware.com/wp-content/uploads/2017/02/SR_Q4_2016.pdf

But still a bit over 23% FCF growth for the year.

The FX for the debentures is still making things a bit fuzzier ($25m swing from revaluation of the Company's unsecured subordinated floating rate debentures (CAD) between 2015 and 2016.)

Also, new acquisition announced by Volaris this morning. Press release threshold is $10m:

http://www.csisoftware.com/2017/02/volaris-group-a-constellation-software-company-enters-into-agreement-to-acquire-provider-of-digital-financial-services-to-mobile-operators/
Title: Re: CSU - Constellation Software
Post by: Liberty on February 22, 2017, 07:12:17 PM
I'm seriously considering going to the CSU AGM this year (April 28, to be officially confirmed later in march, but that's what I was told by the CFO). Anyone else here going?
Title: Re: CSU - Constellation Software
Post by: Astrea on March 19, 2017, 05:23:49 AM
I am considering going - has anyone been before and know the format? Is it a full day event type of thing? Thanks
Title: Re: CSU - Constellation Software
Post by: Liberty on March 19, 2017, 06:40:18 AM
I am considering going - has anyone been before and know the format? Is it a full day event type of thing? Thanks

From what I've been told, it's about 2 hours, from maybe 10:30 AM.
Title: Re: CSU - Constellation Software
Post by: snowball82 on March 19, 2017, 07:16:39 AM
I'm also interested to go. I liked the experience last year ... that said if you go for new content you could be a bit disapointed. Funny thing, the CEO said last year not to buy the stock at current price but do a big buy if there is a significant dip :) Fortunately we didn't listened him and we added to our position last year ...
Title: Re: CSU - Constellation Software
Post by: smartone on April 17, 2017, 10:35:18 PM
any update on date/time?  Thanks. Can't seem to find anything about it on the website.
Title: Re: CSU - Constellation Software
Post by: Liberty on April 18, 2017, 06:51:28 AM
any update on date/time?  Thanks. Can't seem to find anything about it on the website.

It's in the proxy, first paragraph:

Quote
Notice is hereby given that the annual meeting (the “Meeting”) of the holders of common shares (“Common Shares”) of Constellation Software Inc. (“CSI” or the “Corporation”) will be held at the offices of McCarthy Tétrault LLP, Suite 5300, TD Bank Tower, 66 Wellington Street West, Toronto, Ontario on April 28, 2017 at 10:30 a.m. (Eastern Standard Time)
Title: Re: CSU - Constellation Software
Post by: Astrea on April 18, 2017, 07:58:42 AM
I've booked my ticket to Toronto so I'll be there.
Title: Re: CSU - Constellation Software
Post by: Liberty on April 18, 2017, 08:52:44 AM
I've booked my ticket to Toronto so I'll be there.

Cool. I'll be having some drinks with a few people from this forum and Twitter on the day before (Thursday, april 27) at the 'C'est What' pub downtown, not far from where the AGM is taking place. Feel free to join us. Not sure yet exactly at what time, but probably not too late in the evening.

I'll try to post on my Twitter and maybe here when I know more. I need to go eat first and drop my stuff at my AirBNB when I get off the train.
Title: Re: CSU - Constellation Software
Post by: Astrea on April 18, 2017, 09:44:30 AM
Great, thanks. I'll keep an eye out for the time.
Title: Re: CSU - Constellation Software
Post by: smartone on April 18, 2017, 08:22:03 PM
Thanks for the info.  If I show up with a copy of my brokerage statement is that enough to get in? I purchased after the March record date.
Title: Re: CSU - Constellation Software
Post by: Astrea on April 19, 2017, 12:11:27 AM
Yes - I asked about this and that's fine.
Title: Re: CSU - Constellation Software
Post by: Liberty on April 21, 2017, 06:31:34 AM
http://www.reuters.com/article/brief-volaris-group-enters-into-agreemen-idUSASA09JMV

New acquisition by Volaris. Strangely, they don't even provide the name of the acquired company. They did that at least once before, giving the name and more details when the transaction closed.

Quote
Volaris group enters into agreement to acquire asset management software provider

Their disclosure threshold was $10m last I asked them.
Title: Re: CSU - Constellation Software
Post by: Liberty on April 25, 2017, 07:22:54 PM
President's letter is out:

http://www.csisoftware.com/wp-content/uploads/2017/04/2017-Presidents-Letter.pdf
Title: Re: CSU - Constellation Software
Post by: abyli on April 25, 2017, 08:10:51 PM
President's letter is out:

http://www.csisoftware.com/wp-content/uploads/2017/04/2017-Presidents-Letter.pdf

The problem with investing in CSU is: we have no clue how well the underlying businesses are working. The only way is to trust the management.
Title: Re: CSU - Constellation Software
Post by: Liberty on April 25, 2017, 08:36:13 PM
President's letter is out:

http://www.csisoftware.com/wp-content/uploads/2017/04/2017-Presidents-Letter.pdf

The problem with investing in CSU is: we have no clue how well the underlying businesses are working. The only way is to trust the management.

What do you mean "no clue"? You have the aggregate numbers, that's how they're doing.

That's different from knowing the operating details of each business unit, but there's over 200 and most aren't material by themselves, so not exactly realistic to break them out... What do you suggest?

Imagine a company with lots of small profit centers doing their things, dealing with their customers, running their programs... Like at a big bank. They can't break out how each branch, each trading desk, each broker group and asset manager and derivative trader and research-publishing desk and bond trader desk and insurance group is doing this year or quarter. You get aggregate numbers that lump dozens or hundreds of things together, maybe in large divisions, and it feels natural because "it's the same business". But in a way that's not less arbitrary. CSU also breaks things up in a few operating groups and divisions, but all this stuff is the same company, I'm not sure what else they're supposed to do. More disclosure is usually better, but I feel they're pretty excellent compared to many of the other similar businesses I've looked at.

Maybe I misunderstand your issue with the situation.
Title: Re: CSU - Constellation Software
Post by: xtreeq on April 25, 2017, 10:16:50 PM
President's letter is out:

http://www.csisoftware.com/wp-content/uploads/2017/04/2017-Presidents-Letter.pdf

Thanks!
Title: Re: CSU - Constellation Software
Post by: KCLarkin on April 26, 2017, 04:21:14 AM
The problem with investing in CSU is: we have no clue how well the underlying businesses are working. The only way is to trust the management.

If you don't trust management, don't invest. Fortunately, Leonard has proven himself trustworthy, so I don't think it is a hard decision.

Others, like Grant's, disagree.
Title: Re: CSU - Constellation Software
Post by: Phaceliacapital on April 26, 2017, 08:06:40 AM
What are you guys thinking at this valuation?

No stock issuance, limited use of debt so proven to be extremely disciplined in capital allocation but size is threatening the "old juicy returns"? I took a quick glance at financials and we're at +/- 4% FCF yield with 5-10% expected growth?

BTW anyone has a compilation of his letters? Or do I go the long route and download them separately?

Title: Re: CSU - Constellation Software
Post by: Liberty on April 26, 2017, 10:27:34 AM
What are you guys thinking at this valuation?

No stock issuance, limited use of debt so proven to be extremely disciplined in capital allocation but size is threatening the "old juicy returns"? I took a quick glance at financials and we're at +/- 4% FCF yield with 5-10% expected growth?

BTW anyone has a compilation of his letters? Or do I go the long route and download them separately?

What makes you think they can't grow faster than 5-10%? How much capital do you think they could deploy in a downturn and/or if their PE competitors didn't have access to so much cheap debt giving them the ability to put 7 turns on everything? I think one of the cool things about this business is that it's kind of counter-cyclical in value creation (you might almost say antifragile, but I don't deadlift enough to use that term).

As for the letters, you should probably download them manually, they're all easy to find on the site. Note that in the early years he also wrote a short quarterly letter.
Title: Re: CSU - Constellation Software
Post by: maybe4less on April 26, 2017, 11:01:17 AM
What are you guys thinking at this valuation?

No stock issuance, limited use of debt so proven to be extremely disciplined in capital allocation but size is threatening the "old juicy returns"? I took a quick glance at financials and we're at +/- 4% FCF yield with 5-10% expected growth?

BTW anyone has a compilation of his letters? Or do I go the long route and download them separately?

What makes you think they can't grow faster than 5-10%? How much capital do you think they could deploy in a downturn and/or if their PE competitors didn't have access to so much cheap debt giving them the ability to put 7 turns on everything? I think one of the cool things about this business is that it's kind of counter-cyclical in value creation (you might almost say antifragile, but I don't deadlift enough to use that term).

As for the letters, you should probably download them manually, they're all easy to find on the site. Note that in the early years he also wrote a short quarterly letter.

I mean, I love the company and think they are some of the best and most thoughtful managers in business, but Leonard just wrote that he doesn't think they can do better than 10-12% growth in intrinsic value going forward. I know he has been conservative (at least about the stock price) in the past, but if he feels like they are not going to be able to make enough acquisitions in the current environment to grow faster than that, then who are we to argue?

In a downturn, I agree with you that they will have an advantage. Presumably, their stock price will also be down and that will be a buying opportunity. But at 25x FCF, I'm not sure they aren't overvalued.
Title: Re: CSU - Constellation Software
Post by: Liberty on April 26, 2017, 11:12:28 AM
I mean, I love the company and think they are some of the best and most thoughtful managers in business, but Leonard just wrote that he doesn't think they can do better than 10-12% growth in intrinsic value going forward. I know he has been conservative (at least about the stock price) in the past, but if he feels like they are not going to be able to make enough acquisitions in the current environment to grow faster than that, then who are we to argue?

In a downturn, I agree with you that they will have an advantage. Presumably, their stock price will also be down and that will be a buying opportunity. But at 25x FCF, I'm not sure they aren't overvalued.

Yes, Leonard said 10-12%.  Phaceliacapital said 5-10%. That's a pretty big difference. And Leonard didn't say over what period; it's different if he's thinking offer the next 10 or 20 years than if he's looking at the next 2-3 (but he tends to be a long-term guy).

I think Leonard is one of the rare remaining practitioners of the art of under-promising and over-delivering, like how Buffett was writing back in the early 80s, when Berkshire was single-billions, that its scale meant we couldn't expect too much going forward. He was right that past history wasn't repeatable, but the results were still quite satisfactory. I seem to remember Leonard writing similar things a few years ago and the results since have been solid (especially if you take out FX headwinds that aren't under their control, -6% last year).

Personally, I think CSU can probably do 15%+ for a while with very low risk, and that's fine for me. Some years it might do less than that, and others we might wake up to them having bought another TSS or something even bigger, or them deploying their whole pile of cash in a downturn (and more with more debentures now that they've found a kind of long-term debt that they're comfortable with? It didn't help them in the past that they were competing with levered PE when they eschewed debt).
Title: Re: CSU - Constellation Software
Post by: gurpaul88 on April 26, 2017, 12:47:09 PM
Doesn't the lack of organic growth bother anyone in this name?
Title: Re: CSU - Constellation Software
Post by: Liberty on April 26, 2017, 01:08:39 PM
Doesn't the lack of organic growth bother anyone in this name?

Not after I looked at the components of that organic growth.
Title: Re: CSU - Constellation Software
Post by: maybe4less on April 26, 2017, 01:38:26 PM
Doesn't the lack of organic growth bother anyone in this name?

Not after I looked at the components of that organic growth.

Kind of the whole point of Constellation is that they buy companies that have sticky revenues and high returns on capital, but with limited growth prospects, and then reinvest the cash flows into similar acquisitions. No one should ever expect much organic growth here.
Title: Re: CSU - Constellation Software
Post by: no_free_lunch on April 26, 2017, 02:15:44 PM
The csu business model makes sense when they were buying smaller private companies as there was a valuation discrepancy there compared to public multiples. They are getting to a size where there are much fewer private opportunities.  What is their edge now that their scale is so large?
Title: Re: CSU - Constellation Software
Post by: Liberty on April 26, 2017, 03:16:59 PM
Doesn't the lack of organic growth bother anyone in this name?

Not after I looked at the components of that organic growth.

Kind of the whole point of Constellation is that they buy companies that have sticky revenues and high returns on capital, but with limited growth prospects, and then reinvest the cash flows into similar acquisitions. No one should ever expect much organic growth here.

They're also often dropping lots of low-margin revenue from new acquisitions (services revenues, or trading off license revenue for maintenance revenue) to focus on the high-margin, sticky stuff. So at first it can seem like growth is slowing, but they're just dropping the low-ROIC stuff.

They've also said that recently they bought some large businesses in real estate and healthcare that are shrinking. They still do these deals if they meet their hurdles, so they get good IRRs, but it impacts organic growth.

Also, FX has been a headwind recently, reducing growth by 6% last year, making things look worse than they seem.

It's useful to look at maintenance revenue organic growth too, not just overall organic, since they optimize for maintenance revenue since that's the valuable stuff (high-margin, sticky) and aren't shy about dropping some of the other revenue if it doesn't meet their ROIC targets.
Title: Re: CSU - Constellation Software
Post by: Liberty on April 26, 2017, 03:22:39 PM
If some of you CSU ppl want to say "hi" tomorrow or at the AGM, I posted some details here:

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/i'll-be-in-toronto-tomorrow-night-(april-27)/
Title: Re: CSU - Constellation Software
Post by: Liberty on April 28, 2017, 11:51:58 AM
Q1 results:

http://www.csisoftware.com/wp-content/uploads/2017/04/SR_Q1_2017.pdf

Quote
Q1 2017 Headlines:
 Revenue grew 14% (1% organic growth, 3% after adjusting for changes in foreign exchange rates) to $555 million compared to $487 million in Q1 2016.
 Adjusted EBITA increased $23 million or 21% to $131 million as compared to $108 million in Q1 2016.
 Adjusted Net Income increased 51% to $95 million ($4.46 on a diluted per share basis) from $63 million
($2.95 on a diluted per share basis) in Q1 2016.
 The Company recorded an unrealized foreign exchange loss of $2 million ($0.07 on a diluted per share basis) in Q1 2017 compared to an unrealized foreign exchange loss of $19 million ($0.91 on a diluted per share basis) in Q1 2016
 Net income increased to $1.91 on a diluted per share basis compared to $0.88 on a diluted per share basis in Q1 2016.
 Twelve acquisitions were completed for aggregate cash consideration of $62 million (which includes
acquired cash). Deferred payments associated with these acquisitions have an estimated value of $20
million.
 Cash flows from operations were $182 million, an increase of 24%, or $36 million, compared to $146
million for the comparable period in 2016.
 Subsequent to March 31, 2017, the Company entered into agreements to acquire six entities for aggregate cash consideration of $38 million on closing plus cash holdbacks of $5 million for total consideration of $43 million.
Title: Re: CSU - Constellation Software
Post by: Liberty on May 02, 2017, 01:28:27 PM
New $10m+ acquisition by Volaris in Germany:

http://www.marketwired.com/press-release/volaris-group-expands-footprint-people-transportation-vertical-with-acquisition-systemtechnik-2213511.htm

Quote
Volaris Group today announced that it has acquired Systemtechnik GmbH, a provider of fare management and ticketing solutions. […] The company's solutions are in operation in more than 200 transport companies across Germany, including several private rail operators. Every day over 150,000 transactions are processed using Systemtechnik's solutions.
Title: Re: CSU - Constellation Software
Post by: CanadianMunger on May 07, 2017, 08:16:26 AM
Liberty,
 
After reading all of Leonard's letters to shareholders last year I took a decent position.  I had to kinda force myself to override my valuation concerns at the time as I tend to look to look at things from a classic value investor perspective (similar to what the fellow from Greenlea Lane talked about in the link you posted previously).

I'm curious.  What are your thoughts on the AGM?  Any particular insights from Mark Leonard?

Thanks,
-CM
Title: Re: CSU - Constellation Software
Post by: Liberty on May 08, 2017, 09:44:51 AM
Liberty,
 
After reading all of Leonard's letters to shareholders last year I took a decent position.  I had to kinda force myself to override my valuation concerns at the time as I tend to look to look at things from a classic value investor perspective (similar to what the fellow from Greenlea Lane talked about in the link you posted previously).

I'm curious.  What are your thoughts on the AGM?  Any particular insights from Mark Leonard?

Thanks,
-CM

Hi CM,

Leonard is very consistent in his thinking - like Buffett and Munger - so if you've been following them for a while, there are fewer surprises. That's not a bad thing. So it was a bit like that for me, I can't say he revealed anything totally out of left field at the AGM. The best part was just hearing all of the managers below him speak about their challenges and how they're dealing with them, and realizing that they are also of very high caliber and are totally on-board with the approach.

One interesting discussion was on capital allocation, and on his dislike of buybacks (which he wrote about in the past), which means that if the cash is piling up too much and they can't deploy it, we can probably expect special dividends. But he still seems to think that option #1 is deploying the cash, and the changes they've made to their M&A organization seem to be starting to kick in, so we'll see if they can ramp up and meet that challenge.

Sorry, that's probably not a very good answer to your question. Send me a private message and I might have something for you ;)
Title: Re: CSU - Constellation Software
Post by: Liberty on May 12, 2017, 06:33:51 AM
They press release a new contract, which you almost never see. MBB on Twitter asked and the CFO said their threshold for PR on contracts is $10m (like acquisitions), so it should be at least for that:

http://www.marketwired.com/press-release/maryland-transit-administration-awards-contract-trapeze-group-business-unit-constellation-tsx-csu-2216000.htm

Quote
Constellation Software Inc. (TSX:CSU) today announced that the Maryland Transit Administration has awarded a significant contract to Trapeze Group, a business unit of Volaris Group Inc., for the provision of an intelligent transportation system (ITS). The Maryland Transit Administration (MTA) provides subway, light rail, and bus service in the greater Baltimore region and is one of the largest multi-modal transit systems in the United States.
Title: Re: CSU - Constellation Software
Post by: Liberty on June 01, 2017, 12:19:39 PM
New $10m or more acquisition:

http://www.csisoftware.com/2017/05/volaris-group-a-constellation-software-company-completes-acquisition-of-asset-management-software-provider/
Title: Re: CSU - Constellation Software
Post by: Liberty on June 21, 2017, 04:23:17 AM
Another one:

CSU: "Volaris acquires the assets of Onshore Development Inc., doing business as WebCheckout" http://www.marketwired.com/press-release/volaris-group-welcomes-webcheckout-to-asset-management-vertical-2222907.htm
Title: Re: CSU - Constellation Software
Post by: Liberty on July 19, 2017, 11:26:29 AM
And another one:

http://www.pennenergy.com/articles/pennenergy/2017/07/oil-and-gas-news-petrosys-announces-acquisition-by-vela.html

Quote
Oil and gas technology company Petrosys is pleased to announce its acquisition by Vela Corporation, a subsidiary of Canadian public company Constellation Software Inc.
Title: Re: CSU - Constellation Software
Post by: Liberty on July 19, 2017, 04:47:12 PM
And another one:

http://m.marketwired.com/press-release/-2226880.htm
Title: Re: CSU - Constellation Software
Post by: Astrea on July 21, 2017, 04:30:04 AM
I’ve seen that Tyler Technologies is having great success growing organically with products that are both capable and national in scope. At its last analyst conference, Tyler also explained that its ultimate objective is to add a layer of connectivity between its applications to create a “Tyler ecosystem” for local government that its competition would find hard to replicate.

On the other hand, Constellation Software seems to be pursuing a more local (“small is beautiful”) strategy; in other words offering capable products that are more local in scope.

I understand there are many different types of verticals within the public sector and so perhaps Tyler’s model works better in certain verticals whilst Constellation’s works better in others. I’d however be interested to hear your thoughts on whether you see both kinds of models co-existing successfully in the public sector going forward or whether you see Tyler’s model increasingly winning share as it scales and rolls out national products in markets which were previously serviced by local providers like Constellation’s group of businesses.
Title: Re: CSU - Constellation Software
Post by: Liberty on July 26, 2017, 06:51:51 PM
Q2:

http://www.csisoftware.com/wp-content/uploads/2017/07/PR_Q2_2017.pdf

Quote
Q2 2017 Headlines:
 Revenue grew 14% (1% organic growth, 2% after adjusting for changes in foreign exchange rates) to $600 million compared to $529 million in Q2 2016.
 Adjusted EBITA increased $24 million or 18% to $155 million as compared to $131 million in Q2 2016.
 Adjusted Net Income increased 25% to $112 million ($5.30 on a diluted per share basis) from $90 million
($4.24 on a diluted per share basis) in Q2 2016.
 Net income decreased 7% to $51 million ($2.41 on a diluted per share basis) from $55 million ($2.60 on a
diluted per share basis) in Q2 2016.
 Sixteen acquisitions were completed for aggregate cash consideration of $71 million (which includes
acquired cash). Deferred payments associated with these acquisitions have an estimated value of $14
million.
 Cash flows from operations were $60 million, a decrease of 17%, or $13 million, compared to $73 million
for the comparable period in 2016.

I had forgotten about it, but they have an option to buy the minority stake in TSS in 2024.

Also, In the first six months of 2017 vs 2016, they used $131m for acquisitions vs $72.9m during the same period last year.
Title: Re: CSU - Constellation Software
Post by: Liberty on August 03, 2017, 04:12:53 PM
https://globenewswire.com/news-release/2017/08/03/1072359/0/en/Constellation-Software-Announces-Appointment-of-Lawrence-Cunningham-to-its-Board-of-Directors.html

Constellation Software Announces Appointment of Lawrence Cunningham to its Board of Directors
Title: Re: CSU - Constellation Software
Post by: Astrea on August 04, 2017, 04:41:44 AM
That's interesting. I remember chatting to him at the CSU AGM this year and he was very positive about CSU's culture and decentralised model (he'd just prepared a report on this subject for the board). It was comforting to hear this from someone like him who'd been able to "take a look under the hood" of this rather unique roll-up story.
Title: Re: CSU - Constellation Software
Post by: Liberty on August 31, 2017, 07:57:35 AM
http://www.csisoftware.com/2017/08/volaris-group-a-constellation-software-company-completes-acquisition-of-insurance-software-provider/

Quote
Volaris completed the acquisition of BBT Software AG (“BBT”), a provider of Insurance software based in Switzerland. BBT joins Primoris, Silvervine, Travisoft and Wellington IT in Volaris’ Financial Services vertical.

A little more info here:

http://www.bbtsoftware.ch/en/about-us.html
Title: Re: CSU - Constellation Software
Post by: clutch on August 31, 2017, 09:30:45 PM
Just curious, how do you make sense of these acquisitions in general? Are you just following up with what they are doing or are you measuring these up against some particular thesis?

I've owned CSU before but it was pretty much  based on the blind faith on the CEO / business model / industry. I'm curious if you have some other ways of assessing their business based on their individual actions?
Title: Re: CSU - Constellation Software
Post by: Liberty on September 01, 2017, 06:09:39 AM
Just curious, how do you make sense of these acquisitions in general? Are you just following up with what they are doing or are you measuring these up against some particular thesis?

I've owned CSU before but it was pretty much  based on the blind faith on the CEO / business model / industry. I'm curious if you have some other ways of assessing their business based on their individual actions?

I keep track of how much capital they deploy each quarter/year to see trends, and I keep an eye on press-released acquisitions because I know these are >$10m, so if over time their number increases, that's another good sign. It's also interesting to see which industries they deploy capital in.

But in general, you can't track things at the BU level, you have to look at the aggregate. In the end what matters is organic growth (especially in maintenance revenue -- they're ready to sacrifice other things to focus on the high-margin, recurring stuff), capital deployed, ROIC, and whether they can land a big company like TSS once in a while. Leonard also provides extra info once in a while about what's going on underneath the aggregate-level numbers. For example, he talked about some large shrinking assets that they bought in the past few years that made organic growth look low, but they were still meeting their hurdles on these assets (in other words, they got them cheap enough that the IRRs are still high -- I think it's very good that they'd rather create value than focus on the optics).
Title: Re: CSU - Constellation Software
Post by: Liberty on September 06, 2017, 07:39:46 AM
http://www.csisoftware.com/2017/09/2778/

Quote
has acquired the business of Amazing Charts, LLC (“Amazing Charts”), a business providing Electronic Medical Record (EHR), Practice Management (PM) software and Medical Billing services to primary care and specialty outpatient practices. Amazing Charts is an affordable and easy to use solution for independent physician-owned practices. Nearly 4,000 medical practices (20,000 clinicians and office staff) are using Amazing Charts throughout the U.S. and abroad to enhance patient care and improve practice operations.  Jerry Canada, President Harris Healthcare Group, commented, “The completion of the Amazing Charts acquisition represents another step in our efforts to expand our outpatient focused software business unit. We are excited to add such a large number of general and specialty practices while increasing our internal team of knowledgeable healthcare professionals.”
Title: Re: CSU - Constellation Software
Post by: clutch on September 06, 2017, 08:11:40 AM
Just curious, how do you make sense of these acquisitions in general? Are you just following up with what they are doing or are you measuring these up against some particular thesis?

I've owned CSU before but it was pretty much  based on the blind faith on the CEO / business model / industry. I'm curious if you have some other ways of assessing their business based on their individual actions?

I keep track of how much capital they deploy each quarter/year to see trends, and I keep an eye on press-released acquisitions because I know these are >$10m, so if over time their number increases, that's another good sign. It's also interesting to see which industries they deploy capital in.

But in general, you can't track things at the BU level, you have to look at the aggregate. In the end what matters is organic growth (especially in maintenance revenue -- they're ready to sacrifice other things to focus on the high-margin, recurring stuff), capital deployed, ROIC, and whether they can land a big company like TSS once in a while. Leonard also provides extra info once in a while about what's going on underneath the aggregate-level numbers. For example, he talked about some large shrinking assets that they bought in the past few years that made organic growth look low, but they were still meeting their hurdles on these assets (in other words, they got them cheap enough that the IRRs are still high -- I think it's very good that they'd rather create value than focus on the optics).

Thanks for the answer.
Title: Re: CSU - Constellation Software
Post by: Liberty on September 30, 2017, 07:49:23 PM
“Volaris Group announced that it has completed its sixth acquisition in the Communications vertical“

http://www.marketwired.com/press-release/volaris-group-expands-position-communications-vertical-with-acquisition-mdm-kaas-assets-2235582.htm
Title: Re: CSU - Constellation Software
Post by: Liberty on October 03, 2017, 04:04:53 PM
“Volaris Group Welcomes Edumate to Education Vertical”

http://www.marketwired.com/press-release/volaris-group-welcomes-edumate-to-education-vertical-2235755.htm
Title: Re: CSU - Constellation Software
Post by: Liberty on October 26, 2017, 10:36:02 AM
One more for Harris:

https://globenewswire.com/news-release/2017/10/26/1154385/0/en/Constellation-Software-s-Harris-Division-Completes-Acquisition-of-Offender-Management-Systems-Provider.html
Title: Re: CSU - Constellation Software
Post by: Liberty on October 26, 2017, 04:03:54 PM
Q3:

http://www.csisoftware.com/wp-content/uploads/2017/10/CSI-Press-Release-Q3-2017-Final.pdf

Quote
Q3 2017 Headlines:
 Revenue grew 17% (4% organic growth, 2% after adjusting for changes in foreign exchange rates) to $637 million compared to $546 million in Q3 2016.
 Adjusted EBITA increased $21 million or 15% to $162 million as compared to $140 million in Q3 2016.
 Net income decreased 20% to $54 million ($2.56 on a diluted per share basis) from $68 million ($3.18 on
a diluted per share basis) in Q3 2016.
 Adjusted net income declined 4% to $116 million ($5.45 on a diluted per share basis) from $121 million
($5.70 on a diluted per share basis) in Q3 2016. Excluding the impact of unrealized foreign exchange (gains) and losses recorded in Q3 2017 and Q3 2016 Adjusted net income increased 3% to $123 million ($5.81 on a diluted per share basis) from $120 million ($5.65 on a diluted per share basis) in Q3 2016.
 Fourteen acquisitions were completed for aggregate cash consideration of $52 million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $12 million.
 Cash flows from operations were $123 million, a decrease of 11%, or $15 million, compared to $138 million for the comparable period in 2016.
 Subsequent to September 30, 2017, the Company entered into agreements to acquire seven entities for aggregate cash consideration of $41 million on closing plus cash holdbacks of $9 million for total consideration of $50 million.
Title: Re: CSU - Constellation Software
Post by: Liberty on October 27, 2017, 06:52:36 AM
And a new acquisition above 10m in the food industry:

https://globenewswire.com/news-release/2017/10/27/1154727/0/en/Volaris-Group-a-Constellation-Software-company-Enters-into-Agreement-to-Acquire-Software-Provider-in-the-Food-Service-Industry.html
Title: Re: CSU - Constellation Software
Post by: Liberty on October 31, 2017, 06:16:35 AM
http://www.csisoftware.com/2017/10/constellation-softwares-jonas-operating-group-completes-acquisition-of-mcr-enterprise-solutions-and-its-wholly-owned-subsidiary-mcr-systems-limited/

Quote
Constellation confirmed that its wholly-owned subsidiary, Jonas Computing (UK) Limited (“Jonas”) acquired MCR Enterprise Solutions Limited (“MCR”), the parent company of MCR Systems Limited, a leading provider of software and electronic point of sale technology to the hospitality, catering and leisure industries. MCR has an installation base of thousands of point of sale systems and a proven track record supplying and supporting leading multi-site, multi brand and multi-concept organisations.
Title: Re: CSU - Constellation Software
Post by: gary17 on November 10, 2017, 09:12:35 AM
I see two problems with the way the company is reporting adjusted earnings

a) Assuming 100% of amortization expenses are non-economic.

To take an example, if the company has say 250 different vertical market software products, it is tough to accept that nearly all of them would remain viable, even with R&D, 25 years from now. I would assume some of them would be supplanted by other firms and new technologies may obviate the need for the software.

The company logic seems to be that, fine even if 50 of these products are supplanted, if the remaining 200 products have revenue growth that can exceed the combined revenue of the 250 products, then in aggregate there is no need for amortization.

This is a very reasonable view and I cannot disagree all that much, but for conservatism sake I would incorporate a small portion of the amortization expense as economic.
 

I think this may have been asked before and I was kind of asking this a while ago about what happens if CSU stops M&A activities…  I have been learning more about this as I recently started looking at a smaller vertical market software company and want to see how I can apply what I know about CSU to the new co I am looking at…

So going back to Vino’s observation above… CSU’s use of adjusted net income is to add amortization of acquisition back since this is a non-cash item.  The argument that this is reasonable is because

1)   We can assume these businesses don’t have significant internal software development costs that will be amortized…. ?

2)   That assuming 1) is true, then let’s say CSU has 250 software products; 50 will become obsolete and the other 200 will keep growing so there is no need to amortize…  but does this not mean that over time… over a long time… may be 100 or 150 or eventually all 250 will become obsolete; so the business is dependent on making acquisition of new software products/companies so as to make adding the amortization for adjusted income reasonable…    so then does this not mean that the cost of acquisition is an economic cost of the CSU business?    This is where my brain stops working and can’t really figure out how to think about this LOL.

3)   Is it reasonable for an investor looking at a single software company (not like CSU), to add amortization of software development back to determine adjusted earning?
Title: Re: CSU - Constellation Software
Post by: KJP on November 10, 2017, 10:05:48 AM
I see two problems with the way the company is reporting adjusted earnings

a) Assuming 100% of amortization expenses are non-economic.

To take an example, if the company has say 250 different vertical market software products, it is tough to accept that nearly all of them would remain viable, even with R&D, 25 years from now. I would assume some of them would be supplanted by other firms and new technologies may obviate the need for the software.

The company logic seems to be that, fine even if 50 of these products are supplanted, if the remaining 200 products have revenue growth that can exceed the combined revenue of the 250 products, then in aggregate there is no need for amortization.

This is a very reasonable view and I cannot disagree all that much, but for conservatism sake I would incorporate a small portion of the amortization expense as economic.
 

I think this may have been asked before and I was kind of asking this a while ago about what happens if CSU stops M&A activities…  I have been learning more about this as I recently started looking at a smaller vertical market software company and want to see how I can apply what I know about CSU to the new co I am looking at…

So going back to Vino’s observation above… CSU’s use of adjusted net income is to add amortization of acquisition back since this is a non-cash item.  The argument that this is reasonable is because

1)   We can assume these businesses don’t have significant internal software development costs that will be amortized…. ?

2)   That assuming 1) is true, then let’s say CSU has 250 software products; 50 will become obsolete and the other 200 will keep growing so there is no need to amortize…  but does this not mean that over time… over a long time… may be 100 or 150 or eventually all 250 will become obsolete; so the business is dependent on making acquisition of new software products/companies so as to make adding the amortization for adjusted income reasonable…    so then does this not mean that the cost of acquisition is an economic cost of the CSU business?    This is where my brain stops working and can’t really figure out how to think about this LOL.

3)   Is it reasonable for an investor looking at a single software company (not like CSU), to add amortization of software development back to determine adjusted earning?

This has been discussed earlier in this thread, such as the discussion starting around post #180.

Title: Re: CSU - Constellation Software
Post by: gary17 on November 12, 2017, 07:54:57 AM
I see two problems with the way the company is reporting adjusted earnings

a) Assuming 100% of amortization expenses are non-economic.

To take an example, if the company has say 250 different vertical market software products, it is tough to accept that nearly all of them would remain viable, even with R&D, 25 years from now. I would assume some of them would be supplanted by other firms and new technologies may obviate the need for the software.

The company logic seems to be that, fine even if 50 of these products are supplanted, if the remaining 200 products have revenue growth that can exceed the combined revenue of the 250 products, then in aggregate there is no need for amortization.

This is a very reasonable view and I cannot disagree all that much, but for conservatism sake I would incorporate a small portion of the amortization expense as economic.
 

I think this may have been asked before and I was kind of asking this a while ago about what happens if CSU stops M&A activities…  I have been learning more about this as I recently started looking at a smaller vertical market software company and want to see how I can apply what I know about CSU to the new co I am looking at…

So going back to Vino’s observation above… CSU’s use of adjusted net income is to add amortization of acquisition back since this is a non-cash item.  The argument that this is reasonable is because

1)   We can assume these businesses don’t have significant internal software development costs that will be amortized…. ?

2)   That assuming 1) is true, then let’s say CSU has 250 software products; 50 will become obsolete and the other 200 will keep growing so there is no need to amortize…  but does this not mean that over time… over a long time… may be 100 or 150 or eventually all 250 will become obsolete; so the business is dependent on making acquisition of new software products/companies so as to make adding the amortization for adjusted income reasonable…    so then does this not mean that the cost of acquisition is an economic cost of the CSU business?    This is where my brain stops working and can’t really figure out how to think about this LOL.

3)   Is it reasonable for an investor looking at a single software company (not like CSU), to add amortization of software development back to determine adjusted earning?

This has been discussed earlier in this thread, such as the discussion starting around post #180.

I did read those but may be I could expand on my thinking / questions:

Amortization of intangible asset is over a period of time... these intangibles are customer assets / trademarks, etc.... from CSU's report:

Technology assets 2 to 12 years
Customer assets 5 to 20 years
Trademarks 20 years
Backlog Up to 1 year
Non-compete agreements Term of agreement

If going back to my question.. if they STOP acquiring new business; eventually -- say 20 years from now -- the amortization will be all used up.....   so are we saying at that point, there's enough growth in recurring revenue of the relevant software packages in their portfolio such that it will make up for the  lack of addition of amortization back into the net income for periods of 20 years and beyond......

This idea is key because we are assigning a very large multiple of 25 ~ 30 x to the adjusted net income which inherently assumes that level of adjusted net income will be maintained over the 25 - 30 year period.   

Stated otherwise, I like to know their business model is not dependent on additional of intangible assets so that the addition of amortization to create this 'adjusted net income'  and then valuing the business with a multiple of that is a reasonable representation of the business's economics.


---

On another question, when I read their R&D statement, it says its for new scientific or technical knowledge and understanding... nothing about cap software development to maintain existing software package... Where can I see that cost?   most software companies will need to keep developing newer versions  (u know, windows 95 --> windows 7 .... etc)     

Thanks
Gary



Title: Re: CSU - Constellation Software
Post by: Liberty on November 14, 2017, 03:36:20 PM
Acquisition at RE business unit:

http://www.prweb.com/releases/2017/11/prweb14905196.htm
Title: Re: CSU - Constellation Software
Post by: Liberty on November 15, 2017, 07:00:43 AM
One more at Volaris, in the hospitality industry:

http://www.csisoftware.com/2017/11/volaris-group-a-constellation-software-company-completes-acquisition-of-hospitality-101-inc/

Quote
Volaris Group (“Volaris”) has completed the acquisition of substantially all of the assets of Hospitality 101, Inc., doing business as CaterTrax (“CaterTrax”), a provider of software solutions to the Food Service industry. The company continues to service its existing customers and operate under the CaterTrax brand as CaterTrax Inc.
Title: Re: CSU - Constellation Software
Post by: Liberty on November 29, 2017, 06:25:22 AM
Vela division getting into higher ed:

http://www.csisoftware.com/2017/11/constellation-softwares-vela-operating-group-completes-acquisition-of-higher-education-software-provider-fame/

Also, an acquisition from last spring that I had missed at the time:

https://shoplogix.com/fog-software-group-acquires-shoplogix/
Title: Re: CSU - Constellation Software
Post by: Liberty on December 13, 2017, 07:36:42 AM
One at Jonas:

https://globenewswire.com/news-release/2017/12/13/1261083/0/en/Constellation-Software-s-Jonas-Operating-Group-Completes-Acquisition-of-Bookassist-Holdings-Limited.html
Title: Re: CSU - Constellation Software
Post by: KJP on December 13, 2017, 09:00:49 AM

If going back to my question.. if they STOP acquiring new business; eventually -- say 20 years from now -- the amortization will be all used up.....   so are we saying at that point, there's enough growth in recurring revenue of the relevant software packages in their portfolio such that it will make up for the  lack of addition of amortization back into the net income for periods of 20 years and beyond......

This idea is key because we are assigning a very large multiple of 25 ~ 30 x to the adjusted net income which inherently assumes that level of adjusted net income will be maintained over the 25 - 30 year period.   

Stated otherwise, I like to know their business model is not dependent on additional of intangible assets so that the addition of amortization to create this 'adjusted net income'  and then valuing the business with a multiple of that is a reasonable representation of the business's economics.


I think you're asking the following question:  "What is the organic growth (or decline) of the existing business going to be in 10-20 years?"  That's a good question, but I doubt anyone really knows the answer.

If you want to assess the historical capital allocation, you can go back 15 or 20 years, put all of the amortization back on the balance sheet and assess the cash return on incremental invested capital.  That's obviously backward looking.  At a 30x multiple you're also paying for high returns on future invested capital. 
Title: Re: CSU - Constellation Software
Post by: gary17 on December 13, 2017, 09:08:03 AM
Thanks -- I did reach out to management and got similar response -- the question was to get me convinced that using adjusted net income make sense for the software business.  The next step of course is valuation... Is there a long enough horizon & targets & continued success of the team to justify the expensive multiple... That's where an investor needs to have a bit of leap of faith to believe that past performance is likely an indicator of the future...   
Title: Re: CSU - Constellation Software
Post by: Liberty on December 13, 2017, 09:26:39 AM
Last I checked the FCF multiple was something like 24x. For a lot of the past couple of years it was around 20x. Doesn't seem high to me for this business.

A lot of VMS businesses trade for lower multiples than CSU because they don't have reinvestment opportunities. Once entrenched in their niches, they're cash cows growing at 1-2x GDP.

CSU does have reinvestment opportunities. It has developed a repeatable process of deploying capital at high ROICs. I think this partly justifies the higher multiple (along with management's discipline, the internal diversification vs being in just one vertical, etc).

Most of the value is created by maintenance revenue. It's high margin and recurring. That's why management focuses on it, sometimes even sacrificing other things that don't provide good returns or that can be used to get those recurring revenues (f.ex. they'll sometimes drop hardware sales or consulting segments when they acquire new things, or lower licenses--you can see the impact of this in the margins going up over time--this can make the aggregate organic growth seem worse, just like when they buy shrinking businesses for bargain prices). That's why I find it useful to look at both overall organic growth and maintenance revenue organic growth (they break it down). Over longer periods, the maintenance organic growth has been pretty good (esp. ex-FX, there's been headwinds in recent years) and as long as it's the case I'm not worried about the amortization.
Title: Re: CSU - Constellation Software
Post by: KJP on December 13, 2017, 09:45:21 AM
Thanks -- I did reach out to management and got similar response -- the question was to get me convinced that using adjusted net income make sense for the software business.  The next step of course is valuation.

It's hard to separate them, because any net income figure (adjusted or not) is usually just an input into a valuation method.  For example, let's say the valuation method is (value of existing business) + (value of potential acquisitions). 

To value the existing business, you choose to capitalize an earnings number.  You think that the current business of a company like CSU that's making appropriate investments in sales and marketing and software development would be worth 25x earnings, in light of the likely organic growth that it can get from very low churn, annual price increases, and unit volume growth through new customers and additional "modules" sold to existing customers.  So, whether "adjusted net income" -- i.e., adding back all amortization -- is the right number to capitalize at 25x depends on whether the company is currently expensing sufficient amounts for sales and marketing and software development to create the type of low churn and revenue growth that would warrant the 25x multiple.   

On the other hand, let's assume that you intend to value the current business as a very low-growth business that warrants only a 15x multiple.  What earnings number should you capitalize under that method?  If you're using adjusted net income, then you're assuming that the amounts the company is currently expensing for sales and marketing and software development are enough to essentially to keep the company's existing business in something close to steady state. 

In short, I think whether "using adjusted net income make sense for the software business" depends on how your going to use it in your valuation.
Title: Re: CSU - Constellation Software
Post by: KJP on December 13, 2017, 09:50:09 AM
Last I checked the FCF multiple was something like 24x. For a lot of the past couple of years it was around 20x. Doesn't seem high to me for this business.

A lot of VMS businesses trade for lower multiples than CSU because they don't have reinvestment opportunities. Once entrenched in their niches, they're cash cows growing at 1-2x GDP.

CSU does have reinvestment opportunities. It has developed a repeatable process of deploying capital at high ROICs. I think this partly justifies the higher multiple (along with management's discipline, the internal diversification vs being in just one vertical, etc).

Most of the value is created by maintenance revenue. It's high margin and recurring. That's why management focuses on it, sometimes even sacrificing other things that don't provide good returns or that can be used to get those recurring revenues (f.ex. they'll sometimes drop hardware sales or consulting segments when they acquire new things, or lower licenses--you can see the impact of this in the margins going up over time--this can make the aggregate organic growth seem worse, just like when they buy shrinking businesses for bargain prices). That's why I find it useful to look at both overall organic growth and maintenance revenue organic growth (they break it down). Over longer periods, the maintenance organic growth has been pretty good (esp. ex-FX, there's been headwinds in recent years) and as long as it's the case I'm not worried about the amortization.

Given the huge number of verticals the company is involved in, I doubt it would be practical for anyone, even a full-time analyst, to do a vertical-by-vertical assessment of likely organic growth, churn, etc. of each business line.  Instead, you have to revert to high-level, top-down assessments.  As a practical matter, those assessments likely boil down to a belief in the capital allocation skills and process of management.
Title: Re: CSU - Constellation Software
Post by: Liberty on December 13, 2017, 10:08:42 AM
Given the huge number of verticals the company is involved in, I doubt it would be practical for anyone, even a full-time analyst, to do a vertical-by-vertical assessment of likely organic growth, churn, etc. of each business line.  Instead, you have to revert to high-level, top-down assessments.  As a practical matter, those assessments likely boil down to a belief in the capital allocation skills and process of management.

Exactly. I'm just saying it's worth tracking both the aggregate organic growth number and the maintenance organic growth number because it sharpens your understanding of how much value is being created. If organic growth was down but maintenance was flat, I'd be less worried than if it was the other way around.

But you can't track every business unit at CSU anymore than you can track how the stores in ever city are doing if you're an investor in Starbucks or Home Depot.

I track the acquisitions just to get an idea of the pace of deployment and out of curiosity, because it's interesting to see which verticals they're seeing more opportunities in.
Title: Re: CSU - Constellation Software
Post by: Liberty on January 03, 2018, 07:58:20 AM
TSS made an acquisition:

https://globenewswire.com/news-release/2018/01/03/1281545/0/en/Constellation-Software-s-Total-Specific-Solutions-Acquires-FDC-A-S.html
Title: Re: CSU - Constellation Software
Post by: Liberty on January 04, 2018, 03:55:17 PM
RBC:

Quote
Q4 brings Constellation’s capital deployed on acquisitions to $309MM FY17, +76% Y/Y from $175MM FY16. The increase reflects a higher frequency of acquisitions, as opposed to larger acquisitions. Constellation closed a record 55 acquisitions FY17 ...

CSU has a unique M&A model, pursuing an increase in the frequency as opposed to larger acquisitions. This strategy maximizes returns (small targets are available at lower multiples) and maintains the company’s VMS focus, where the market structure is more attractive.

...

Since FY05, Constellation has deployed $1.86B capital on 325 acquisitions. While the average  size is just $5.7MM per acquisition, the 21 acquisitions that exceed $20MM capital each represent 51% of total capital deployed.

(https://i.imgur.com/8VMvURC.png)

https://twitter.com/LibertyRPF/status/949070342517088256

Someday we’ll wake up to CSU having acquired a larger-than-usual corp (similar to TSS in 2013, maybe significantly bigger) and a bunch of analysts will have to scramble to redo their models… if CSU  does it without dropping their discipline & hurdle, a lot of value will be created.
Title: Re: CSU - Constellation Software
Post by: Liberty on January 07, 2018, 08:58:57 AM
Acquisition in Croatia for Vela:

http://www.cbj.ca/constellation-softwares-vela-operating-group-completes-acquisition-of-croatian-software-and-services-provider-in2-group/
Title: Re: CSU - Constellation Software
Post by: Liberty on January 09, 2018, 03:32:25 PM
Another one in dialysis software industry at QMS:

http://m.digitaljournal.com/pr/3616869
Title: Re: CSU - Constellation Software
Post by: Liberty on January 15, 2018, 12:29:39 PM
https://globenewswire.com/news-release/2018/01/15/1289324/0/en/Volaris-Group-Expands-Position-in-Communications-Vertical-with-Acquisition-of-Sicap.html

Quote
Volaris today announced that it has completed its seventh acquisition in the Communications vertical with the acquisition of SICAP Schweiz AG (“Sicap”), a global mobile device management provider to Mobile Network Operators and Mobile Virtual Network Operators, Enablers and Aggregators. [...]

Sicap’s solutions are deployed in 76 countries with over 120 customer implementations across South East Asia, Eastern Europe and Middle East & Africa. Sicap’s tier-one mobile operating group customers include Vodafone, VEON, MTN, Zain, and Orange.
Title: Re: CSU - Constellation Software
Post by: Liberty on January 16, 2018, 06:15:18 AM
Big deal for $250m:

https://globenewswire.com/news-release/2018/01/16/1289744/0/en/Constellation-Software-s-Harris-Operating-Group-Acquires-Acceo-Solutions.html

Quote
The purchase price is CDN $250 million, before possible post-closing adjustments.  Acceo’s estimated and unaudited trailing twelve month gross revenue for the period ended November 30, 2017 was CDN $116M.  Subsequent to completion of the transaction, Constellation expects to finance the Acceo acquisition on a stand-alone basis.  This is a continuation of Constellation’s use of leveraged capital structures to compete more effectively for larger vertical market software businesses.

To give you an idea, in all of 2016 they deployed $175m.
Title: Re: CSU - Constellation Software
Post by: chrispy on January 16, 2018, 06:48:32 PM
You called it ~2 weeks ago!
Title: Re: CSU - Constellation Software
Post by: Jerry Capital on January 16, 2018, 09:09:45 PM
Interesting that they are willing to pay higher interest rates to finance through the subsidiary rather than at the company level.

I mean unless they have a few more large acquisitions planned I am not sure why they would do this.
Title: Re: CSU - Constellation Software
Post by: FiveSigma on January 16, 2018, 09:28:12 PM
I think that one good reason is compartmentalization, like bulkheads in a ship - if one sub gets in trouble financially, it will be limited to that sub.
Title: Re: CSU - Constellation Software
Post by: bonkers on January 17, 2018, 05:08:40 AM

Quote
The purchase price is CDN $250 million, before possible post-closing adjustments.  Acceo’s estimated and unaudited trailing twelve month gross revenue for the period ended November 30, 2017 was CDN $116M.  Subsequent to completion of the transaction, Constellation expects to finance the Acceo acquisition on a stand-alone basis.  This is a continuation of Constellation’s use of leveraged capital structures to compete more effectively for larger vertical market software businesses.

To give you an idea, in all of 2016 they deployed $175m.

If I may, just a minor correction: In 2016 they deployed around 175 MUSD, this deal is announced in CAD, so only 250 x 0,80 = 200 MUSD. Post-closing adjustments might add something.

No matter, it's good anyway: It's only January and half the year's work is already done.  ;)
Title: Re: CSU - Constellation Software
Post by: Liberty on January 17, 2018, 05:39:33 AM
Interesting that they are willing to pay higher interest rates to finance through the subsidiary rather than at the company level.

I mean unless they have a few more large acquisitions planned I am not sure why they would do this.

I think this is different than Malone's bulkhead concept. My understanding (based on I don't remember where this was mentioned, maybe a call, maybe a letter, maybe the AGM) is that they're keeping the option to use a bit of leverage to be competitive on the bigger deals.

The reason is that most buyers of larger VMS are private equity, and they'll put 5-8 turns of leverage on anything that moves, so they can pay much higher prices than if CSU tries to buy without debt. So to be able to meet their hurdle, they're probably putting a few turns of leverage on it--I don't doubt they're a lot more conservative than PE, so I wouldn't be surprised if it was just a few turns.
Title: Re: CSU - Constellation Software
Post by: Liberty on January 17, 2018, 06:33:39 AM
A few more details here:

https://privatecapitaljournal.com/constellation-software-acquires-pe-backed-acceo-solutions-250m/

Quote
Constellation Software Inc. (TSX: CSU) has, through its wholly-owned subsidiary N. Harris Computer Corporation, acquired Acceo Solutions Inc. from Fonds de solidarité FTQ, Investissement Québec (IQ), Capital régional et coopératif Desjardins (CRCD) for $250 million.

Montreal based Acceo provides management, accounting and payment solutions, consulting and support for e-business to small and medium businesses, hardware and building centers, retail, public sector, daycare centers and tour operators.

In March 2012, Fonds de solidarité, IQ and CRCD, along with the management re-acquired ACCEO, then known as GFI Solutions, buying out the 62.4% stake held by France’s GFI Informatique SA for $75 million. Fonds de solidarité FTQ and GFI management members already held stakes of 31.1% and 6.7% respectively. Following the transaction, ACCEO was owned by Fonds de solidarité (38.4%), IQ (27.6%), CRCD (19.7%) and ACCEO management members (14.3%).
Title: Re: CSU - Constellation Software
Post by: Liberty on January 23, 2018, 06:17:44 AM
Another one:

www.csisoftware.com/2018/01/constellation-softwares-vela-operating-group-enters-into-an-agreement-to-acquire-a-software-provider-in-engineering-and-construction-industry/

Quote
Vela Operating Group has entered into an agreement to acquire a software provider of document management solutions in the engineering and construction industry.  Completion of the acquisition remains subject to mutually agreed closing conditions.
Title: Re: CSU - Constellation Software
Post by: Liberty on January 27, 2018, 03:22:18 PM
For owners of the debentures:

http://www.csisoftware.com/2018/01/constellation-software-inc-announces-annual-interest-rate-for-series-1-debentures-4/
Title: Re: CSU - Constellation Software
Post by: Liberty on January 31, 2018, 05:39:30 AM
First deal in Norway:

Constellation Software’s Vela Software acquires the ProArc Technical Document Management unit from Tieto Oyj

https://globenewswire.com/news-release/2018/01/31/1329267/0/en/Constellation-Software-s-Vela-Software-acquires-the-ProArc-Technical-Document-Management-unit-from-Tieto-Oyj.html
Title: Re: CSU - Constellation Software
Post by: Liberty on February 01, 2018, 09:02:50 AM
They're really on a roll at this point:

“Perseus has purchased Real Estate Digital LLC from Xome Holdings, excluding its reDataVault product which will be retained by Xome”

https://globenewswire.com/news-release/2018/02/01/1330292/0/en/Constellation-Software-s-Perseus-Operating-Group-Completes-Acquisition-of-Real-Estate-Digital.html
Title: Re: CSU - Constellation Software
Post by: Liberty on February 12, 2018, 04:26:02 PM
For those who, like me, are curious about the AGM this year, it's going to be on April 26th at 10 a.m.

I was told: “It will start around 10am.  we’ll have our six Operating Group managers available.  Following general Q&A .. will organize six … break-out meetings, each hosted by one of the Operating Group managers.  The content & format will be left to the discretion of the managers”

I'll try to attend, but it might depend how things out of my control. If I can go, I'll do a little drinks get together the evening before like last year.
Title: Re: CSU - Constellation Software
Post by: KCLarkin on February 13, 2018, 06:55:25 AM
If I can go, I'll do a little drinks get together the evening before like last year.

I hope you can make it Liberty! Last year was great fun. Having a group of people who all like the same stock is a very powerful filter for finding like-minded investors.

Unfortunately, the CSU AGM is at the same time as the FFH meeting. And the evening before will compete directly with the Premier Fairfax Financial Shareholder’s Dinner. Still, I'd like to do the CSU get-together even if Liberty can't make it.

I know this would be even trickier for you but if you can make it for the CSU AGM, you might consider coming two nights earlier. The Ben Graham Dinner on April 24th is a great event too.
Title: Re: CSU - Constellation Software
Post by: Astrea on February 13, 2018, 10:23:54 AM
I plan to attend the CSU AGM again this year and will be flying in on 25 April from Boston where I am attending the Tyler Technologies annual conference. Would be good to see you all again.
Title: Re: CSU - Constellation Software
Post by: Liberty on February 13, 2018, 10:31:55 AM
If I can go, I'll do a little drinks get together the evening before like last year.

I hope you can make it Liberty! Last year was great fun. Having a group of people who all like the same stock is a very powerful filter for finding like-minded investors.

Unfortunately, the CSU AGM is at the same time as the FFH meeting. And the evening before will compete directly with the Premier Fairfax Financial Shareholder’s Dinner. Still, I'd like to do the CSU get-together even if Liberty can't make it.

I know this would be even trickier for you but if you can make it for the CSU AGM, you might consider coming two nights earlier. The Ben Graham Dinner on April 24th is a great event too.

The reason why I'm not sure if I'm coming is because my wife is expecting our second boy in March. If I can get away at all, I'll stay just one night.

It's too bad about the two events being at the same time... If I arrive early enough in town, I might drop by NoRm's pre-dinner meeting at the Fairmount. Then later in the evening I'll probably go have a drink, probably again at the C'Est What, and anyone from here or FinTwit who wants to join is very welcome.

Quote
I plan to attend the CSU AGM again this year and will be flying in on 25 April from Boston where I am attending the Tyler Technologies annual conference. Would be good to see you all again.

It was a pleasure to see you last year, I hope to be able to make it this year again. I'll try not to drop my scotch all over myself this time. Cheers!
Title: Re: CSU - Constellation Software
Post by: Liberty on February 14, 2018, 02:18:11 PM
Q4: https://globenewswire.com/news-release/2018/02/14/1348408/0/en/Constellation-Software-Inc-Announces-Results-for-the-Fourth-Quarter-and-Year-Ended-December-31-2017-and-Declares-Quarterly-Dividend.html

Quote
Subsequent to December 31, 2017, the Company completed a number of acquisitions for aggregate cash consideration of $278 million (which includes acquired cash).  Deferred payments associated with these acquisitions have an estimated value of $42 million resulting in total consideration of $320 million.

http://www.csisoftware.com/wp-content/uploads/2018/02/Q4-2017-Shareholder-Report.pdf
Title: Re: CSU - Constellation Software
Post by: gary17 on February 14, 2018, 02:34:06 PM
i think this is very solid result ---
Title: Re: CSU - Constellation Software
Post by: FiveSigma on February 14, 2018, 03:41:18 PM
More capital deployed in half of first quarter than all of 2017!

If this is the new new steady state (even ex-Acceo) - the stock is a bargain.
Title: Re: CSU - Constellation Software
Post by: Liberty on February 15, 2018, 04:10:40 AM
More capital deployed in half of first quarter than all of 2017!

The first quarter isn't even over  ;)

https://twitter.com/LibertyRPF/status/963902133027340288
Title: Re: CSU - Constellation Software
Post by: thowed on February 15, 2018, 07:29:54 AM
See the end comment.

https://dontfuckwithdonville.blogspot.co.uk/2018/02/visa-and-mastercard.html#comment-form

Every year I regret not buying it, and also think it's too late now.  Additional inertia because it's fiddly for me converting the currency.

Appreciate your updates though, Liberty, very helpful in getting a better picture.
Title: Re: CSU - Constellation Software
Post by: Liberty on February 15, 2018, 07:55:04 AM
Speaking of conference calls, at the end Leonard said that he was thinking about stopping the conference calls and requested feedback from long-term shareholders (via emailing them or calling them) about this. I personally wrote that I think the calls are useful because they help us get to better known management and how they think about certain things, and even if the analyst questions aren't always the best, often there's some aside that Mark or Bernie will make that will be super useful in understand some part of the business or the VMS industry, and that some things that might seem obvious to them might not be as obvious to us, so it's still a good chance to learn. There's also be interesting things that have been said on the calls that haven't been written anywhere else (such as about how they go about decentralizing and pushing down M&A responsibilities), and usually when I have a question when reading the filings, there's a good chance it will be answered on the call.
Title: Re: CSU - Constellation Software
Post by: no_free_lunch on February 15, 2018, 09:23:18 AM
I don't have a position right now (have in the past) but I agree that you want the conference calls.  He doesn't really care because the only impact might be a lower share price and he pays for all his acquisitions with cash.  Still I find the Q&A valuable.

Then again to flip it.   I don't have a position, the management / business model seems amazing and stopping conference calls could lower the share price.  Yes, no more conference calls!
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on February 15, 2018, 09:56:26 AM
Speaking of conference calls, at the end Leonard said that he was thinking about stopping the conference calls and requested feedback from long-term shareholders (via emailing them or calling them) about this. I personally wrote that I think the calls are useful because they help us get to better known management and how they think about certain things, and even if the analyst questions aren't always the best, often there's some aside that Mark or Bernie will make that will be super useful in understand some part of the business or the VMS industry, and that some things that might seem obvious to them might not be as obvious to us, so it's still a good chance to learn. There's also be interesting things that have been said on the calls that haven't been written anywhere else (such as about how they go about decentralizing and pushing down M&A responsibilities), and usually when I have a question when reading the filings, there's a good chance it will be answered on the call.

i agree 100% and I did the same.  Maybe they don't need to do it every quarter but they are very useful.
Title: Re: CSU - Constellation Software
Post by: chrispy on February 16, 2018, 04:34:29 AM
Leonard mentioned that FFO is a good measure of measuring the companies progress now.  Here is what I got:

Year     FFO   % Increase
2017     $528    8%
2016     $491    24%
2015     $396    16%
2014     $341    55%
2013     $220    52%
2012     $145    5%
2011     $138    -

I was finishing up in the grocery store during the conference call but I believe they said this year was lower because of a one-time charge.  Anyone else have more information on this?  It appears that the combination of 2017 being artificially low and the amount of capital deployed this year that next years FFO will be very large.
Title: Re: CSU - Constellation Software
Post by: gary17 on February 16, 2018, 04:58:18 AM
just going by memory here i believe it was taxes
they had to pay taxes in 2017 for 2016 sounded like
but they dont expect that'll happen again
Title: Re: CSU - Constellation Software
Post by: Liberty on February 16, 2018, 05:31:01 AM
CFO said that if you adjust for the tax timing impact, this year's cash was up 17%.
Title: Re: CSU - Constellation Software
Post by: oddballstocks on February 16, 2018, 05:58:22 AM
These guys are serial acquirers right?  Is there a metric showing cash generation from existing holdings verses cash generation including new purchases?

Because if the rate of acquisitions is accelerating then it would only make sense for cash flow to accelerate too.

A second question: "What's their secret sauce?"

I ask because I read a fascinating article on these guys and it left me with the impression that they're simply rolling up software companies.  If that's true then what's stopping someone else from just spending a ton of cash to buy a collection of software companies?  I feel like I'm missing the magic here.  Forget all of the financial metrics and stock related things.  What is it about how they run their business that's special?
Title: Re: CSU - Constellation Software
Post by: writser on February 16, 2018, 06:18:52 AM
Good questions. It does look like a good business - cash flow generation is healthy, balance sheet isn't too bad, share count doesn't rise but it sure is priced like an excellent business. You roll up golf club membership, school transportation, winery, radiology and RV dealer software developers and suddenly massive cost savings / synergies appear? Must be one hell of an operator. I guess you can book an RV from the RV dealer to bring kids to school if the school bus breaks down?
Title: Re: CSU - Constellation Software
Post by: John Hjorth on February 16, 2018, 06:37:30 AM
... If that's true then what's stopping someone else from just spending a ton of cash to buy a collection of software companies? ...

I'll leave the rest for Liberty to answer and reply, but the quoted. CSU isen't the only software company out there running by this model. The Swedish software company Vitec Software Group AB (https://www.vitecsoftware.com/en/) [Stock: VITEC B.STO] operates the same way.

- - - o 0 o - - -

Now back to CSU here.
Title: Re: CSU - Constellation Software
Post by: ajc on February 16, 2018, 06:38:32 AM


Good questions. It does look like a good business - cash flow generation is healthy, balance sheet isn't too bad, share count doesn't rise but it sure is priced like an excellent business. You roll up golf club membership, school transportation, winery, radiology and RV dealer software developers and suddenly massive cost savings / synergies appear? Must be one hell of an operator. I guess you can book an RV from the RV dealer to bring kids to school if the school bus breaks down?

Looking forward to Liberty explaining how stupid I am.



Definitely waiting for him to offer a mass-buying deal on that experience. Liberty Prime for the masses.


Title: Re: CSU - Constellation Software
Post by: Liberty on February 16, 2018, 06:53:56 AM
Anyone new to this company, I'd suggest reading all the president's letters, this thread, and the articles linked from it first. The model is pretty well descried, I think. But in general, it's not a secret model -- the CEO has said that the barrier to entry is a checkbook and a phone -- it's a "simple but hard" model, kind of like how Berkshire's model is clear for all to see, yet almost no one has done it because the secret sauce is discipline and rationality.

Short version is: Company that hasn't issued a single share since IPO and has net cash is buying super-sticky tiny cash cow software businesses that don't need capital for 4-6x EBITDA, then improving them via best practices and/or cutting low-return operations (commodity hardware sales, consulting, etc), and using their cashflow to buy more. Almost no one else can buy such tiny businesses and move the needle because their secret sauce is the ability to do good acquisitions in a disciplined and rational way at scale (tracking every single one since inception, calculating base rates, deploying capital across dozens of verticals and around the world, so can move to unloved industries/geographies to get lower prices, etc). They are tracking over 37,000 VMS businesses, keeping in touch with them so that when they decide to sell, they have a shot. Once in a while they get a bigger business, like Acceo recently or TSS a few years ago (TSS has been a big success -- you can track it because they don't own 100% of it and they have a put on the remaining part, so it has to be revalued based on fundamentals metrics and that has gone up a lot since). The secret sauce is it's orders of magnitude harder to deploy $100m over 50 small businesses than in one big one, but if you can do it, you can get much better prices and face less competition (tiny businesses are actually harder to buy than big ones because tend to be less "professionalized" and dressed up the way that big acquirers want). The last thing Vista or Thoma Bravo or Roper wants is to track tens of thousands of mom & pops operations and have to deal with dozens and dozens of $2-3m acquisitions... They're not set up for that. But if you have 200 business units, all you need is for these managers - who knows their vertical better than anyone - to buy a competitor every few years and you've already deployed a lot of capital in a decentralized way.
Title: Re: CSU - Constellation Software
Post by: Liberty on February 16, 2018, 06:56:39 AM
Good questions. It does look like a good business - cash flow generation is healthy, balance sheet isn't too bad, share count doesn't rise but it sure is priced like an excellent business. You roll up golf club membership, school transportation, winery, radiology and RV dealer software developers and suddenly massive cost savings / synergies appear? Must be one hell of an operator. I guess you can book an RV from the RV dealer to bring kids to school if the school bus breaks down?

Looking forward to Liberty explaining how stupid I am.

There's no synergies. They actually break up their larger businesses into smaller ones because they believe that an entrepreneurial culture is more effective and bureaucracy hurts the businesses.

They've had ROICs in the 30% range for over a decade (on total capital employed, I'm not stripping out intangibles or goodwill). Turns out, small mission-critical software businesses in niches without much competition are actually great businesses. They just usually can't redeploy their capital, so that caps their ultimate value. But if you have a model that can use that capital and redeploy it at similarly high returns, then you have something even better.
Title: Re: CSU - Constellation Software
Post by: KCLarkin on February 16, 2018, 07:04:30 AM
I ask because I read a fascinating article on these guys and it left me with the impression that they're simply rolling up software companies.

Can you share the article? News about CSU is very rare.
Title: Re: CSU - Constellation Software
Post by: KCLarkin on February 16, 2018, 07:26:42 AM
These guys are serial acquirers right?  Is there a metric showing cash generation from existing holdings verses cash generation including new purchases?

Because if the rate of acquisitions is accelerating then it would only make sense for cash flow to accelerate too.

A second question: "What's their secret sauce?"

I ask because I read a fascinating article on these guys and it left me with the impression that they're simply rolling up software companies.  If that's true then what's stopping someone else from just spending a ton of cash to buy a collection of software companies?  I feel like I'm missing the magic here.  Forget all of the financial metrics and stock related things.  What is it about how they run their business that's special?

There is a lot of skepticism about "roll-ups". When Grant's did their short report on CSU, I did a quick "sanity check" to see if there were any games being played:

If you invested $10,000 ten years ago, you would have received $12,000 in dividends. And you now own a very large collection of companies with very little debt. We know that CSU doesn't issue any shares, so the model clearly worked in the past.

As to the secret sauce, Mark Leonard is a phenomenal CEO and capital allocator. Full stop. Certainly deserves to be in the conversation with Buffett and Malone. This is obviously personal opinion. But I have no reservations making that claim.
Title: Re: CSU - Constellation Software
Post by: oddballstocks on February 16, 2018, 08:23:00 AM
Anyone new to this company, I'd suggest reading all the president's letters, this thread, and the articles linked from it first. The model is pretty well descried, I think. But in general, it's not a secret model -- the CEO has said that the barrier to entry is a checkbook and a phone -- it's a "simple but hard" model, kind of like how Berkshire's model is clear for all to see, yet almost no one has done it because the secret sauce is discipline and rationality.

Short version is: Company that hasn't issued a single share since IPO and has net cash is buying super-sticky tiny cash cow software businesses that don't need capital for 4-6x EBITDA, then improving them via best practices and/or cutting low-return operations (commodity hardware sales, consulting, etc), and using their cashflow to buy more. Almost no one else can buy such tiny businesses and move the needle because their secret sauce is the ability to do good acquisitions in a disciplined and rational way at scale (tracking every single one since inception, calculating base rates, deploying capital across dozens of verticals and around the world, so can move to unloved industries/geographies to get lower prices, etc). They are tracking over 37,000 VMS businesses, keeping in touch with them so that when they decide to sell, they have a shot. Once in a while they get a bigger business, like Acceo recently or TSS a few years ago (TSS has been a big success -- you can track it because they don't own 100% of it and they have a put on the remaining part, so it has to be revalued based on fundamentals metrics and that has gone up a lot since). The secret sauce is it's orders of magnitude harder to deploy $100m over 50 small businesses than in one big one, but if you can do it, you can get much better prices and face less competition (tiny businesses are actually harder to buy than big ones because tend to be less "professionalized" and dressed up the way that big acquirers want). The last thing Vista or Thoma Bravo or Roper wants is to track tens of thousands of mom & pops operations and have to deal with dozens and dozens of $2-3m acquisitions... They're not set up for that. But if you have 200 business units, all you need is for these managers - who knows their vertical better than anyone - to buy a competitor every few years and you've already deployed a lot of capital in a decentralized way.

I appreciate the sentiment, but I'm not interested in reading hundreds of pages just to read.  I was hoping that there was a back of the napkin thesis here instead of some story I needed to dig into to 'discover'. 

Seem the back of the napkin thesis is these guys are able to squeeze down their acquisition targets on price to generate high FCF yields on their purchase price.  They are buying hundreds of no growth companies (locked into niches) and pyramiding the cash up to buying bigger software companies.

The thing is the model is great.  If you start with $10m and buy companies with a 10% FCF yield, and reinvest that you'll grow at 10% forever even if your underlying companies are stagnant.  I get that.  I'm not sure the CEO is a genius for doing it.  I guess the question is what's the long game?  You obviously can't do this forever, so is the idea you jump in early and hop off before things slow?  Liberty, I know you've been on this train for a while, and congrats, you've been rewarded.  Seems the spoils go to those who discover this thing first.

I think BRK is a great example of what eventually happens.  You go from high returns to lower returns as you get bigger.  But those investors in early reaped the rewards from those high returns.  There is nothing bad about it.

I was intimiately familiar with another software company that purchased growth as well.  They purchased small companies, gutted them, kept the clients and shifted development offshore to earn a bigger margin.  By buying out their competitors their clients had no alternative when service went down the drain.  It's an effective strategy, not something I'd trumpet, but when you earn a salary and options based on your stock price it works.... This company I'm referencing is traded and Canadian as well...

I guess I'm trying to figure out what's special about CSU besides their numbers.  So far nothing of note besides the stock price and supposed genius of their CEO.
Title: Re: CSU - Constellation Software
Post by: Liberty on February 16, 2018, 08:45:06 AM
I wasn't suggesting to "read just to read", but because I think it's an interesting company that I think you might enjoy learning about. Don't even read the thread, just read the shareholder letters.

How many companies really have a genius model when it comes down to it? If you are looking for that, you'll be disappointed all the time. It's mostly all of the same basic things applied well, in the end...

Constellation is great because they're very disciplined, very shareholder friendly, very long-term oriented, and operating in good businesses (fishing in the right pond). They also do something that is hard and has an easier alternative (between tracking thousands of tiny mom & pops businesses and buying dozens of them, and going to investment bankers to see larger businesses, almost all software acquirers do the latter). That's it.

How long can they keep going? Depends what you're looking for. If you're expecting them to repeat their early years, then yeah, that can't go on forever. But if you're looking for reasonable results, I think they can continue for a long time. It's a huge industry, they've made maybe 250 acquisitions over the past couple decades and there's tens of thousands of VMS businesses out there. They're just getting more into Europe and Scandinavia, just started a JV in Japan to look more over there, etc. They've just greatly increased the number of people who look at M&A full time because they knew that they were not even seeing tons of deals, they're also working on getting in front of more of the larger deals (that they almost never get because they're too disciplined on price, but if every few years they deploy a few hundred millions or a billion in a single deal, that helps).

In the past month and a half, they deployed more capital than in all of last year, so it seems to be working so far.

The CEO has also said at the last AGM that if they can't deploy all their cash, after long enough they'll start doing special dividends rather than lower their hurdles. That'd be fine with me too.

Quote
Seem the back of the napkin thesis is these guys are able to squeeze down their acquisition targets on price to generate high FCF yields on their purchase price.  They are buying hundreds of no growth companies (locked into niches) and pyramiding the cash up to buying bigger software companies.

Almost, not quite. They're not trying to stop buying tiny companies and move on to bigger companies. They've just kept scaling up their capability to buy more small companies while they look for the rare bigger companies that meet their hurdles (they also get a bunch of medium ones... All the press release companies I post here are $10-20m+ range). And the companies are not exactly no growth, many have pretty decent organic growth, especially for maintenance revs, which is the recurring and highest margin part.  Mostly around 1-2x GDP. But they also buy distressed assets and shrinking businesses sometimes, and will shut down parts of acquired businesses if those parts don't generate good returns, so the overall organic growth number is noisy (a couple years ago they bought some larger mining and real estate distressed companies that made overall organic look bad, but if they had their usual discipline buying those, they'll get nice IRRs). You can get more detail in some of the letters... But in the end, what matters to me is that they get good returns on their capital, not a certain number of growth. Chasing growth can destroy value, especially in niche markets; if they wanted to they could go after more growth but that might trigger a war with competitors that would just make the economics terrible for everyone. Best to be rational and keep your competitors rational.
Title: Re: CSU - Constellation Software
Post by: KCLarkin on February 16, 2018, 08:49:00 AM
So far nothing of note besides the stock price and supposed genius of their CEO.

I don't claim Leonard is a genius. Just an extremely rational and disciplined capital allocator.

But there is clear evidence that these types of models can work for a very long time, if they have prudent management. ATD and MTY are two examples in Canada of sustained outperformance over decades with roll-up strategies. And I think Leonard is better even than Stanley Ma and Alain Bouchard (who should both be in the Canadian business hall of fame).

Anyway, you're not wrong. And that's why CSU was available for an attractive price for so long. It's now been "discovered" and market cap is closer to fair value.

--
As an example of his "genius", look at how he handled a request by one of his largest shareholders to add more women to the BoD at the last AGM (not sure if there is a recording avaliable). Just a masterclass in rationality, diplomacy, backbone, and human decency. This is not genius in the traditional sense, but still truly remarkable.
Title: Re: CSU - Constellation Software
Post by: oddballstocks on February 16, 2018, 09:00:38 AM
I think most companies are unique.  Not genius model, but for example, the companies CSU is buying all fit this.  They fill some certain need very well.  It's a novel and unique need, and the users are clearly happy.

At a meta level I guess CSU is essentially arbitraging this.  They find small niche-y businesses that are private, buy them at a private multiple and by nature of now being public earn a public multiple on the money.

The concept is a unique value proposition.  If you own a business in a sales call a prospect says "why should we buy with you?" and you have to explain why you're unique.  But CSU isn't unique, the companies they own have this, but they themselves are just doing this private-public arbitrage.

I don't mean to belittle it or anything.  I have owned companies like this in the past, it's a valid thing.

The glassdoor reviews are sort of sad.  Not bad, just sad. Mostly because this is a company buying these little companies, squeezing them, or letting them run on auto-pilot and redirecting cash.

I get that as investors this is magical.  Maybe I have too much of a human element to me, but I've experienced being at these little companies, and I've worked for a CSU type company, and it's a shame.  There are so many clients that need solutions that just aren't getting served well, or served as well as they could.  I guess that's always the opportunity for a competitor.  I guess better worded, it's sad that they're buying all of this potential, and instead of re-investing to make it better they're just milking it.

So is the investment thesis basically that investors expect this to continue for a while?  The past has been good, and the future will be similar?  Is there key man risk here?
Title: Re: CSU - Constellation Software
Post by: KCLarkin on February 16, 2018, 09:08:18 AM
I guess I'm trying to figure out what's special about CSU besides their numbers.  So far nothing of note besides the stock price and supposed genius of their CEO.

Let's ignore whether Mark Leonard is actually a genius.

With this business model, would an extremely capable and rational capital allocator be a sufficient ingredient to make a particular company "special". To me, the answer is clearly yes.

So the next question, is Mark Leonard an extremely capable capital allocator? You'll need to decide this for yourself. And the only way to do that is read the President's letters, listen to the calls, attend the AGM, and review the historical financials. There isn't any real shortcut here. Having owned the company since 2013, I am confident I know the answer.
Title: Re: CSU - Constellation Software
Post by: Liberty on February 16, 2018, 09:24:54 AM
I think most companies are unique.  Not genius model, but for example, the companies CSU is buying all fit this.  They fill some certain need very well.  It's a novel and unique need, and the users are clearly happy.

At a meta level I guess CSU is essentially arbitraging this.  They find small niche-y businesses that are private, buy them at a private multiple and by nature of now being public earn a public multiple on the money.

The concept is a unique value proposition.  If you own a business in a sales call a prospect says "why should we buy with you?" and you have to explain why you're unique.  But CSU isn't unique, the companies they own have this, but they themselves are just doing this private-public arbitrage.

I don't mean to belittle it or anything.  I have owned companies like this in the past, it's a valid thing.

The glassdoor reviews are sort of sad.  Not bad, just sad. Mostly because this is a company buying these little companies, squeezing them, or letting them run on auto-pilot and redirecting cash.

I get that as investors this is magical.  Maybe I have too much of a human element to me, but I've experienced being at these little companies, and I've worked for a CSU type company, and it's a shame.  There are so many clients that need solutions that just aren't getting served well, or served as well as they could.  I guess that's always the opportunity for a competitor.  I guess better worded, it's sad that they're buying all of this potential, and instead of re-investing to make it better they're just milking it.

So is the investment thesis basically that investors expect this to continue for a while?  The past has been good, and the future will be similar?  Is there key man risk here?

What makes the model special is they combine niche VMS economics with ability to redeploy capital. The small VMS companies can't redeploy the vast majority of the capital that they generate at high rates, while CSU can, making it deserve a different valuation.

You're too human, eh?

Glassdoor is meaningless in a company this decentralized (on top of sample bias). Some businesses had bad working conditions before being acquired, and they might still do afterwards, and that's too bad. But the business unit is to blame, not HQ. Being acquired by CSU seems a heck of a lot better than being acquired by PE. CSU keeps businesses forever, provides autonomy, small teams, no bureaucracy, and provides ways for managers to grow (become capital allocators, do tuck-in acquisitions, invest in long-term organic growth projects, become a portfolio manager at the operating group level, etc). PE loads you with debt, stops investing for the long-term and flips you a few years after gutting you, often so you can repeat the cycle at a different PE firm... Seems to me like CSU is the acquirer of choice, which is one of the reason why so many small businesses sell to it even if they could get higher prices with PE. Not to mention that many, many CSU employees have become millionaires through stock ownership (one of the reasons the CEO has often talked down his stock price... doesn't want it to get overvalued and have his employees feel like they have to sell).
Title: Re: CSU - Constellation Software
Post by: KCLarkin on February 16, 2018, 09:36:36 AM
It's an effective strategy, not something I'd trumpet, but when you earn a salary and options based on your stock price it works....

Actually, this is an example of why CSU is unique. They don't give options or RSUs or any stock compensation. They give very large cash bonuses that are rationally tied back to your sphere of influence. Management is expected or encouraged to use the cash bonus to purchase stock on the open market. There is no incentive to artificially game the stock price. They have the most rational incentive system of any company I follow. The only others that come close are BRK and the 3G companies.
Title: Re: CSU - Constellation Software
Post by: Liberty on February 16, 2018, 09:42:43 AM
It's an effective strategy, not something I'd trumpet, but when you earn a salary and options based on your stock price it works....

Actually, this is an example of why CSU is unique. They don't give options or RSUs or any stock compensation. They give very large cash bonuses that are rationally tied back to your sphere of influence. Management is expected or encouraged to use the cash bonus to purchase stock on the open market. There is no incentive to artificially game the stock price. They have the most rational incentive system of any company I follow. The only others that come close are BRK and the 3G companies.

Yeah, the incentives are tied to the ROIC/IRR and organic growth of the specific business unit where the people work, and there are zero options, it's all stock purchased in the open market.

They've also recently been rejigging incentives to better capture the long-term results of initiatives that might take long periods of R&D and investment before they bear fruit, to avoid de-incentivizing those because if you just invest less, you can have a seemingly higher ROIC but it reduces your long-term growth. They really have a long-term mindset.

Oh, and the CEO has cut his salary and bonuses to zero (salary since 2014, bonuses too since 2015), he's now only making money through being a shareholder. Before that he had a pretty small salary compared to others in similar businesses (his peak salary+bonus right before he cut it was around $2m). He never had any options either, afaik.
Title: Re: CSU - Constellation Software
Post by: no_free_lunch on February 16, 2018, 10:13:24 AM
At a meta level I guess CSU is essentially arbitraging this.  They find small niche-y businesses that are private, buy them at a private multiple and by nature of now being public earn a public multiple on the money.

I have been thinking about this as well.  I don't think they have any real edge but what is it that has made their process successful and consistent?  I have owned the company in the past and
actually did go through quite a few transcripts and reports to try to understand the process.  I think it must come down to changes at the actual company.

I recall reading they have a team that goes to the acquired companies and tries to implement certain standards.  Beyond that, I'm speculating here, each of the acquired companies must have overhead admin staff (HR/payroll) that can be cut as they centralize those processes.  It wouldn't be a huge savings but it would drop right to the bottom line.  There might even be room to cut some developer positions if the customers are sticky but that could jeopardize the future.

As far as the arbirtrage theory, I don't think it holds up as they aren't selling shares to make acquisitions.  There is definitely a gap between their public valuation and the purchase price valuations but they don't take advantage of the gap.

The biggest risk to the whole thesis would seem to be cloud services.  I know it's a bit overused buzzword and I know it comes up at CSU conference calls where they say they're not too concerned.  However, I think it is where things are going long-term and it could start to eat away at some of their businesses.
Title: Re: CSU - Constellation Software
Post by: Liberty on February 16, 2018, 10:57:52 AM
At a meta level I guess CSU is essentially arbitraging this.  They find small niche-y businesses that are private, buy them at a private multiple and by nature of now being public earn a public multiple on the money.

I have been thinking about this as well.  I don't think they have any real edge but what is it that has made their process successful and consistent?  I have owned the company in the past and
actually did go through quite a few transcripts and reports to try to understand the process.  I think it must come down to changes at the actual company.

I recall reading they have a team that goes to the acquired companies and tries to implement certain standards.  Beyond that, I'm speculating here, each of the acquired companies must have overhead admin staff (HR/payroll) that can be cut as they centralize those processes.  It wouldn't be a huge savings but it would drop right to the bottom line.  There might even be room to cut some developer positions if the customers are sticky but that could jeopardize the future.

As far as the arbirtrage theory, I don't think it holds up as they aren't selling shares to make acquisitions.  There is definitely a gap between their public valuation and the purchase price valuations but they don't take advantage of the gap.

As I've said above, the VMS businesses and CSU are different animals, which explains the different valuations. VMS businesses can't redeploy the vast majority of the cash they generate, so they are valued mostly as slow-growing cash cows. CSU can redeploy the majority of the cash it generates at high ROICs, so it is valued differently. VMS are also very vulnerable to disruption in a single industry. CSU is not only diversified across industries and geographically, but as a buyer of asset, it benefits when there is disruption that causes distress and lower valuations (in fact, in the past CSU has invested in publicly traded software companies opportunistically, another way to deploy capital).

And as you point out, since they don't issue equity to acquire companies, they're not vulnerable to the reflexivity that happens with companies that depend on a high valuation to keep M&A going, and that depend on M&A to keep valuation high...

But if CSU couldn't do anymore M&A starting tomorrow, some things would happen, but it wouldn't be a catastrophe, IMO.

The valuation would likely compress since their track record of creating value through M&A is strong, but it wouldn't go to the floor. It's still a very good business (high margins, capital-light, recurring revenues, low competition), better than the average SP500 company, I'd say, so probably not a below market multiple. They'd probably redirect more capital to internal growth initiatives, so over time organic growth should tick up (probably not getting as good ROICs there are with M&A, but still high), the margins would go up for a while, as they've explained the recently acquired businesses have overall lower margins but go up over time after they own them. Margins would also go up because all the costs for M&A would go away (they're low, but still non-zero). Then there'd be a series of special dividends to return the extra cash. So with the growing margins and higher organic growth, I think results would still be nice for the long-term despite a one-time valuation hit. If they wanted to do even better, they could leverage a bit to some solid investment grade level, maybe 2-3x EBITDA, and I wouldn't be surprised to see double digit per share growth in FCF with very low risk. Not a terrible scenario.

Quote
The biggest risk to the whole thesis would seem to be cloud services.  I know it's a bit overused buzzword and I know it comes up at CSU conference calls where they say they're not too concerned.  However, I think it is where things are going long-term and it could start to eat away at some of their businesses.

SaaS is just a delivery method. Many CSU businesses operate with the SaaS model already. Leonard seems to think that the economics of SaaS aren't quite as good, but that seems to be a question of degree, not of kind. Also consider that Leonard is always pretty conservative in his forecasts. He's been saying for 10 years that valuations are high, it's hard to buy things, things are not looking as good, etc, yet they've done pretty well (you can also find Buffett letters from the 80s that mention how their large capital base means it'll be hard to outperform going forward).

SaaS doesn't change the fact that small vertical niches will be served by specialist companies, and that the Microsofts and Oracles and SAPs of the world won't develop specialized software and do customer support for small markets with just a few millions in revenue per year.
Title: Re: CSU - Constellation Software
Post by: no_free_lunch on February 16, 2018, 12:18:07 PM
Thanks for your thoughts Liberty.

I wasn't even attempting to comment on valuation in my last post.  Just trying to understand the internal mechanics of how their business works.  It is very impressive to have grown via acquisitions at their rate without issuing equity or debt.  I'm not aware of any other companies that have done this although I'm sure others exist.
Title: Re: CSU - Constellation Software
Post by: Liberty on February 16, 2018, 12:34:01 PM
Thanks for your thoughts Liberty.

I wasn't even attempting to comment on valuation in my last post.  Just trying to understand the internal mechanics of how their business works.  It is very impressive to have grown via acquisitions at their rate without issuing equity or debt.  I'm not aware of any other companies that have done this although I'm sure others exist.

It's indeed rare. A business like Heico does something a bit similar, financing acquisitions mostly through FCF (a bit of debt), as does Roper or Jack Henry.

Sorry, I didn't mean to make it sound like you said this, I was just trying to differentiate CSU from the more common model of private/public arbitrage that goes "get a high valuation because you're growing quickly by buying companies with stock issued at a high valuation because you're growing quickly by buying companies with cheap equity...". Obviously that's a brittle model. I like that CSU is the inverse of that and benefits from shocks to its industries or even from generalized lower valuations.
Title: Re: CSU - Constellation Software
Post by: vinod1 on February 17, 2018, 05:07:23 AM
Over the last 5 years they made about $1.5 billion in acquisitions and non-organic revenues (estimated by removing the organic revenue growth from their total revenue growth) increased by roughly $1.5 billion as well. We need to look back over 10 years to get a more accurate picture to reduce the timing differences between acquisitions and revenue growth but 5 years would give you a reasonable first order approximation.

So they are able to buy companies at roughly 1x sales. Since they have been able to maintain net margins at about 20%, that means they are able to buy these companies for roughly 5x of eventual earnings under their umbrella.

So the secret sauce is either they are

a) Able to buy these very cheap - if you assume there are no big cost savings by coming under their umbrella

b) Able to dramatically improve the earnings at the company acquired.

Or some combination of both as others have observed.

Assume you have $5 of revenues and $1 of earnings last year. Add in organic growth of 5% to the previous year's revenues you increase revenues to $5.25 this year. Then you use that $1 of earnings to go buy a company for $1 to get $1 of revenue growth. Total revenue for this year is $6.25.

With a 20% margin, you increase earnings to $1.25. There you have 25% annual growth.

There are timing differences where you have assumed that acquisitions are made on Jan 1st of the year but this is how the company is working overall.

I keep wondering though why these owners keep selling at such low prices? Maybe they need to cash out and there is really no big competition for these really small companies? Either way that contact list of 35,000 odd companies is a key competitive advantage.

Any thoughts?

Vinod
Title: Re: CSU - Constellation Software
Post by: gary17 on February 17, 2018, 05:33:10 AM
Over the last 5 years they made about $1.5 billion in acquisitions and non-organic revenues (estimated by removing the organic revenue growth from their total revenue growth) increased by roughly $1.5 billion as well. We need to look back over 10 years to get a more accurate picture to reduce the timing differences between acquisitions and revenue growth but 5 years would give you a reasonable first order approximation.

So they are able to buy companies at roughly 1x sales. Since they have been able to maintain net margins at about 20%, that means they are able to buy these companies for roughly 5x of eventual earnings under their umbrella.

So the secret sauce is either they are

a) Able to buy these very cheap - if you assume there are no big cost savings by coming under their umbrella

b) Able to dramatically improve the earnings at the company acquired.

Or some combination of both as others have observed.

Assume you have $5 of revenues and $1 of earnings last year. Add in organic growth of 5% to the previous year's revenues you increase revenues to $5.25 this year. Then you use that $1 of earnings to go buy a company for $1 to get $1 of revenue growth. Total revenue for this year is $6.25.

With a 20% margin, you increase earnings to $1.25. There you have 25% annual growth.

There are timing differences where you have assumed that acquisitions are made on Jan 1st of the year but this is how the company is working overall.

I keep wondering though why these owners keep selling at such low prices? Maybe they need to cash out and there is really no big competition for these really small companies? Either way that contact list of 35,000 odd companies is a key competitive advantage.

Any thoughts?

Vinod

I am part owner of a small business myself in a niche market, and one needs to keep in mind that for a specialty business it's often only valuable to strategic buyers who are in the industry or understand the business... So this is partly why the valuation is low.  For most private businesses, a number of valuation guys tell us it's usually 3x pre-tax earnings or sometimes just book value depending on the business.  Which is rougly 1x revenue   doesn't really answer your question but just trying to point out it's not because they want to sell so cheaply, but because often for a small business the reality is the market is small and when you had a decent career, you wanted to get bought out as part of retirement, 3x seems reasonable. 
Title: Re: CSU - Constellation Software
Post by: vinod1 on February 17, 2018, 06:43:15 AM
Over the last 5 years they made about $1.5 billion in acquisitions and non-organic revenues (estimated by removing the organic revenue growth from their total revenue growth) increased by roughly $1.5 billion as well. We need to look back over 10 years to get a more accurate picture to reduce the timing differences between acquisitions and revenue growth but 5 years would give you a reasonable first order approximation.

So they are able to buy companies at roughly 1x sales. Since they have been able to maintain net margins at about 20%, that means they are able to buy these companies for roughly 5x of eventual earnings under their umbrella.

So the secret sauce is either they are

a) Able to buy these very cheap - if you assume there are no big cost savings by coming under their umbrella

b) Able to dramatically improve the earnings at the company acquired.

Or some combination of both as others have observed.

Assume you have $5 of revenues and $1 of earnings last year. Add in organic growth of 5% to the previous year's revenues you increase revenues to $5.25 this year. Then you use that $1 of earnings to go buy a company for $1 to get $1 of revenue growth. Total revenue for this year is $6.25.

With a 20% margin, you increase earnings to $1.25. There you have 25% annual growth.

There are timing differences where you have assumed that acquisitions are made on Jan 1st of the year but this is how the company is working overall.

I keep wondering though why these owners keep selling at such low prices? Maybe they need to cash out and there is really no big competition for these really small companies? Either way that contact list of 35,000 odd companies is a key competitive advantage.

Any thoughts?

Vinod

I am part owner of a small business myself in a niche market, and one needs to keep in mind that for a specialty business it's often only valuable to strategic buyers who are in the industry or understand the business... So this is partly why the valuation is low.  For most private businesses, a number of valuation guys tell us it's usually 3x pre-tax earnings or sometimes just book value depending on the business.  Which is rougly 1x revenue   doesn't really answer your question but just trying to point out it's not because they want to sell so cheaply, but because often for a small business the reality is the market is small and when you had a decent career, you wanted to get bought out as part of retirement, 3x seems reasonable.

That makes sense. Good to know from the perspective of a small business owner.

Vinod
Title: Re: CSU - Constellation Software
Post by: sjh on February 17, 2018, 08:08:42 AM
OpenText (OTEX) has a very similar business model, they acquire software companies with a large installed base, remove management, sales and admin positions. Also there are usually many synergies in research & development and professional services, which lead to a boost in margins very quickly.

I think they are not buying those companies for a cheap price per se, however they have an operating model which allows them to extract a lot of value.

Enterprise Software is a pretty sticky business with high switching costs for customers, so you can use a lot of leverage without too much risk. There is however some headwind coming from pure SaaS companies, who see much larger organic growth and will have a bigger market share in the future.

Although the existing business will probably suffer from those pure SaaS competitors I guess that  M&A companies like CSU and OTEX will also benefit from this trend as pure on-premise software  companies will be cheap aquisition targets with lots of value to extract for a smart acquirer.
Title: Re: CSU - Constellation Software
Post by: FiveSigma on February 17, 2018, 09:41:25 AM
Constellation does not extract synergies or 'integrate' acquired businesses - they run them on a standalone basis (as a holdco) and have been clear about it many times.

You are forgetting that a business that provides mission-critical service/product, is dominant in its niche, and is a small expense for the customer likely has substantial untapped pricing power.

Specifically, CSU will acquire something at 1x sales and 10x earnings, increase maintenance by 13% just once, that 13%, 10% net of tax falls right to the bottom line bringing ROIC to 20%.

As a customer, are you going to say 'OK' or go ripping out the enterprise software package to switch to something else over a single price increase?
Labor costs would be orders of magnitude of the total maintenance, let alone any savings. Plus, by far not every IT department even has the talent
to pull off a migration like that even if they wanted.

That's why you see a lot of ancient sofware (written in the 80s/90s) still running all over the place.

One of the most significant moats of enterprise software is switching costs - non-tech people generally don't appreciate the full extent of it.
Title: Re: CSU - Constellation Software
Post by: vinod1 on February 17, 2018, 11:22:10 AM
1. I think they are not buying those companies for a cheap price per se, however they have an operating model which allows them to extract a lot of value.


2. You are forgetting that a business that provides mission-critical service/product, is dominant in its niche, and is a small expense for the customer likely has substantial untapped pricing power.

Specifically, CSU will acquire something at 1x sales and 10x earnings, increase maintenance by 13% just once, that 13%, 10% net of tax falls right to the bottom line bringing ROIC to 20%.

As a customer, are you going to say 'OK' or go ripping out the enterprise software package to switch to something else over a single price increase?
Labor costs would be orders of magnitude of the total maintenance, let alone any savings. Plus, by far not every IT department even has the talent
to pull off a migration like that even if they wanted.


Both these imply that the prior owners are underestimating the pricing power. It is a possibility. I am wondering why these owner operators who presumably know the business for a long time and are in a position to know the pricing power and stickiness of their software are not able to recognize that.

Why sell out on the cheap?

Vinod
Title: Re: CSU - Constellation Software
Post by: vinod1 on February 17, 2018, 11:26:39 AM
OpenText (OTEX) has a very similar business model, they acquire software companies with a large installed base, remove management, sales and admin positions. Also there are usually many synergies in research & development and professional services, which lead to a boost in margins very quickly.

I think they are not buying those companies for a cheap price per se, however they have an operating model which allows them to extract a lot of value.

Not sure if OpenText approach is relevant here since we are talking about companies with $1 to $2 million in sales. It is unlikely they have a lot of admin overhead.

Vinod
Title: Re: CSU - Constellation Software
Post by: FiveSigma on February 17, 2018, 12:01:18 PM
Both these imply that the prior owners are underestimating the pricing power. It is a possibility. I am wondering why these owner operators who presumably know the business for a long time and are in a position to know the pricing power and stickiness of their software are not able to recognize that.

Why sell out on the cheap?

Vinod

As it was said before - the market for small VMS firms is quite illiquid. Private equity is only really present in much larger deals as they have too much capital to deploy and fairly quickly (assuming finite fund life).

As for why sell - just like in other industries, it may be succession issues - founder reaches retirement and kids don't want to run it (it's a complex business anyway) or there is more than one kid and it's easier to sell and divide the proceeds.

Some of these founders (per my past conversation with Steve Sadler, CEO of Enghouse) being 50+ have fought through major technological shifts and are just not sure if they have the energy/desire to fight through another shift if it comes, so they choose to sell.
Title: Re: CSU - Constellation Software
Post by: vinod1 on February 17, 2018, 12:20:49 PM
Both these imply that the prior owners are underestimating the pricing power. It is a possibility. I am wondering why these owner operators who presumably know the business for a long time and are in a position to know the pricing power and stickiness of their software are not able to recognize that.

Why sell out on the cheap?

Vinod

As it was said before - the market for small VMS firms is quite illiquid. Private equity is only really present in much larger deals as they have too much capital to deploy and fairly quickly (assuming finite fund life).

As for why sell - just like in other industries, it may be succession issues - founder reaches retirement and kids don't want to run it (it's a complex business anyway) or there is more than one kid and it's easier to sell and divide the proceeds.

Some of these founders (per my past conversation with Steve Sadler, CEO of Enghouse) being 50+ have fought through major technological shifts and are just not sure if they have the energy/desire to fight through another shift if it comes, so they choose to sell.

Thanks! Makes sense.
Title: Re: CSU - Constellation Software
Post by: Liberty on February 17, 2018, 04:36:39 PM
A lot of the small VMS businesses are lifestyle businesses run by technical founders who have started them decades ago, have known the employees for a long time, etc. The considerations and skills are different than for much bigger businesses, publicly traded, run by a bunch of MBA non-founders, etc.

OpenText is pretty different in model from CSU, in my opinion. Even Enghouse, which is run by someone who knows Mark Leonard, tends to integrate the businesses more and stick to fewer verticals.
Title: Re: CSU - Constellation Software
Post by: FiveSigma on February 17, 2018, 04:47:16 PM
Sadler doesn't just know Leonard, he was his mentor back in the day.
Title: Re: CSU - Constellation Software
Post by: Liberty on February 20, 2018, 03:09:45 PM
"Constellation Software Announces Appointment of Robin van Poelje to its Board of Directors" (TSS founder)

https://globenewswire.com/news-release/2018/02/19/1361477/0/en/Constellation-Software-Announces-Appointment-of-Robin-van-Poelje-to-its-Board-of-Directors.html
Title: Re: CSU - Constellation Software
Post by: Liberty on February 24, 2018, 10:54:56 AM
Volaris co launches new unit for the cruise industry (organic growth initiative)

http://www.seatrade-cruise.com/news/news-headlines/spectec-launches-cruise-unit.html
Title: Re: CSU - Constellation Software
Post by: Liberty on February 24, 2018, 07:25:15 PM
They stopped the calls, but at least they created an interesting alternative...

https://globenewswire.com/news-release/2018/02/23/1386886/0/en/Constellation-Software-Inc-Announces-Cessation-of-Quarterly-Results-Conference-Calls.html
Title: Re: CSU - Constellation Software
Post by: villainx on March 09, 2018, 04:32:34 AM
What symbol do folks buy under?  I’m US based schwab.
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on March 09, 2018, 05:22:32 AM
Its either cnswf , which is the us ADR or CSU.to
Title: Re: CSU - Constellation Software
Post by: villainx on March 09, 2018, 08:23:03 AM
I plan to attend the CSU AGM again this year and will be flying in on 25 April from Boston where I am attending the Tyler Technologies annual conference. Would be good to see you all again.

Any extra commentary on Tyler Tech? 

Sorry for the detour, but first time I came across this name, and going through the Constellation thread, and trying to get a little deeper into software, hoping to learn more.

Any podcast fans? http://investorfieldguide.com/savneet/  Invest With the Best latest with Savneet Singh - with some discussion on Constellation. 
Title: Re: CSU - Constellation Software
Post by: Liberty on March 13, 2018, 06:51:48 PM
https://globenewswire.com/news-release/2018/03/13/1421219/0/en/Constellation-Software-Announces-Resignation-of-Ian-McKinnon-and-Appointment-of-Lori-O-Neill-to-its-Board-of-Directors.html
Title: Re: CSU - Constellation Software
Post by: rukawa on March 25, 2018, 09:16:39 PM
I think most companies are unique.  Not genius model, but for example, the companies CSU is buying all fit this.  They fill some certain need very well.  It's a novel and unique need, and the users are clearly happy.

At a meta level I guess CSU is essentially arbitraging this.  They find small niche-y businesses that are private, buy them at a private multiple and by nature of now being public earn a public multiple on the money.

The concept is a unique value proposition.  If you own a business in a sales call a prospect says "why should we buy with you?" and you have to explain why you're unique.  But CSU isn't unique, the companies they own have this, but they themselves are just doing this private-public arbitrage.

I don't mean to belittle it or anything.  I have owned companies like this in the past, it's a valid thing.

The glassdoor reviews are sort of sad.  Not bad, just sad. Mostly because this is a company buying these little companies, squeezing them, or letting them run on auto-pilot and redirecting cash.

I get that as investors this is magical.  Maybe I have too much of a human element to me, but I've experienced being at these little companies, and I've worked for a CSU type company, and it's a shame.  There are so many clients that need solutions that just aren't getting served well, or served as well as they could.  I guess that's always the opportunity for a competitor.  I guess better worded, it's sad that they're buying all of this potential, and instead of re-investing to make it better they're just milking it.

So is the investment thesis basically that investors expect this to continue for a while?  The past has been good, and the future will be similar?  Is there key man risk here?

Glassdoor is interesting as an investment tool. Berkshire has horrendous reviews. Geico isn't much better. Telsa is worse than constellation. Its quite possible that you can treat your employees like shit for extended periods of time and still have excellent investment performance. I guess it all depends on how difficult it is to find replacements.

Fairfax is good. Google, Facebook have excellent reviews. Amazon is not great. Bloomberg isn't great either and I'm pretty sure they are making money hand over fist.

Its hard for me to say what Glassdoor indicates but I'm guessing it has low correlation to investment performance. This is one of those things that seems like is should matter but doesn't.
Title: Re: CSU - Constellation Software
Post by: mwtorock on March 26, 2018, 05:54:56 AM
i have found glassdoor reviews or in general employee reviews to be highly correlated with perks and benefits the companies offer.  ;)
Title: Re: CSU - Constellation Software
Post by: Jerry Capital on April 06, 2018, 05:54:49 AM
I noticed this press released form April 4 2011

"Constellation Software to evaluate strategic alternatives"

Admittedly not too relevant to today, but I do like knowing the history of companies that I own (and this was before I was involved in the company). Does anyone have any color on what the situation was and what they were thinking?

Thanks in advance.

http://www.csisoftware.com/2011/04/constellation-software-inc-to-evaluate-strategic-alternatives/
Title: Re: CSU - Constellation Software
Post by: Liberty on April 06, 2018, 06:23:36 AM
I noticed this press released form April 4 2011

"Constellation Software to evaluate strategic alternatives"

Admittedly not too relevant to today, but I do like knowing the history of companies that I own (and this was before I was involved in the company). Does anyone have any color on what the situation was and what they were thinking?

Thanks in advance.

http://www.csisoftware.com/2011/04/constellation-software-inc-to-evaluate-strategic-alternatives/

You scared me for a second, I skimmed and clicked through and didn't notice the year, so I thought it was from two days ago...
Title: Re: CSU - Constellation Software
Post by: FiveSigma on April 06, 2018, 06:38:44 AM
Yes, there used to be two large shareholders - OMERS and Birch Hill Equity Partners. I think they were the original backers of CSU and together held 20-30%.

They decided to get an 'exit' on CSU and, through their board representation, pushed for the company sale.

Mark Leonard briefly refers to this in his 2010 President's Letter (published on April 4th, 2011).

By total stroke of luck this happened around spring 2011 when markets suddenly corrected, spreads on debt blew out, and for some time the availability of financing to PE acquirers decreased, so no deal happened.

Once it became apparent that deal won't get done, they exited through a secondary offering of their entire stakes at $87.50 per share a year later.

I'll be honest, those were pretty anxious few months.
Title: Re: CSU - Constellation Software
Post by: Jerry Capital on April 06, 2018, 07:25:59 AM
Five Sigma, thank you for that summary, I really appreciated it.

Title: Re: CSU - Constellation Software
Post by: Liberty on April 07, 2018, 10:39:02 AM
https://25iq.com/2018/04/07/business-lessons-from-mark-leonard-constellation-software/
Title: Re: CSU - Constellation Software
Post by: chrispy on April 10, 2018, 03:58:06 AM
Thanks for sharing Liberty. A high quality read which there aren't a whole lot of CSU or Leonard that I have found
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on April 10, 2018, 05:00:28 PM
I’m going to the $CSU.to AGM on April 26th.

Just booked train tickets and room. I’ll probably do ad hoc meetup/drinks at the C’est What on the evening of April 25th, like last year (will post about it closer to the date). Twitter and CoBF folks welcome to join!

http://www.cestwhat.com/directions

Awesome.  Thanks for arranging.  I'll be there.  Look forward to meeting in person
Title: Re: CSU - Constellation Software
Post by: KCLarkin on April 11, 2018, 06:22:27 AM
Great news. I will be there.
Title: Re: CSU - Constellation Software
Post by: sane on April 13, 2018, 02:07:40 AM
This week Corum published a recent interview with COO Mark Miller:
http://ow.ly/1kLX30jsWDW

Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on April 13, 2018, 07:06:18 AM
This week Corum published a recent interview with COO Mark Miller:
http://ow.ly/1kLX30jsWDW

thanks this is great.
Title: Re: CSU - Constellation Software
Post by: Liberty on April 13, 2018, 09:10:19 AM
This week Corum published a recent interview with COO Mark Miller:
http://ow.ly/1kLX30jsWDW

Thank you.

The rest of the interview is here:

https://overcast.fm/+efStk-TI
Title: Re: CSU - Constellation Software
Post by: SlowAppreciation on April 16, 2018, 10:56:53 AM
I've been looking at this, and would appreciate any feedback on my thinking:


So when using pretty conservative estimates of organic growth and ROIC, I get ~$550-$600/share. Current valuation doesn't seem too crazy.
Title: Re: CSU - Constellation Software
Post by: longlake95 on April 16, 2018, 11:34:56 AM
I too, did a back of the envelope valuation recently to get my head around CSU. Still more work to be done, but using similar conservative #'s I ended up with at steady state value of $650 ish USD ( bakes in the current growth rate for the next 5yrs ). When I sit back and look at CSU, it just doesn't seem "cheap". However, I have overlooked several great fast growing companies in the past because I didn't think they could continue to grow at such high rates. This seems to be in the same camp - except - I love Mark Leonard - he seems to be a better jockey than most. I think it's a matter of waiting for a pull back - then taking a small 1% work bench weighting. Then monitor and go from there. As you say, even if the ROIC's pull-in to the teen's range, that should provide a fine result over time for shareholders.
Title: Re: CSU - Constellation Software
Post by: Liberty on April 20, 2018, 06:18:32 PM
Mark Leonard's letter to shareholders is out:

http://www.csisoftware.com/wp-content/uploads/2018/04/Presidents-Letter-April-2018-Final.pdf
Title: Re: CSU - Constellation Software
Post by: Liberty on April 20, 2018, 06:22:41 PM
CSU also published its first written Q&A with analysts and shareholders:

http://www.csisoftware.com/wp-content/uploads/2018/04/QA-April-20-2018-Final-1.pdf

The first and last questions are mine. I'm liking this format already... Two questions answered vs. analysts mostly trying to fill cells in their Excel spreadsheets (to be fair, a few of them had consistently good questions, or by accident triggered good asides from management...).
Title: Re: CSU - Constellation Software
Post by: tripleoptician on April 20, 2018, 09:09:49 PM
CSU also published its first written Q&A with analysts and shareholders:

http://www.csisoftware.com/wp-content/uploads/2018/04/QA-April-20-2018-Final-1.pdf

The first and last questions are mine. I'm liking this format already... Two questions answered vs. analysts mostly trying to fill cells in their Excel spreadsheets (to be fair, a few of them had consistently good questions, or by accident triggered good asides from management...).

Good questions Liberty and I agree this format is more useful than with the analysts.
Every time I read his annual letters I feel like I havent allocated enough with only a 7% holding!


Title: Re: CSU - Constellation Software
Post by: chrispy on April 22, 2018, 06:18:24 AM
The new format is great.  It also shows how they are nimble and don't just do things because "that's they way we have always done it".  It is probably more fulfilling for them as well; similar to a band being able to connect and get feedback from their fans instead of answering to a reporter with zero interest in the music/culture.

It is quite clear that Leonard understands some shareholders are concerned with adjusted earnings and takes time to discuss and develop an alternative collectively.  He does not take it personally.  He seems like a very intelligent but humble individual; intellect - check, energy - check, integrity- check
Title: Re: CSU - Constellation Software
Post by: gary17 on April 24, 2018, 07:33:33 AM
Wish I could go!   Will follow on Twitter
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on April 25, 2018, 12:21:04 PM
Bummer My flight was delayed too.  I’ll head there for 7ish then
Title: Re: CSU - Constellation Software
Post by: Liberty on April 25, 2018, 02:40:53 PM
Q1:

http://www.csisoftware.com/wp-content/uploads/2018/04/CSI-Press-Release-Q1-2018-Final.pdf

Quote
Q1 2018 Headlines:
 Revenue grew 29% (5% organic growth, 0% after adjusting for changes in foreign exchange rates) to $719 million compared to $555 million in Q1 2017.
 Adjusted EBITA increased $28 million or 21% to $159 million as compared to $131 million in Q1 2017.
 Net income increased 104% to $83 million ($3.90 on a diluted per share basis) from $40 million ($1.91 on
a diluted per share basis) in Q1 2017.
 Adjusted net income increased 51% to $143 million ($6.73 on a diluted per share basis) from $95 million
($4.46 on a diluted per share basis) in Q1 2017.
 A number of acquisitions were completed for aggregate cash consideration of $320 million (which includes
acquired cash). Deferred payments associated with these acquisitions have an estimated value of $47
million resulting in total consideration of $367 million.
Cash flows from operations were $258 million, an increase of 42%, or $76 million, compared to $182
million for the comparable period in 2017.

Compare $320m in one quarter to the full-year numbers:

(https://i.imgur.com/8VMvURC.png)

Looks like the new capital deployment plans are working so far.
Title: Re: CSU - Constellation Software
Post by: Liberty on April 30, 2018, 10:12:34 AM
(https://pbs.twimg.com/media/DcC_JGPU0AE0USi.jpg)

FX-adjusted organic growth for past 2 years (most important line is maintenance & other recurring, that’s where they really make money).
Title: Re: CSU - Constellation Software
Post by: SlowAppreciation on May 11, 2018, 06:27:32 PM
Can someone help me understand the "Average Invested Capital" # in the annual letter? From the letter, it says Average Invested Capital is:

Quote
based on the Company’s estimate of the amount of money that our shareholders had invested in Constellation. Subsequent to that estimate, each period we have kept a running tally, adding Adjusted Net Income, subtracting any dividends, adding any amounts related to share issuances and making some small adjustments, including adjustments relating to our use of certain incentive programs and the amortization of impaired intangibles.

and for the past 5 years, it has been:

But the shareholder's equity from their financial statements has been a lot lower:

They aren't adding debt to the "Average Invested Capital" number, so any other idea why the discrepancy?
Title: Re: CSU - Constellation Software
Post by: Astrea on May 12, 2018, 01:44:20 AM
I think the answer is that CSI are buying businesses with declining book values because of growing negative working capital and no need for incremental investment.

Let’s say that kind of business doubles its sales organically and, for simplicity, let’s assume this takes place during a period of zero inflation. That doubling of dollar sales immediately yields correspondingly more dollars in deferred revenues and payables which produces a larger negative working capital balance. So contrary to what happens at most businesses, working capital needs decrease in proportion to sales growth rather than increase. And the dollars employed in fixed assets don’t have to respond to the growth in sales as they would do in more mundane businesses because here growth requires no incremental investment. More negative working capital and a largely flat investment in fixed assets mean that net tangible assets decline and become increasingly irrelevant as the business grows.

Title: Re: CSU - Constellation Software
Post by: SlowAppreciation on May 12, 2018, 04:17:06 AM
I looked at this again this morning, and I'm not sure that's it. I believe they're just saying adjusted income = true cash flow, and then they're adding that retained cash flow back to capital rather than GAAP income. Since adjusted income is higher than GAAP income, their total capital is also higher than GAAP book.
Title: Re: CSU - Constellation Software
Post by: Liberty on May 12, 2018, 04:20:48 AM
I think they just remove the dividend from it and add the retained free cash, but I haven't looked at it in a bit.
Title: Re: CSU - Constellation Software
Post by: SlowAppreciation on May 12, 2018, 04:36:04 AM
I think they just remove the dividend from it and add the retained free cash, but I haven't looked at it in a bit.

Yeah that seems to be what they're getting at but I can't quite make the figures add up
Title: Re: CSU - Constellation Software
Post by: Liberty on May 15, 2018, 06:06:09 AM
New Q&A is up:

http://www.csisoftware.com/wp-content/uploads/2018/05/QA-May-14-2018-Final.pdf
Title: Re: CSU - Constellation Software
Post by: Liberty on June 06, 2018, 05:16:34 AM
Acquisition:

https://www.prnewswire.com/news-releases/constellation-homebuilder-systems-acquires-customerinsight-300659728.html
Title: Re: CSU - Constellation Software
Post by: Phaceliacapital on June 06, 2018, 07:42:25 AM
Did anyone ever look at their 2040 bonds? Has a 8.1 coupon & price around 125.
Title: Re: CSU - Constellation Software
Post by: Liberty on June 06, 2018, 10:18:21 AM
Did anyone ever look at their 2040 bonds? Has a 8.1 coupon & price around 125.

You mean the debentures? Make sure you read the filings, because they're pretty unique. The interests reset each year based on the Canadian CPI and they are callable under certain circumstances...
Title: Re: CSU - Constellation Software
Post by: Liberty on June 28, 2018, 03:21:16 AM
Vela acquisition:

http://virtual-strategy.com/2018/06/27/fog-software-group-acquires-pace-software-inc/
Title: Re: CSU - Constellation Software
Post by: Liberty on June 29, 2018, 06:15:32 AM
CSU shareholder Q&A (I asked the single question):

http://www.csisoftware.com/wp-content/uploads/2018/06/QA-June-2018-Final.pdf
Title: Re: CSU - Constellation Software
Post by: thowed on June 29, 2018, 07:41:02 AM
Nice, thanks.

I hope one day I'll stop thinking 'I'm too late!' and buy some.
Title: Re: CSU - Constellation Software
Post by: doughishere on June 29, 2018, 07:53:06 AM


"Buybacks of undervalued stock feel to me like insiders preying upon their weakest shareholders using superior information. I’d argue to our board of Directors that there is no "Mr. Market" whom we can take advantage of without qualm.  "

I dont really understand this. Nice question, Lib.
Title: Re: CSU - Constellation Software
Post by: racemize on June 29, 2018, 08:00:32 AM


"Buybacks of undervalued stock feel to me like insiders preying upon their weakest shareholders using superior information. I’d argue to our board of Directors that there is no "Mr. Market" whom we can take advantage of without qualm.  "

I dont really understand this. Nice question, Lib.

Graham and Buffett have said this before.  I tend to disagree as it is providing liquidity to people who want to sell, and they were likely to sell anyway.
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on June 29, 2018, 08:11:28 AM


"Buybacks of undervalued stock feel to me like insiders preying upon their weakest shareholders using superior information. I’d argue to our board of Directors that there is no "Mr. Market" whom we can take advantage of without qualm.  "

I dont really understand this. Nice question, Lib.

Graham and Buffett have said this before.  I tend to disagree as it is providing liquidity to people who want to sell, and they were likely to sell anyway.

I agree.  And broadcasting that you think it's undervalued is a way to be fair, which is what Berkshire does (1.2x etc).  It's unfair to force a tax inefficient return of capital to one group of shareholders to protect another from themselves.  The company should do what is economically rational for the shareholders who are staying in.
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on June 29, 2018, 08:12:55 AM
CSU shareholder Q&A (I asked the single question):

http://www.csisoftware.com/wp-content/uploads/2018/06/QA-June-2018-Final.pdf

it's a great Q btw.
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on June 29, 2018, 08:32:18 AM
Did anyone ever look at their 2040 bonds? Has a 8.1 coupon & price around 125.

Is there a way for americans to buy this?  IB told me I can't do it through them.
Title: Re: CSU - Constellation Software
Post by: gfp on June 29, 2018, 08:35:36 AM
You should be able to buy it through Interactive Brokers if you get approval / trading permission / data subscription or whatever you need for the Toronto Stock Exchange.  It is definitely available through IB

Did anyone ever look at their 2040 bonds? Has a 8.1 coupon & price around 125.

Is there a way for americans to buy this?  IB told me I can't do it through them.
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on June 29, 2018, 09:19:45 AM
You should be able to buy it through Interactive Brokers if you get approval / trading permission / data subscription or whatever you need for the Toronto Stock Exchange.  It is definitely available through IB

Did anyone ever look at their 2040 bonds? Has a 8.1 coupon & price around 125.

Is there a way for americans to buy this?  IB told me I can't do it through them.


really?  I called them and they said I can buy stock but not bonds.  I have the permissions for TSX.  I own CSU.
Title: Re: CSU - Constellation Software
Post by: Astrea on June 29, 2018, 09:45:09 AM
I couldn't when I tried about a year or so ago through both IB and Schwab. For Schwab, I think it was because I was an international client and they could only do it for US clients.
Title: Re: CSU - Constellation Software
Post by: maybe4less on June 29, 2018, 09:54:58 AM
You should be able to buy it through Interactive Brokers if you get approval / trading permission / data subscription or whatever you need for the Toronto Stock Exchange.  It is definitely available through IB

Did anyone ever look at their 2040 bonds? Has a 8.1 coupon & price around 125.

Is there a way for americans to buy this?  IB told me I can't do it through them.


really?  I called them and they said I can buy stock but not bonds.  I have the permissions for TSX.  I own CSU.

They are definitely available if you have a Canadian account, but for whatever reason IB doesn't allow US accounts to trade Canadian debentures.
Title: Re: CSU - Constellation Software
Post by: gfp on June 29, 2018, 09:59:42 AM
Oh Sorry I didn't notice you were talking about the debt

You should be able to buy it through Interactive Brokers if you get approval / trading permission / data subscription or whatever you need for the Toronto Stock Exchange.  It is definitely available through IB

Did anyone ever look at their 2040 bonds? Has a 8.1 coupon & price around 125.

Is there a way for americans to buy this?  IB told me I can't do it through them.


really?  I called them and they said I can buy stock but not bonds.  I have the permissions for TSX.  I own CSU.
Title: Re: CSU - Constellation Software
Post by: KCLarkin on June 29, 2018, 10:26:45 AM
"Buybacks of undervalued stock feel to me like insiders preying upon their weakest shareholders using superior information. I’d argue to our board of Directors that there is no "Mr. Market" whom we can take advantage of without qualm."

This is surprisingly irrational for Leonard. He's usually pretty open-minded but he has a very rigid view on buybacks.
Title: Re: CSU - Constellation Software
Post by: Liberty on June 29, 2018, 10:36:29 AM
"Buybacks of undervalued stock feel to me like insiders preying upon their weakest shareholders using superior information. I’d argue to our board of Directors that there is no "Mr. Market" whom we can take advantage of without qualm."

This is surprisingly irrational for Leonard. He's usually pretty open-minded but he has a very rigid view on buybacks.

It's not irrational, it's just more strict ethically than almost everyone else out there, which isn't the worst thing to have a CEO be...

He sees this as an insider buying shares from an outsider with a potentially large informational asymmetry, and like Buffett (especially in the early days of BRK), he's cultivated a shareholder culture that is idiosyncratic and more partnership-like than most companies. A lot of employees are shareholders and while they might be sophisticated at doing VMS software, they might not be sophisticated market participants and he feels very protective of them, as he's made clear at both AGMs that I've been to.

In my follow-up question, I ask about potential ways to mitigate this, for example Buffett who has bought large blocks of stocks directly from shareholders (going through succession planning or whatever -- he could make it known that the company is interested in buying large blocks under certain parameters, as a kind of open-ended tender), and his approach of making it clear ahead of time that there's a point at which he'd consider the stock a good value and would buy back (1.3x of book or whatever). There's also the Singleton approach of doing public tender offers where everybody knows ahead of time and can decide to participate or not.

There's more in my follow-up, but I guess we'll see if they answer my follow up the next time they do these...

I just don't think he likes the idea of the company going in the open market and buying when others don't know that they're buying (I don't just mean the usual repurchase authorization). It's not because everybody else does it they should do it if they feel uncomfortable with it, I like that they're independent thinkers.
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on June 29, 2018, 10:45:25 AM
"Buybacks of undervalued stock feel to me like insiders preying upon their weakest shareholders using superior information. I’d argue to our board of Directors that there is no "Mr. Market" whom we can take advantage of without qualm."

This is surprisingly irrational for Leonard. He's usually pretty open-minded but he has a very rigid view on buybacks.

It's not irrational, it's just more strict ethically than almost everyone else out there, which isn't the worst thing to have a CEO be...

He sees this as an insider buying shares from an outsider with a potentially large informational asymmetry, and like Buffett (especially in the early days of BRK), he's cultivated a shareholder culture that is idiosyncratic and more partnership-like than most companies. A lot of employees are shareholders and while they might be sophisticated at doing VMS software, they might not be sophisticated market participants and he feels very protective of them, as he's made clear at both AGMs that I've been to.

In my follow-up question, I ask about potential ways to mitigate this, for example Buffett who has bought large blocks of stocks directly from shareholders (going through succession planning or whatever -- he could make it known that the company is interested in buying large blocks under certain parameters, as a kind of open-ended tender), and his approach of making it clear ahead of time that there's a point at which he'd consider the stock a good value and would buy back (1.3x of book or whatever). There's also the Singleton approach of doing public tender offers where everybody knows ahead of time and can decide to participate or not.

There's more in my follow-up, but I guess we'll see if they answer my follow up the next time they do these...

I just don't think he likes the idea of the company going in the open market and buying when others don't know that they're buying. It's not because everybody else does it they should do it if they feel uncomfortable with it, I like that they're independent thinkers.

I completely agree that its a higher standard of morality.  I think Mark's moral compass is pointed north and he is incredibly rational.  But even so, it creates an issue and to your point, there are other ways to resolve this issue fairly.  I'm really curious to hear what they have to say to your follow up Liberty.

Additionally, aren't they are going out in the market anyway to purchase stock  in the open market for the employee comp program? so arguably, by their own logic, they could still appear to use "insider information" to compensate employees to the detriment of other shareholders.
Title: Re: CSU - Constellation Software
Post by: Liberty on June 29, 2018, 10:56:14 AM
Additionally, aren't they are going out in the market anyway to purchase stock  in the open market for the employee comp program? so arguably, by their own logic, they could still appear to use "insider information" to compensate employees to the detriment of other shareholders.

My understanding is that it's the employees themselves that are buying and not the company, but I could be mistaken about that. They probably have a certain time window (buy within X months, must hold for Y years..?), but I don't know the details of the plan.
Title: Re: CSU - Constellation Software
Post by: KCLarkin on June 29, 2018, 12:41:37 PM
I just don't think he likes the idea of the company going in the open market and buying when others don't know that they're buying

This is precisely the irrational part. The exiting shareholder's are making open market sales regardless. Buying back undervalued stock is countercyclical. So it protects selling shareholders and is accretive to holding shareholders. The only people who are harmed are new shareholders who now need to compete with the buybacks.

The moral and ethical issues have largely been dealt with by the regulators. With the strict buyback regulations in Canada, I can't see how a company could legally take advantage.

And actually, the irrationality by Leonard is much worse. A few years ago, CSU was put up for strategic review because it was so undervalued. Many other companies have been ransacked by raiders. Leonard knows how dangerous it is for a company to be undervalued for a prolonged period of time but he is against one of the best tools to correct that undervaluation.
Title: Re: CSU - Constellation Software
Post by: Liberty on June 29, 2018, 12:45:56 PM
I just don't think he likes the idea of the company going in the open market and buying when others don't know that they're buying

This is precisely the irrational part. The exiting shareholder's are making open market sales regardless. Buying back undervalued stock is countercyclical. So it protects selling shareholders and is accretive to holding shareholders. The only people who are harmed are new shareholders who now need to compete with the buybacks.

The moral and ethical issues have largely been dealt with by the regulators. With the strict buyback regulations in Canada, I can't see how a company could legally take advantage.

And actually, the irrationality by Leonard is much worse. A few years ago, CSU was put up for strategic review because it was so undervalued. Many other companies have been ransacked by raiders. Leonard knows how dangerous it is for a company to be undervalued for a prolonged period of time but he is against one of the best tools to correct that undervaluation.

It's a nuance, but I don't think he's saying that the action of buying back stock is hurting shareholders, he's saying he doesn't want to be the one that has bought undervalued stock from shareholders, who he sees as partners, because management/the company is a different actor than all the others in the marketplace.

But you bring up a good point with the counter-cyclicality of buybacks and providing liquidity, and I encourage you to write in a question about this angle and see what they have to say about it. I wish more people would send in good questions through the new mechanism, I'm afraid that they might shut that down too eventually if nobody uses it...
Title: Re: CSU - Constellation Software
Post by: chrispy on June 30, 2018, 06:39:13 AM
Appreciate the good questions you've sent Liberty and the discussions they have created.
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on July 02, 2018, 09:48:08 AM
Additionally, aren't they are going out in the market anyway to purchase stock  in the open market for the employee comp program? so arguably, by their own logic, they could still appear to use "insider information" to compensate employees to the detriment of other shareholders.

My understanding is that it's the employees themselves that are buying and not the company, but I could be mistaken about that. They probably have a certain time window (buy within X months, must hold for Y years..?), but I don't know the details of the plan.

so a quick search on the website clarifies this.  This is from a 2011 annoucement.

Toronto, Ontario, March 25, 2011 – Constellation Software Inc. (“Constellation” or the “Company”) (TSX: CSU) today announced that it has paid employee bonuses and director compensation in respect of the 2010 fiscal year and will commence purchasing shares on behalf of the employees and independent directors as stipulated in its various compensation plans.

Consistent with previous years, and as outlined in the Company’s Annual Information Form dated March 25, 2011, Constellation requires certain of its employees and directors to reinvest portions of their annual compensation in common shares of the Company. For fiscal 2010, the total bonus paid to all employees was approximately US$51 million. The reinvestment obligations pursuant to the bonus plan, along with the payment of director’s fees, will require the purchase of approximately US$13 million worth of Constellation shares in the open market. No shares of the Company will be issued from treasury with respect to the above noted compensation plans.

All purchases will be made through an independent third party purchasing agent. It is anticipated that the share purchases will be made over the course of several months. The purchasing agent will execute the trades in accordance with certain pre-established rules, which are intended to limit the impact on the Company’s share price. Constellation’s Annual Information Form is available at www.sedar.com
Title: Re: CSU - Constellation Software
Post by: Liberty on July 02, 2018, 09:55:33 AM
Thanks, that makes sense.
Title: Re: CSU - Constellation Software
Post by: sane on July 10, 2018, 05:08:34 AM
Any thoughts on Vista's rising size and public profile?  (See for example today's long WSJ profile). 
Is their success purely negative for CSU?  Or are there any silver linings - apart from a valuation fillip?
Title: Re: CSU - Constellation Software
Post by: Liberty on July 10, 2018, 07:05:10 AM
Any thoughts on Vista's rising size and public profile?  (See for example today's long WSJ profile). 
Is their success purely negative for CSU?  Or are there any silver linings - apart from a valuation fillip?

Seems like it's a negative, but mostly because of increased competition for larger VMSes. I don't think Vista is buying lots of $1-5m businesses the way CSI is.
Title: Re: CSU - Constellation Software
Post by: QuesnelCap on July 11, 2018, 05:09:38 PM
Hey Guys,

Been a lurker on here for quite a while. Anyway I did a short presentation on Outsiders/ML/Constellation. Check it out. Not sure if I'm adding much to the debate. I might be slightly more tepid on how I see equity holders doing over the next decade though. All feedback, counterarguments (esp. on why Constellation might do better than I am estimating) welcome. Attached PDF and see link https://securityinsecurities.com/2018/07/11/constellation-software/ (https://securityinsecurities.com/2018/07/11/constellation-software/)
Title: Re: CSU - Constellation Software
Post by: Liberty on July 12, 2018, 05:03:10 AM
Hey, welcome to the board, QuesnelCap. It was nice meeting you in Toronto!
Title: Re: CSU - Constellation Software
Post by: chrispy on July 12, 2018, 05:15:40 AM
I was not aware of the requirement for employees making more than a certain threshold to buy stock. It has been great for employees so far.

One could estimate how many shares are required to be purchased a year and held for 5 years, right?

Edit: and the magnitude of shares could be insignificant...
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on July 12, 2018, 01:39:38 PM
Can anyone who saw Cibc’s note today please summarize what stephanie’s price reason for raising her price target today was?  Thank you
Title: Re: CSU - Constellation Software
Post by: Jerry Capital on July 12, 2018, 01:58:56 PM
cheap versus TYL
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on July 13, 2018, 03:30:12 AM
cheap versus TYL

Thanks.

Wow.  That’s it?  Seems like faulty logic.
Title: Re: CSU - Constellation Software
Post by: Liberty on July 13, 2018, 07:08:49 AM
cheap versus TYL

Thanks.

Wow.  That’s it?  Seems like faulty logic.

Seems a bit simplistic, yeah. They play in some of the same verticals, but the operational model and future value drivers are pretty different.
Title: Re: CSU - Constellation Software
Post by: QuesnelCap on July 14, 2018, 04:40:30 PM
@Liberty , Thanks, good meeting you too. Really sharp group of shareholders from the board and twitter.

@chrispy , Not sure how one would go about doing that without access to information on the total number of employees in that share purchase requirement bucket, their bonuses, etc. Anyway the insider ownership filing is pretty extensive and you can probably get about 80% of the way there. See attached
Title: Re: CSU - Constellation Software
Post by: QuesnelCap on July 17, 2018, 05:20:44 AM
FWIW, got a response from Mark Leonard on my presentation (see link below). Posting with his permission. Basically beware of survivorship bias. Asked a couple other questions that should appear in the next Q&A.

https://securityinsecurities.com/2018/07/15/what-do-billionaires-do-on-weekends/
Title: Re: CSU - Constellation Software
Post by: Liberty on July 26, 2018, 06:05:20 AM
My Q&A answers:

http://www.csisoftware.com/wp-content/uploads/2018/07/QA-July-25-2018-Final.pdf

They didn't answer my questions this time...  :'(
Title: Re: CSU - Constellation Software
Post by: mwtorock on July 26, 2018, 08:15:00 AM
The more i read about CSU or Mark L, the more i like the business. But i am not used to value software/high growth companies like CSU, so the price seems to be a bit high to me.

Any comments about the valuation right now? and what yard sticks/framework you usually apply in valuing this type of businesses?

Title: Re: CSU - Constellation Software
Post by: Liberty on July 26, 2018, 02:48:04 PM
Q2: http://www.csisoftware.com/wp-content/uploads/2018/07/CSI-Press-Release-Q2-2018.pdf

http://www.csisoftware.com/wp-content/uploads/2018/07/Q2-2018-Shareholder-Report.pdf
Title: Re: CSU - Constellation Software
Post by: gary17 on July 26, 2018, 09:46:45 PM
Seems like a slower quarter

RBC reduced price target to $ 1150...
Title: Re: CSU - Constellation Software
Post by: Liberty on July 27, 2018, 04:06:30 AM
Seems like a slower quarter

RBC reduced price target to $ 1150...

Yeah, after Q1's monster M&A, it's normal to see a hit to margins like this. It takes them a bit of time to bring the margins up. Still deployed a decent amount if you keep it in historical context and don't just compare to Q1. Usually when cashflows have lagged like this they caught up later, so I'm not too worried there, prob just timing. There's also so noise from FX, with almost 9m hit to ANI.
Title: Re: CSU - Constellation Software
Post by: sane on July 27, 2018, 08:52:59 AM

Still deployed a decent amount if you keep it in historical context and don't just compare to Q1.
[/quote]

Do you mean for Q2, or H1?  Because I see this as the lowest quarter for acquisitions since Q3 '16.  I am not too sensitive to one quarter given M&A lumpiness, especially given abnormal Q1 18, but just want to verify my quarterly data matches yours.  Thanks.
Title: Re: CSU - Constellation Software
Post by: Liberty on July 27, 2018, 09:20:21 AM
Do you mean for Q2, or H1?  Because I see this as the lowest quarter for acquisitions since Q3 '16.  I am not too sensitive to one quarter given M&A lumpiness, especially given abnormal Q1 18, but just want to verify my quarterly data matches yours.  Thanks.

That sounds right. I was looking over the past handful of years and to me this seemed like a decent amount.  It's about the average run-rate of 2016. So if a slow Q now was an average Q two years ago, we're moving in the right direction. As you mention, M&A is inherently lumpy. I'm sure the market would've preferred them to have deployed 175m in Q1 and 175 in Q2, but that's not how the world works.

Some day we'll likely wake up to them having bought something even bigger than Acceo and TSS, but who knows when?
Title: Re: CSU - Constellation Software
Post by: Liberty on July 27, 2018, 11:04:56 AM
Twitter thread explaining what I was talking about on margin hit after a big M&A spike (like we saw in Q1):

https://twitter.com/JamesBarnby/status/1022857933330108416

Quote
1) My interpretation on the weaker than expected Q2 margins from $CSU. Staff costs make up approximately 66% of CSU’s operating costs. Staff costs on an annual basis have been around 50% of revenues for the last three years with unbelievable consistency.
2) Note that Q1 staff costs/revenues are typically a little higher (53%-54%) as year end bonuses are awarded while the other three quarters are typically around 49%.
3) However, yesterday the company reported staff costs that were 52% of revenues. Keep in mind that 1% of revenues equates to about $8m so this is material for a company with quarterly EBITDA of approximately $180m. Why did staff costs move upward?
4) The answer to this can be found by looking back at $CSU’s history. The last time this happened was in 2014, the year after Total Specific Solutions (TSS) was acquired. TSS was the largest acquisition made in $CSU history followed closely by ACCEO made earlier this year.
5) On the 2014 Q2 conference call $CSU CEO, Mark Leonard revealed that TSS had a much larger component of professional services but he hoped higher margin recurring revenues would grow over time. He also mentioned the ongoing restructuring that was occurring at TSS.
6) Over time clients were rationalized, severance costs stopped, back-end functions were consolidated and maintenance and recurring revenue sources grew leading to the stable operating margins that has been a defining factor of $CSU over the last four years.
7) With this in mind, I expect that margins will temporarily be weaker at $CSU while the integration of ACCEO continues. When companies deploy above average amounts of capital it is to be expected that margins will slip as companies work through rationalizing costs.
8 ) Even Mark Leonard, the Oracle of Ontario, can’t escape the reality of temporary additional expenses and lower margins due to a surge in capital deployment from a large acquisition.
Title: Re: CSU - Constellation Software
Post by: Liberty on August 02, 2018, 10:05:05 AM
New acquisition at Volaris:

https://globenewswire.com/news-release/2018/08/02/1546461/0/en/Volaris-Group-Expands-Position-in-Communications-Media-Vertical-with-Acquisition-of-Aleyant.html

Quote
Volaris Group (“Volaris”) today announced that it has completed its eighth acquisition in the Communications and Media vertical with the acquisition of Aleyant Systems, LLC (“Aleyant”), a global web-to-print, estimation and production, and prepress automation workflow software provider to graphics and commercial print professionals.

h/t @behrak on Twitter
Title: Re: CSU - Constellation Software
Post by: Liberty on August 06, 2018, 06:35:28 AM
The company has released a new Q&A from shareholders:

http://www.csisoftware.com/wp-content/uploads/2018/08/QA-August-2018-Final.pdf

On recently lower margins:

Quote
As mentioned in the MD&A the margin decline is primarily the result of lower margins on recently acquired businesses. If these businesses improve over time as expected, and we do not add a proportionate volume of low margin acquisitions, then overall margins of Constellation could move closer to historical levels.
Keep in mind that we are also investing a lot more in M&A, so there could be an increase in our G&A expense as a percentage of revenue.
Title: Re: CSU - Constellation Software
Post by: chrispy on August 08, 2018, 02:54:50 PM
It was quite the run up before this ~20% pullback.  Is anyone adding at these levels or has it just come back down to reality?

Leonard's comments were very much inline with the twitter thread Liberty posted.  The temporary (potentially) decrease in margins is due to the acquisition and will benefit the company in the long run.
Title: Re: CSU - Constellation Software
Post by: bizaro86 on August 08, 2018, 03:00:07 PM
It was quite the run up before this ~20% pullback.  Is anyone adding at these levels or has it just come back down to reality?

Leonard's comments were very much inline with the twitter thread Liberty posted.  The temporary (potentially) decrease in margins is due to the acquisition and will benefit the company in the long run.

Trailing 10 year results are ~40% CAGR for share price, even after the drop. I'd love to own some of this business, and would also be very curious to hear how those of you who are long are valuing it right now...
Title: Re: CSU - Constellation Software
Post by: Pondside47 on August 08, 2018, 03:52:28 PM
For the sake of contrarian opinion, Almost Daily Grant's from Philip Grant seems to have a problem with the lack of disclosure on the details of the acquisitions. Their 8/6 article also pointed out the short interest in Constellation Software is less than FAANG's. only 0.71% is shorted. 
Title: Re: CSU - Constellation Software
Post by: Liberty on August 08, 2018, 05:33:32 PM
It was quite the run up before this ~20% pullback.  Is anyone adding at these levels or has it just come back down to reality?

Leonard's comments were very much inline with the twitter thread Liberty posted.  The temporary (potentially) decrease in margins is due to the acquisition and will benefit the company in the long run.

Trailing 10 year results are ~40% CAGR for share price, even after the drop. I'd love to own some of this business, and would also be very curious to hear how those of you who are long are valuing it right now...

It's something like 26x TTM FCF (and that TTM includes the abnormally low Q2). To me, that's not expensive for a business of this quality with this management. But each has to make up their own mind on that.
Title: Re: CSU - Constellation Software
Post by: villainx on August 09, 2018, 09:45:56 AM
It was quite the run up before this ~20% pullback.  Is anyone adding at these levels or has it just come back down to reality?

Leonard's comments were very much inline with the twitter thread Liberty posted.  The temporary (potentially) decrease in margins is due to the acquisition and will benefit the company in the long run.

Trailing 10 year results are ~40% CAGR for share price, even after the drop. I'd love to own some of this business, and would also be very curious to hear how those of you who are long are valuing it right now...

It's something like 26x TTM FCF (and that TTM includes the abnormally low Q2). To me, that's not expensive for a business of this quality with this management. But each has to make up their own mind on that.

Just want to drop a thank you for your posts here and other places.  Thanks!
Title: Re: CSU - Constellation Software
Post by: Liberty on August 28, 2018, 11:55:29 AM
Acquisition at Harris:

https://www.businesswire.com/news/home/20180828005204/en/Harris-Healthcare-Group-Acquires-Iatric%C2%AE-Systems

Quote
Iatric Systems is a healthcare technology company dedicated to helping hospitals enhance their IT investments. We do so with our diverse healthcare experience, an extensive partner network, and our proven capabilities in privacy and security, EHR optimization, and interoperability. For 28 years, Iatric Systems has delivered solutions to more than 1,300 healthcare organizations and has integrated more than 800 vendor solutions. For more information, contact Iatric Systems at info@iatric.com, visit our website at www.iatric.com

h/t https://twitter.com/pearnick/status/1034510229780803589
Title: Re: CSU - Constellation Software
Post by: Liberty on September 13, 2018, 02:05:35 PM
Volaris buysa business from Nokia:

https://www.telecomlead.com/telecom-equipment/nokia-sells-ip-video-business-to-software-firm-volaris-86386

https://www.nasdaq.com/press-release/nokia-agrees-with-volaris-group-on-sale-of-ip-video-business-and-creation-of-velocix-a-pure-play-20180913-00105

Nokia's keeping a minority interest.
Title: Re: CSU - Constellation Software
Post by: Liberty on September 17, 2018, 03:44:11 PM
Jonas acquisition :

https://www.jonassoftware.com/About_Us/Latest_News/Jonas_Software_Announces_the_Acquisition_of_TechMa
Title: Re: CSU - Constellation Software
Post by: QuesnelCap on September 20, 2018, 01:38:50 PM
New Q&A is out.
http://www.csisoftware.com/wp-content/uploads/2018/09/QA-September-2018-Final.pdf
Title: Re: CSU - Constellation Software
Post by: Liberty on September 20, 2018, 01:40:11 PM
Volaris acquisition:

https://globenewswire.com/news-release/2018/09/20/1574017/0/en/Volaris-Group-Welcomes-Helm-Operations-to-Marine-Vertical.html
Title: Re: CSU - Constellation Software
Post by: Liberty on September 20, 2018, 01:47:58 PM
New Q&A is out.
http://www.csisoftware.com/wp-content/uploads/2018/09/QA-September-2018-Final.pdf

Nice. Two of my questions have been answered.

I though it was a very nice Q&A. I like when he goes in-depth in his answers, makes the loss of the yearly letters and conference calls less painful...
Title: Re: CSU - Constellation Software
Post by: FiveSigma on September 20, 2018, 02:32:31 PM
What's the threshold for publicly reporting an acquisition? I think they increased it recently from $10M, but I can't find the new figure.
Title: Re: CSU - Constellation Software
Post by: Liberty on September 20, 2018, 02:41:44 PM
What's the threshold for publicly reporting an acquisition? I think they increased it recently from $10M, but I can't find the new figure.

$50m at the parent, info from the CFO. Operating group can each set their thresholds.
Title: Re: CSU - Constellation Software
Post by: chrispy on September 22, 2018, 06:15:09 AM
September Q&A:

http://www.csisoftware.com/wp-content/uploads/2018/09/QA-September-2018-Final.pdf
Title: Re: CSU - Constellation Software
Post by: Liberty on September 27, 2018, 12:15:15 PM
New one at Jonas:

https://www.jonassoftware.com/About_Us/Latest_News/Jonas_Software_Announces_the_Acquisition_of_Chamel

Interesting, because the release is dated August 8, but according to someone who tracks these things (@pearnick on Twitter), it was only posted now. Possibly for competitive reasons...
Title: Re: CSU - Constellation Software
Post by: Liberty on October 01, 2018, 01:38:46 PM
New acquisition by Vela:

https://www.coreworx.com/coreworx-announces-acquisition-by-vela/

h/t @Pearnick
Title: Re: CSU - Constellation Software
Post by: villainx on October 01, 2018, 07:37:33 PM
Seems like a brisk pace, if I'm tracking your posts correctly.  But nothing major.  Is that fair read?
Title: Re: CSU - Constellation Software
Post by: FiveSigma on October 01, 2018, 09:08:17 PM
One way to estimate acquisition price is via number of employees and an average revenue per employee.

LinkedIn shows 50 employees. RBC assumes average revenue of $168K per employee in their research.

This gives us ~$8.4M acquisition price for Coreworx.

Per RBC excluding this deal, CSU did ~$67M in acquisitions this quarter. Decent.
Title: Re: CSU - Constellation Software
Post by: Liberty on October 02, 2018, 04:08:00 AM
Seems like a brisk pace, if I'm tracking your posts correctly.  But nothing major.  Is that fair read?

That's my read too. Nothing above CSI $50m press release threshold recently. Hard to know how many small ones are being done or if some medium ones have gone through but haven't been PR'ed by an operating group, since they don't appear to have a uniform policy on that and they can hold things back for competitive reasons. I also probably don't catch all the ones that are announced. So the probability distribution is always pretty wide until it collapses when the Q comes out.
Title: Re: CSU - Constellation Software
Post by: Liberty on October 02, 2018, 07:10:22 AM
Another new one at TSS in Europe:

https://www.totalspecificsolutions.com/about-us/transaction-updates?tid=32

Quote
Total System Development (“TSD”), the supplier of software solutions for tree nurseries and landscaping, has joined Total Specific Solutions (“TSS”). With the acquisition of TSD, TSS now moves into the agricultural vertical.

h/t @Pearnick again
Title: Re: CSU - Constellation Software
Post by: Liberty on October 02, 2018, 09:14:03 AM
Just randomly stumbled on their Japanese website, no doubt part of the JV that they announced a couple years ago. It's actually fancier than their main website:

http://www.csi-japan.co.jp/
Title: Re: CSU - Constellation Software
Post by: Liberty on October 02, 2018, 05:18:08 PM
Another one:

https://markets.businessinsider.com/news/stocks/constellation-real-estate-group-acquires-baynet-world-inc-1027581705
Title: Re: CSU - Constellation Software
Post by: Liberty on October 05, 2018, 07:39:05 AM
That was quick. A new shareholder Q&A:

http://www.csisoftware.com/wp-content/uploads/2018/10/QA-Oct-4-2018-Final.pdf
Title: Re: CSU - Constellation Software
Post by: Liberty on October 12, 2018, 10:36:44 AM
Another new Q&A:

http://www.csisoftware.com/wp-content/uploads/2018/10/QA-Oct-9-2018-Final.pdf

Title: Re: CSU - Constellation Software
Post by: Liberty on October 16, 2018, 09:42:01 AM
Vela just disclosed 5 acquisitions (probably doing it at the end of the quarter for things that closed during the Q):

http://velasoftwaregroup.com/vela-software-acquires-infocouncil/
http://velasoftwaregroup.com/vela-software-acquires-spectra-qest/
http://velasoftwaregroup.com/vela-software-acquires-epic-loan-systems/
http://velasoftwaregroup.com/vela-software-acquires-cross-advertising/
http://velasoftwaregroup.com/vela-software-acquires-nems-as/

Via https://twitter.com/pearnick/status/1051856836310249472
Title: Re: CSU - Constellation Software
Post by: SlowAppreciation on October 17, 2018, 05:57:03 AM
I think I finally beat Liberty

https://www.jonassoftware.com/About_Us/Latest_News/Jonas_Software_Announces_the_Acquisition_of_Greyco
Title: Re: CSU - Constellation Software
Post by: Liberty on October 17, 2018, 06:55:34 AM
I think I finally beat Liberty

https://www.jonassoftware.com/About_Us/Latest_News/Jonas_Software_Announces_the_Acquisition_of_Greyco

Achievement unlocked for you!

Interesting vertical: "a global leader of software solutions for the Paper & Board, Plastic Films & Flexible Packaging, Nonwovens, Metals and Converting industries."

Video about the company:

https://youtu.be/KWVv6dpMfpo
Title: Re: CSU - Constellation Software
Post by: gary17 on October 25, 2018, 02:15:13 PM
Q3 2018:
http://www.csisoftware.com/wp-content/uploads/2018/10/CSI-Press-Release-Q3-2018.pdf

Seems like the margin has "recovered" in Q3...
Title: Re: CSU - Constellation Software
Post by: Liberty on October 25, 2018, 03:28:07 PM
I posted some thoughts here:

https://twitter.com/LibertyRPF/status/1055573760806404099
Title: Re: CSU - Constellation Software
Post by: gary17 on October 25, 2018, 03:43:49 PM
An interesting thought process , and i'm sure it was answered before - is if they stop acquiring new businesses, then they'd essentially stop creating value in a sense. 

In other words, their high ROIC is based on being able to keep deploying the capital for good returns ; but that ROIC would go down over time if they accumulate capital .    but i think the consensus here is there are plenty of stuff to buy still.   
Title: Re: CSU - Constellation Software
Post by: Liberty on October 25, 2018, 04:17:27 PM
An interesting thought process , and i'm sure it was answered before - is if they stop acquiring new businesses, then they'd essentially stop creating value in a sense. 

In other words, their high ROIC is based on being able to keep deploying the capital for good returns ; but that ROIC would go down over time if they accumulate capital .    but i think the consensus here is there are plenty of stuff to buy still.   

Pretty sure it's been discussed previously in this thread, and it's been addressed in previous annual letters and somewhat at some of the AGMs I've been at.

The general idea is that capital allocation is about putting your limited capital where you're getting the highest returns. In the past they've tried investing more in organic growth and tracked results, and generally the results don't seem to be as good as what they can get with M&A.

If they somehow couldn't do M&A anymore, they would no doubt redeploy more capital to organic growth (hire more people to write new modules, to enter new markets, to refresh old software more often, invest more in sales and marketing, etc). They'd probably do special dividends for excess cash. Mark Leonard has said that's his preferred way to return excess capital, if it ever gets to that.

Also, looking at their aggregate organic growth numbers doesn't tell the whole story. They aren't like, I don't know, TYL or MKTX, with one or a few main things that they try to sell to everyone and grow.

They have hundreds of business units and they buy all kinds of things. What matters is creating value, not putting up the best organic growth numbers, so they buy businesses in runoff (f.ex. lately in real estate or oil & gas, mining) that still create a lot of value but are headwinds to organic, and they buy things and then shut down low-margin/ROIC hardware sales divisions and consulting arms, etc.

As I think Mark said in the past, it's easy to grow faster organically and inorganically, but it's hard to do it at the kind of ROIC that they're looking for--for the former they could just start price wars with their competitors and invest a ton of money into creating new products/modules, by doing so they'd probably show good growth but would probably create little value or destroy it, and for the latter they could just lower their hurdles and deploy a lot more capital in M&A, showing greater growth and lowering the cash pile, but that too would lower returns.

So don't get me wrong, higher organic growth while staying disciplined would be great and create tremendous value. But in the end, what matters to me is that they keep ROIC high, great FCF/share and keep a strong balance sheet to be able to deploy a lot of capital if there's ever a large opportunity that comes along.

I still think someday the stars will align and we'll wake up one morning and learn that they've been able to buy a large VMS for $500m or $1bn or $1.5bn...
Title: Re: CSU - Constellation Software
Post by: Liberty on October 26, 2018, 11:28:03 AM
Putting Q3 M&A deployment of capital in historical context (they did $92m, or $114m with deferred payments). Higher than all but a few quarters (this chart doesn't show 1Q18 ($367 million) and 2Q18 ($55 million)).

(https://pbs.twimg.com/media/DqdEml5XcAAnZDF.jpg)
Title: Re: CSU - Constellation Software
Post by: Liberty on November 06, 2018, 06:10:19 AM
New shareholder Q&A from Nov 5:

http://www.csisoftware.com/wp-content/uploads/2018/11/QA-Nov-5-2018-Final-1.pdf
Title: Re: CSU - Constellation Software
Post by: Liberty on November 19, 2018, 01:15:59 PM
Quote
 Jonas is pleased to announce that it has acquired Leonardo Worldwide Corporation, a leading provider of digital asset management and digital marketing solutions for the global hospitality industry

https://www.jonassoftware.com/About_Us/Latest_News/Jonas_Software_Announces_the_Acquisition_of_Leonar
Title: Re: CSU - Constellation Software
Post by: FiveSigma on November 19, 2018, 02:16:12 PM
US $21.4M of annual revenue per Crunchbase (https://www.crunchbase.com/organization/leonardo-worldwide-corporation), though not clear how recent that figure is.
Title: Re: CSU - Constellation Software
Post by: Liberty on December 07, 2018, 10:07:58 AM
Writeup by Scuttleblurb (subscription required):

https://www.scuttleblurb.com/csu/
Title: Re: CSU - Constellation Software
Post by: Liberty on December 11, 2018, 09:51:40 AM
Acquisition at Harris:

https://www.harriscomputer.com/en/news/?date=1543986000&article=harris-rsquo-us-healthcare-group-acquires-psytech-solutions-inc-
Title: Re: CSU - Constellation Software
Post by: Liberty on December 18, 2018, 04:41:11 PM
Irish acquisition:

https://www.irishexaminer.com/breakingnews/business/cork-beauty-software-firm-sold-for-over-15m-892840.html
Title: Re: CSU - Constellation Software
Post by: Liberty on December 19, 2018, 10:21:50 AM
Another one at Volaris:

https://www.motortrader.com/motor-trader-news/automotive-news/cox-automotive-sells-incadea-dms-business-volaris-13-12-2018
Title: Re: CSU - Constellation Software
Post by: FiveSigma on December 19, 2018, 12:03:33 PM
This is potentially a very large transaction:

https://www.incadea.com/company/news-events/recommended-cash-offer-for-incadea-plc-by-dealertrack-technologies-inc/

It was bid on (and I suppose acquired) by DealerTrack in 2014 for GBP 122M, which was CAD 220M at that time.
Title: Re: CSU - Constellation Software
Post by: Liberty on December 19, 2018, 12:15:16 PM
This is potentially a very large transaction:

https://www.incadea.com/company/news-events/recommended-cash-offer-for-incadea-plc-by-dealertrack-technologies-inc/

It was bid on (and I suppose acquired) by DealerTrack in 2014 for GBP 122M, which was CAD 220M at that time.

I think it's only part of it that is being sold, but it's not clear how big it is.
Title: Re: CSU - Constellation Software
Post by: FiveSigma on December 19, 2018, 12:57:57 PM
It might be the whole thing, because the press release says "Cox Automotive sells Incadea DMS business to Volaris".

DMS is the core product if you look at the website with other solutions being complementary to it.

We'll find out after Q1 report unless someone wants to email IR.
Title: Re: CSU - Constellation Software
Post by: Liberty on December 19, 2018, 01:03:05 PM
It might be the whole thing, because the press release says "Cox Automotive sells Incadea DMS business to Volaris".

DMS is the core product if you look at the website with other solutions being complementary to it.

We'll find out after Q1 report unless someone wants to email IR.

I certainly hope it's the whole thing or close to it. I'll see what I can find out.
Title: Re: CSU - Constellation Software
Post by: tenyearsout on December 19, 2018, 04:43:46 PM
https://www.csisoftware.com/2018/12/constellation-increases-credit-facility-2/
Title: Re: CSU - Constellation Software
Post by: FiveSigma on December 19, 2018, 05:30:24 PM
https://www.csisoftware.com/2018/12/constellation-increases-credit-facility-2/

Bullish. Maybe additional large deals coming up.
Title: Re: CSU - Constellation Software
Post by: FiveSigma on December 20, 2018, 08:19:35 AM
Just got a reply from CSI re: Incadea:

"We did acquire the entire business, however the purchase price is well below our disclosure threshold of $50M."
Title: Re: CSU - Constellation Software
Post by: gary17 on December 20, 2018, 09:12:47 AM
Market doesnt like all the CSI news today ...
Title: Re: CSU - Constellation Software
Post by: Liberty on December 20, 2018, 10:33:08 AM
Market doesnt like all the CSI news today ...

I don't think it has anything to do with the news. It's just indiscriminate selling.
Title: Re: CSU - Constellation Software
Post by: FiveSigma on December 20, 2018, 12:18:05 PM
I also found this:

https://www2.trustnet.com/Investments/ArticlePrint.aspx?id=201404290700127125F

In 2013 Incadea did ~CAD 55M in revenue and ~CAD 12M in EBITDA.

However since that time they grew from serving 2400 dealerships (end of 2013) to 3500 (end of 2014) to 4000 now, so the growth declined significantly in recent years.

One can extrapolate revenue increase to ~CAD 92M using dealer counts.

Assuming CSI can bring Incadea's margins to their own and paid materially less than CAD 65M (USD 50M threshold), it should prove a solid addition to CSI's portfolio on an ROIC basis.
Title: Re: CSU - Constellation Software
Post by: Liberty on January 01, 2019, 06:14:15 PM
‪acquisition :

 "Volaris Group Expands Position in Communications & Media Vertical with Acquisition of Powel Metering"

https://globenewswire.com/news-release/2019/01/01/1679288/0/en/Volaris-Group-Expands-Position-in-Communications-Media-Vertical-with-Acquisition-of-Powel-Metering-to-become-Avance-Metering.html

Nice to see more acquisitions being done in Scandinavia (the kind of place where VMS makes sense... advanced economy with expensive labor):

Quote
Avance Metering will be headquartered in Östersund, Sweden, with offices in Linköping, Jönköping, Stockholm, Gothenburg, Sweden, Trondheim, Norway and Gdansk, Poland.
Title: Re: CSU - Constellation Software
Post by: Liberty on January 02, 2019, 06:33:12 PM
One more at Jonas, in England this time (h/t Pearnick):

https://www.jonassoftware.com/About_Us/Latest_News/Jonas_Software_Announces_the_Acquisition_of_Minted
Title: Re: CSU - Constellation Software
Post by: sane on January 03, 2019, 06:24:38 AM
Looks like Minted's annual sales are less than £632,000.

https://beta.companieshouse.gov.uk/company/06844403/filing-history

"Micro-entities are very small companies. Your company will be a micro-entity if it has any 2 of the following:
a turnover of £632,000 or less
£316,000 or less on its balance sheet
10 employees or less"
https://www.gov.uk/annual-accounts/microentities-small-and-dormant-companies
Title: Re: CSU - Constellation Software
Post by: khturbo on January 03, 2019, 07:30:38 AM
Hopefully it has very low asset levels, 10 employees, and 100mm pounds of EBITDA lol.
Title: Re: CSU - Constellation Software
Post by: tenyearsout on January 03, 2019, 09:38:20 AM
More to it:
https://www.tucasi.com/news/mint-class-acquired-by-jonas-uk-powered-by-tucasi
Title: Re: CSU - Constellation Software
Post by: Liberty on January 07, 2019, 11:16:45 AM
New acquisition at TSS:

https://www.totalspecificsolutions.com/about-us/transaction-updates?tid=34

h/t @Pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on January 08, 2019, 11:19:49 AM
Another one at TSS:

https://www.totalspecificsolutions.com/about-us/transaction-updates?tid=35

Quote
Dynamic Software NV, a supplier of a software suite for the Belgian automotive vertical has joined Total Specific Solutions (“TSS”). Through this acquisition, TSS establishes a local footprint in the Belgian software market and expands its presence in the automotive vertical with a second company offering software solutions for this vertical next to Infoflex in Sweden.

Once again, @Pearnick beat me to it, so hat tip to him/her.
Title: Re: CSU - Constellation Software
Post by: Liberty on January 11, 2019, 08:04:25 AM
Some nice work showing capital deployed by CSU in previous years, this one ex-dividends:

https://twitter.com/pearnick/status/1083755906821734406

(https://pbs.twimg.com/media/DwpBr8BWwAEdslT.jpg:large)

About 102% of cumulative.
Title: Re: CSU - Constellation Software
Post by: gary17 on January 11, 2019, 02:32:10 PM
Thanks Liberty.
The FCF for 2018 seems a bit on the low side IMO.
Title: Re: CSU - Constellation Software
Post by: chrispy on January 12, 2019, 06:29:11 AM
Is that due to the timing and size of the more recent acquisitions?
Title: Re: CSU - Constellation Software
Post by: Liberty on January 22, 2019, 10:56:53 AM
- [ ] https://skift.com/2019/01/21/jonas-software-rolls-up-hospitality-tech-group-to-compete-against-bigger-players/
Title: Re: CSU - Constellation Software
Post by: Liberty on January 23, 2019, 06:57:31 AM
New acquisition at Vela:

http://velasoftwaregroup.com/vela-software-acquires-financial-risk-solutions-frs/

Quote
FRS is the developer of the Invest|ProTM product, a comprehensive Investment Administration Software solution for the life assurance and pensions industries.

FRS is a premier provider of unit-linked investment administration and fund accounting software for the life assurance and pensions industries. Founded in 1999, FRS has grown through solving complex problems for life and pensions companies.


h/t @Pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on January 25, 2019, 06:03:43 AM
New acquisition at Volaris (in the craft beverage industry!):

https://www.volarisgroup.com/news/article/five-x-5-solutions-joins-volaris-group

Quote
FIVE x 5 provides the craft beverage industry, both distillers and brewers, with a cost-effective and comprehensive SaaS-based solution that manages everything from recipe management, to inventory tracking, to reporting and compliance. The company has over 430 customers across the US and internationally.

h/t @Pearnick
Title: Re: CSU - Constellation Software
Post by: chrispy on January 25, 2019, 06:29:53 AM
Cheers!
Title: Re: CSU - Constellation Software
Post by: Liberty on February 04, 2019, 06:16:52 AM
TSS acquisition in Spain:

https://www.totalspecificsolutions.com/about-us/transaction-updates?tid=36

Quote
Ofimática, one of Spain’s leading suppliers of hotel and travel agencies software solutions joins Total Specific Solutions (“TSS”). With this acquisition, TSS enters the Spanish software market and moves into the hospitality vertical.

Ofimática has more than 35 years of experience in providing solutions for hotels and travel agencies. OfiHOTEL is a modular and flexible end-to-end solution for hotel management: from B&Bs to hostel to large hotel chains. The different modules are linked so that all processes from administrative, commercial and managerial activity flow communicate automatically and generate the accounting and statistical information. The OfiVIAJE and OfiTOUR solutions offer software for independent travel agencies and online tour operators allowing them to optimize the commercial and administrative processes.

Jurriaan Piek, General Manager at TSS: “Spain has a booming tourism industry, being in the top three of the world’s most visited countries; it is a hotspot for knowledge of the hospitality vertical. And Spain also has an innovative environment for software development which is ideal to create state-of-art hospitality software solutions. Ofimática is in the top 10 of leading Spanish software suppliers for this industry with over 2.500 clients in Spain, Portugal, and Latin America. With the acquisition of Ofimática, we have the first Spanish software company joining TSS. And we now gain expertise in the hospitality vertical through the knowledge of our new colleagues. Ofimatica will be an independent business unit within TSS with Pedro Cruz as its Managing Director.”

Pedro Cruz, founder and Managing Director of Ofimática: “I founded the company over 35 years ago, and I am very proud of our position in the market today with so many customers on two different continents. We can now continue the next phase as an independent unit of TSS/CSI, giving us instant access to many new colleagues and new best practices. By joining TSS, we gain the scale to take the next step in realizing our ambitions. And we can ensure the continuity of the company for our customers and our employees. And last but not least, the TSS philosophy of ‘software for life’ is a good fit with our company.”

h/t @Pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on February 05, 2019, 06:16:47 AM
Another one at TSS:

https://www.totalspecificsolutions.com/about-us/transaction-updates?tid=37

Quote
Nostradamus ICT becomes part of Total Specific Solutions (“TSS”), and TSS takes its first steps into the leisure vertical.

Nostradamus has a wide range of software solutions for the leisure sector and is the leading software supplier with its solution ‘Personeelsplan.’ ‘Personeelsplan’ is an end-to-end workforce management solution. It ensures that clients can optimize the planning of their staff, perform payroll processing, and thereby manage its personnel costs.

Jasper Bollen, Managing Director at TSS: “Our thorough analysis of the restaurant and leisure vertical quickly led us to Nostradamus. Nostradamus has an interesting and successful solution for the leisure sector. This is a new vertical for TSS, but within the CSI group knowledge of the market is already present. Nostradamus has an impressive and broad customer base with well-known names as Van der Valk, Burger King, and Albert Heijn. Now that Nostradamus is part of TSS, we bring them a broad range of best practices and offer them a platform for further growth in other segments and/or abroad. The current owners Martin van der Zee, Adam van Dongen, and Peter van der Zwan remain involved with the company. Nostradamus will operate as an independent business unit within TSS.”

https://nostradamus.nu

Also, the japanese sub is buying:

http://www.csi-japan.co.jp/wp-content/uploads/2018/11/株式会社レスコの株式取得に関するお知らせ.pdf

https://twitter.com/pearnick/status/1092789174502080513

h/t @pearnick for both
Title: Re: CSU - Constellation Software
Post by: Liberty on February 06, 2019, 07:00:32 AM
Another one, this time at Volaris:

https://www.volarisgroup.com/news/article/smartrak-acquires-the-assets-of-lingo-systems

Quote
Smartrak, a Volaris Group company focused on fleet asset management, logistics, and lone worker safety solutions, has acquired the assets of Lingo Systems Pty Ltd, the developer of a range of mobility solutions  collectively known as PoolCar. The acquisition helps extend Smartrak’s offering in mobility, particularly pool vehicle management, electronic key cabinets and vehicle keyless entry.

Pool vehicle management has many challenges including vehicle availability, key security and access, cost recovery, driver vetting, policy compliance and journey management. The PoolCar solution suite helps to address these challenges by providing a comprehensive platform to manage drivers, vehicle reservations, keep track of vehicle assets, preventative maintenance, and management of keys. Most recently, PoolCar introduced a new, advanced, keyless entry solution to facilitate a seamless user experience to vehicle access and sharing, featuring RFID, Bluetooth and Smartphone access to vehicles. [...]

The PoolCar mobility solution counts more than 180 customers among its client base across 14 countries, concentrated mainly in Australia, New Zealand and the US. Key markets include Government, Not-for-Profit, Universities and Healthcare. Notable customers include Queensland State Government (QFleet), West Australian State Government, MV Transportation, Griffith University, Melbourne Health, Monash Health, Northern Sydney Local Health, St. Vincent’s Health, Central Land Council, and others. PoolCar also supplies its solutions via a reseller channel to end users including the United Nations, Auckland Council and The Red Cross.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on February 07, 2019, 06:25:01 AM
Another one, this one in Italy by TSS:

https://www.totalspecificsolutions.com/about-us/transaction-updates?tid=38

Quote
Italian software supplier Remote Terminal System Srl (“RTS”) has joined Total Specific Solutions (“TSS”). RTS provides a software suite for the corrugated -packaging manufacturing- industry. With this acquisition, TSS enters the Italian software market and establishes its presence in the manufacturing vertical.

h/t @pearnick on Twitter
Title: Re: CSU - Constellation Software
Post by: Liberty on February 08, 2019, 06:16:14 AM
Two new acquisitions at Harris:

https://www.harrislocalgov.com/harris-local-government-acquires-sidwell-company/

https://www.harrislocalgov.com/harris-local-government-division-acquires-sw-minicomputers-inc/

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on February 11, 2019, 06:15:40 AM
RBC estimate of capital deployed in Q4 (we'll find out soon enough):

(https://pbs.twimg.com/media/DzITjbHV4AUk2Xp.jpg)

Via: https://twitter.com/JerryCap/status/1094959164646920195
Title: Re: CSU - Constellation Software
Post by: Liberty on February 11, 2019, 08:34:43 AM
Two new acquisitions at Volaris:

https://diariodotransporte.com.br/2018/12/24/volaris-group-anuncia-aquisicao-da-empresa-1/

https://diariodotransporte.com.br/2019/01/23/cittati-passa-a-fazer-parte-da-canadense-volaris-group/

h/t @Pearnick again (he's faster than I am, what can I say ¯\_(ツ)_/¯  )

https://twitter.com/pearnick/status/1094997570227720192
Title: Re: CSU - Constellation Software
Post by: Liberty on February 12, 2019, 11:31:18 AM
Another one at Volaris and one at Vela:

https://www.andarsoftware.com/servlet/eAndar.article/3572/Andar-Software-Acquires-DMC

Quote
Andar Software develops fundraising and engagement solutions that empower non-profit organizations to create a bigger impact in their communities. Andar Software technology solutions and consulting services extend to every aspect of the organization and include workplace campaign, membership, annual donation, online giving, CRM, community investment, and marketing tools.

https://www.dataminesoftware.com/2019/01/08/flairbase-acquisition/

Quote
Datamine has today announced the acquisition of Flairbase Inc. The acquisition will allow Datamine to further integrate Amine into its underground planning suite, and commence the distribution of the Flairbase SIMS production planning and reporting system globally.

Based in Montreal, Canada, Flairbase has been providing its flagship software solutions to customers in the Americas since 1993.

Amine is an established, world-leading solution for detailed design, short term planning and survey. Its user-friendly visual interface allows you to manage your drawings, design layouts, evaluate resources, work in 3D or with 2D sections, perform automated surveys, and much more.

h/t https://twitter.com/pearnick/status/1095324553172172800
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on February 13, 2019, 03:17:03 PM
I think Jamal forgot he had to file the numbers today  ::)
Title: Re: CSU - Constellation Software
Post by: Liberty on February 13, 2019, 03:18:25 PM
I think Jamal forgot he had to file the numbers today  ::)

I remember a few years ago when the numbers sometimes came out at like 8PM or more... ¯\_(ツ)_/¯
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on February 13, 2019, 03:19:50 PM
I think Jamal forgot he had to file the numbers today  ::)

I remember a few years ago when the numbers sometimes came out at like 8PM or more... ¯\_(ツ)_/¯

haha.  he probably has a #REF'ed out cell in his spreadsheet.
Title: Re: CSU - Constellation Software
Post by: Liberty on February 13, 2019, 04:37:32 PM
Q4:

https://www.csisoftware.com/wp-content/uploads/2019/02/Q4-2018-Shareholder-Report.pdf

Revenue: +21%

Adj. EPS: +33%

Quote
A number of acquisitions were completed for aggregate cash consideration of $69 million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $32 million resulting in total consideration of $101 million.

Full year 2018 acquisitions added up to $523 million ($631 million with deferred payments). That's decently close to all their FCF

(https://pbs.twimg.com/media/DzU5npVXQAAGFZy.png)

(https://pbs.twimg.com/media/DzU6I-UW0AAyIdh.jpg)

There's also a special dividend:

"$20.00 per share special dividend both payable on April 5, 2019 to all common shareholders of record at close of business on March 16, 2019. Constellation invested $603 million in acquisitions during 2018 at rates of return that we believe will be attractive. We are optimistic about our acquisition pace for 2019, but we feel that we have capital in excess of our needs and should return the excess to shareholders."
Title: Re: CSU - Constellation Software
Post by: FiveSigma on February 13, 2019, 04:45:32 PM
Solid beat on revenue, EBITDA, and adjusted earnings.
Title: Re: CSU - Constellation Software
Post by: Jerry Capital on February 13, 2019, 07:23:56 PM
Any thoughts on the special dividend?
Title: Re: CSU - Constellation Software
Post by: khturbo on February 13, 2019, 07:33:54 PM
Not ideal but inevitable, sooner or later. As Munger says, if something (full fcf deployment into acquisitions in this case) can't go on forever, then it must end!
Title: Re: CSU - Constellation Software
Post by: Liberty on February 14, 2019, 06:01:26 AM
(https://pbs.twimg.com/media/DzVuw93U8AA_6nX.jpg)

Via https://twitter.com/JerryCap/status/1095903877306765312
Title: Re: CSU - Constellation Software
Post by: Liberty on February 14, 2019, 06:13:37 AM
Any thoughts on the special dividend?

It was discussed at the AGM. Seemed like Mark is as-always uber-conservative and his instincts would have him just never take any debt and pile up cash, but he seemed to open to the idea that at some point, too much is too much and unless there's a way to deploy it at the right hurdles, it's better to return the excess.

On one hand, it might seem like a signal that there's no elephant in the pipeline, at least in the near-term. But they've also said that to better compete with PE, they'd probably lever up elephants, so bagging one might not require that much cash. With their balance sheet and FCF, they should have no problem accessing capital (recently increased the size of their revolver and they can always issue more long-term debentures) if an opportunity arises, so I doubt the flexibility is much reduced..

I sent them a question about it. We'll see if they reply in the next Q&A.
Title: Re: CSU - Constellation Software
Post by: Liberty on February 14, 2019, 06:36:29 AM
Interesting note in the filings:

Quote
Bargain purchase gain
Bargain purchase gains totalling $68 million and $69 million were recorded in the three and twelve month periods ended December 31, 2018 relating to nine acquisitions made during 2017 and 2018. Of the 2018 amounts $63 million relates to a single acquisition made in the fourth quarter for aggregate cash consideration of $nil. Prior to acquisition the previous owners had begun an extensive restructuring of the business which will need to be completed under Constellation’s ownership. It is therefore expected that the business will generate large cash and operating losses in 2019. For Constellation to ensure a sufficient return on its investment in the turnaround of the business there was a requirement as part of the acquisition for the seller to capitalize the balance sheet on closing with cash in the amount of €47 million (US$53 million). While this cash will be required to fund losses generated by the business in 2019, IFRS does not permit a restructuring accrual to be recorded as part of the opening balance sheet acquisition accounting for the majority of the expected charges. The result is a bargain purchase gain of $63 million being recorded in the Q4 2018 results, and based on current estimates an EBITA loss inclusive of restructuring costs of approximately $46 million that will be recorded in the 2019 results.

That's some nice vulture investing, if they can successfully restructure it.

Accounting wise, looks like it'll have some negative impact on margins, but hopefully it'll create a bunch of value over time.

h/t @JerryCap
Title: Re: CSU - Constellation Software
Post by: Liberty on February 19, 2019, 05:58:08 AM
Acquisition at Harris:

http://www.collain.com/resources/collain-healthcare-joins-harris-computer-systems

Quote
Collain Healthcare, the leading EHR, Virtual Care and Interoperability provider for the Long-Term and Post-Acute Care (LTPAC) industry, announced that it has been acquired by Harris Computer Systems (“Harris”) through its healthcare group.  Prior to this transaction, Collain had acquired intellectual property from LG CNS and an Austin-based interoperability and data thinktank focused on Managed Care and Integrated Delivery Networks. ...

With this announcement, Collain also unveiled the launch of its brand-new Electronic Health Records Platform, Enterprise Resource Planning Suite, and Virtual Care platform with connectivity to hundreds of wearables, remote monitoring devices and secure HD Video telemedicine.

http://www.collain.com

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on February 20, 2019, 07:02:38 AM
For those starting to think about the CSU AGM, I've heard from the CFO that it'll be on May 2 this year ("current plan is to schedule from 8-noon at the Carlu (downtown Toronto)"). I'll most likely do a little get together at a nearby pub on the evening of May 1.
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on February 20, 2019, 07:15:18 AM
For those starting to think about the CSU AGM, I've heard from the CFO that it'll be on May 2 this year ("current plan is to schedule from 8-noon at the Carlu (downtown Toronto)"). I'll most likely do a little get together at a nearby pub on the evening of May 1.

Hey thanks! I'll definitely try to be there.  Last year was fun.

I'm writing out a set of important q's right now:

1) what life advice do you have for me?
2) what questions should I be asking you?
3) what can CSU do to lower the impact on climate change?
4) where do I get some peanut brittle?
Title: Re: CSU - Constellation Software
Post by: Liberty on February 20, 2019, 07:18:14 AM
For those starting to think about the CSU AGM, I've heard from the CFO that it'll be on May 2 this year ("current plan is to schedule from 8-noon at the Carlu (downtown Toronto)"). I'll most likely do a little get together at a nearby pub on the evening of May 1.

Hey thanks! I'll definitely try to be there.  Last year was fun.

I'm writing out a set of important q's right now:

1) what life advice do you have for me?
2) what questions should I be asking you?
3) what can CSU do to lower the impact on climate change?
4) where do I get some peanut brittle?

I see you've been watching this: https://buffett.cnbc.com/annual-meetings/
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on February 20, 2019, 07:20:30 AM
For those starting to think about the CSU AGM, I've heard from the CFO that it'll be on May 2 this year ("current plan is to schedule from 8-noon at the Carlu (downtown Toronto)"). I'll most likely do a little get together at a nearby pub on the evening of May 1.

Hey thanks! I'll definitely try to be there.  Last year was fun.

I'm writing out a set of important q's right now:

1) what life advice do you have for me?
2) what questions should I be asking you?
3) what can CSU do to lower the impact on climate change?
4) where do I get some peanut brittle?

I see you've been watching this: https://buffett.cnbc.com/annual-meetings/

haha yup.  I've also been to Omaha a few times.
Title: Re: CSU - Constellation Software
Post by: FiveSigma on February 21, 2019, 01:03:53 AM
New Q&A (beating both Liberty and Pearnick to the punch):

https://www.csisoftware.com/wp-content/uploads/2019/02/QA-February-2019-DivRelated-Final.pdf
Title: Re: CSU - Constellation Software
Post by: Liberty on February 21, 2019, 06:13:33 AM
"I found a half dozen public companies out of 4000 had done as well or better than CSI with an acquisition strategy during the last decade. All of them were operating on a smaller scale than CSI."

What I want to know is what are those..?

"We are deploying more capital in the vertical market software sector, but don’t see dramatic growth this year unless competition slackens."

This will be interpreted negatively by some, but Mark is the most conservative man in the world, and he said "dramatic" growth. So there could still be growth over last year's excellent year. It also seems to mean that last year wasn't just a fluke but is more of a run-rate increase. To me that's positive.
Title: Re: CSU - Constellation Software
Post by: voyager on February 22, 2019, 08:58:09 AM
Who do you all think those half a dozen companies are? I'd guess Transdigm is in there. 

"I found a half dozen public companies out of 4000 had done as well or better than CSI with an acquisition strategy during the last decade. All of them were operating on a smaller scale than CSI."

What I want to know is what are those..?

"We are deploying more capital in the vertical market software sector, but don’t see dramatic growth this year unless competition slackens."

This will be interpreted negatively by some, but Mark is the most conservative man in the world, and he said "dramatic" growth. So there could still be growth over last year's excellent year. It also seems to mean that last year wasn't just a fluke but is more of a run-rate increase. To me that's positive.
Title: Re: CSU - Constellation Software
Post by: Broeb22 on February 22, 2019, 10:38:17 AM
Yeah that's what I asked myself. Based on the criteria of them operating on a smaller scale than CSI, TDG could be excluded. I guess it depends on the criteria used. TDG has arguably deployed more capital and on larger acquisitions on average than CSI.

I would think these are much smaller companies. It's also hard to imagine what I'm about to say is correct given that returns like CSI's are just incredibly hard to duplicate, especially in better-understood parts of the market such as industrials.

Maybe HEI, TYL, MLAB, FSV, POOL, WSO.

Not sure if these would get close to CSI but their long-term returns suggest they're not extremely far off.
Title: Re: CSU - Constellation Software
Post by: Liberty on February 22, 2019, 10:45:27 AM
I think PATK and BYD.UN are probably two.
Title: Re: CSU - Constellation Software
Post by: SlowAppreciation on February 25, 2019, 05:36:29 AM
https://www.csisoftware.com/wp-content/uploads/2019/02/ASDP-press-release-Feb-2019.pdf

Quote
Toronto, Ontario – February 25, 2019 - Constellation Software Inc. (“CSI”) (TSX:CSU) announced today that Mark Leonard has notified the Company that he or entities controlled by him (“Leonard”) intend to enter into an automatic share purchase and disposition agreement (“ASPD”) with a registered broker in Canada.
Under the terms of the ASPD Leonard will sell 100 CSI common shares per week when the price exceeds $1,000 per share, and intends to purchase 100 common shares per week when the price is less than $800 per share. Leonard anticipates starting the ASPD shortly, and continuing it for one year.
Title: Re: CSU - Constellation Software
Post by: Liberty on February 25, 2019, 06:02:11 AM
He's mentioned in the past that too high stock price has implications for employee retention. Clearly his way of trying to keep itk in a range where he thinks that won't be a problem. But if Mr. super-conservative thinks the stock is a good buy for employees at this price, fair value is above... I don't know if the market will realize that, though.

Not the first time this has been done, example from 2007:

https://twitter.com/JerryCap/status/1100031865908588544
Title: Re: CSU - Constellation Software
Post by: Broeb22 on February 25, 2019, 08:11:38 AM
Is he talking CAD or USD terms. CAD terms, the stock is above $1,000...
Title: Re: CSU - Constellation Software
Post by: Liberty on February 25, 2019, 08:12:48 AM
Is he talking CAD or USD terms. CAD terms, the stock is above $1,000...

I'm sure it's CAD. The stock officially trades on the TSX in CAD.

He's talked down the price of the stock many times in the past. You just have to keep in mind that he's the most conservative person  in the world financially, though.
Title: Re: CSU - Constellation Software
Post by: bizaro86 on February 25, 2019, 12:47:28 PM
MTY.TO would be another one that's done very well with acquisitions the last decade.
Title: Re: CSU - Constellation Software
Post by: Liberty on March 13, 2019, 05:02:02 AM
Jonas acquisition (in Australia this time):

https://www.jonassoftware.com/About_Us/Latest_News/Jonas_Software_Announces_the_Acquisition_of_Happen

Quote
acquisition of Happen Business Pty Limited. ("Happen"). With its sophisticated Enterprise Resource Planning (ERP) accounting software, Jim2, Happen delivers complete business management software solutions to an extensive regional and international customer base. [...]

Happen was founded in 2001 in Mortdale, New South Wales, Australia. Happen was established to fill a growing need in the market for a comprehensive accounting and business workflow solution. The company rapidly established a strong following for its Jim2 Business Engine software, and now has an extensive customer base in diverse industries such as managed print, managed services, importing, distribution, sales and service, specialized retailing and manufacturing. Happen’s in-house team of professional consultants, development experts and support engineers are ready and resourced to ensure businesses using Jim2 Business Engine maximize their return on investment.

H/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on March 14, 2019, 05:55:18 AM
COO Mark Miller doing something similar to what Mark Leonard did (but this one not over a year, just over a couple months, but with higher number of shares per month):

https://www.globenewswire.com/news-release/2019/03/13/1752885/0/en/COO-of-Constellation-Software-Enters-into-Automatic-Share-Purchase-and-Disposition-Plan.html

They really want to keep the price down. Which ironically is kind of a bullish signal, as you want management that focuses on talent retention and not the stock, and a stock that is high can be a problem for that. But at the same time, these guys (Leonard and Miller) are so financially conservative and probably have such high hurdles that what they consider fair value is probably lower than what most people would consider fair... We'll see how the market reacts and whether the gambit works or if the market sees things differently.

The timing to May 31st makes me wonder if this is because employee bonus open-market stock purchases are mostly during this time of the year...

Btw, the stock is going ex-dividend for the $20US special dividend today, so about $26CAD of the price move today is because of that.
Title: Re: CSU - Constellation Software
Post by: sane on March 19, 2019, 02:36:54 AM
"When really good companies start trading at 5 and 6 times revenues, it’s time to start worrying. I hope
our shareholders are never in that position."  (Under the section: Great Companies Are Not Always Great Stocks
)

https://www.csisoftware.com/docs/default-source/investor-relations/presidents-letter/pl_2015.pdf

I see CAD 1000 per share as 5.21x P/Sales TTM, or would still be 5.0x P/S after 4% growth Q1 2019.

Any other suggestions for what metrics they used to decide to sell personally/attempt to cap the stock at CAD 1000 per share?
Title: Re: CSU - Constellation Software
Post by: Liberty on March 19, 2019, 07:18:01 AM
"When really good companies start trading at 5 and 6 times revenues, it’s time to start worrying. I hope
our shareholders are never in that position."  (Under the section: Great Companies Are Not Always Great Stocks
)

https://www.csisoftware.com/docs/default-source/investor-relations/presidents-letter/pl_2015.pdf

I see CAD 1000 per share as 5.21x P/Sales TTM, or would still be 5.0x P/S after 4% growth Q1 2019.

Any other suggestions for what metrics they used to decide to sell personally/attempt to cap the stock at CAD 1000 per share?

With the caveat that this is all just my opinion...

I think there's a little more context needed to understand all these things.

I'm pretty sure that both Mark Leonard and Mark Miller are most worried about long-term talent retention. When you have managers and operators able to deploy capital at 30% ROIC and have a proven acquisition track record and proven operator track record, they don't have to work for you. They could leave and go do their thing. If the CSU stock price gets too high for too long, there might be a temptation for some of these people to sell and maybe try to go build wealth in a different vehicle. That's why Mark has often talked down the price of the stock and would probably want to to be perennially trading around fair-to-undervalued.

In that context, I see the recent stock sale plans as just a signal to try to make the stock drop a bit. It recently shot up, right around the period of the year when managers buy stock in the open market with part of their bonus (as per their incentive plans), and they probably worry a bit about that.

But what must also be known is that both Marks are no doubt very financially conservative and have very high hurdle rates. You don't get their track record without that. So when they're saying they'd buy at 800 and sell at 1000, it probably means that fair value for most people would be a fair amount above that.

I don't think they're judging CSU on a P/sales basis. I think it's probably on cashflows. They can rule-of-thumb a small VMS on price/sales because they know they'll restructure them and change the margin profile, so looking at those on EV/EBITDA only wouldn't make sense (their actual acquisition models are no doubt very detailed and take into account many metrics).

Also, a company can be expensive at 6x sales because it has no reinvestment opportunities, like most niche VMS, but another can be cheap at 6x sales if it has lots of high-ROIC re-investment opportunities and a long runway, like maybe CSU.

I think Mark is very truthful when he writes these things, but I think sometimes his readers extrapolate what he says to things that he didn't quite say, or they don't calibrate for just how conservative and "under-promise/over-deliver" he is.
Title: Re: CSU - Constellation Software
Post by: sane on March 19, 2019, 07:33:23 AM
Thanks Liberty, appreciate your comments.  I think you are probably right.

But given the gradient between me and them (as insiders and smarter than me), their actions do give me pause.  Especially when the stock trades at a 10% premium to their signal.  And when it refuses to be concerned (so far) by a roll-up returning capital.
Title: Re: CSU - Constellation Software
Post by: Liberty on March 19, 2019, 07:38:36 AM
Thanks Liberty, appreciate your comments.  I think you are probably right.

But given the gradient between me and them (as insiders and smarter than me), their actions do give me pause.  Especially when the stock trades at a 10% premium to their signal.  And when it refuses to be concerned (so far) by a roll-up returning capital.

You should be skeptical, it's the right posture.

I think the return of excess cash is both a sign that there probably aren't huge deals in the near term, but it's also a good sign on discipline. As they often said, it's easy to deploy capital. They could deploy all they had and more if they wanted to, could probably lever up to 5x and deploy all of that on top of it. What's hard is deploying capital at their high hurdles, and the fact that they'd rather return the cash than lower their standards (which the market would reward in the short term because revenue growth would be huge and it would take a while for the ROIC to come down and for people to realize what's going on) to me shows that they are sticking to the plan. That's pretty rare to see.
Title: Re: CSU - Constellation Software
Post by: sane on March 19, 2019, 07:43:53 AM
Agree the discipline is rare.  But not a surprise for anyone who knows them or has studied them.  That is a large part of why we are here, surely?  So I would have expected the negative signal to have dominated the positive one, and the stock to be lower.  Oh well.
Title: Re: CSU - Constellation Software
Post by: Liberty on March 19, 2019, 07:55:09 AM
Agree the discipline is rare.  But not a surprise for anyone who knows them or has studied them.  That is a large part of why we are here, surely?  So I would have expected the negative signal to have dominated the positive one, and the stock to be lower.  Oh well.

How many people do you think took the time to really study them, read all the letters, etc? I don't think most market participants have done that.

I think the market just likes fat dividend cheques and that the recent quarter was so good that the momentum is hard to counter, even with the stock-sale plans.
Title: Re: CSU - Constellation Software
Post by: Liberty on March 20, 2019, 07:14:44 AM
ACCEO news:

https://www.prnewswire.com/news-releases/citcon-and-acceo-partner-to-enable-alipay-and-wechat-pay-acceptance-for-more-north-american-retailers-300814643.html

Quote
CITCON, a leading cross-border mobile payment and marketing platform has teamed up with ACCEO, a leader in banking, business software, SaaS solutions and cloud computing. ACCEO's direct-to-processor payment architecture will now accept the two largest mobile payment options in the world, China's WeChat Pay and Alipay. [...]

The partnership presents a huge opportunity for both companies. Together Alipay and WeChat Pay have over 1.3 billion users. China is the world's top mobile payment market with an estimated $12.8 trillion in transactions in 2017. Every year millions of tourists from China visit North America, giving ACCEO retailers a distinct advantage in accepting these tourists' favorite and most trusted payment option.
Title: Re: CSU - Constellation Software
Post by: Liberty on March 22, 2019, 09:31:01 AM
Jonas acquisition :

https://www.jonassoftware.com/About_Us/Latest_News/Jonas_Software_Announces_the_Acquisition_of_Green

H/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on March 26, 2019, 08:25:01 AM
Acquisition in the Wine retail sector!

https://www.jonassoftware.com/About_Us/Latest_News/Jonas_Software_Acquires_WineFetch,_Inc

Quote
WineFetch provides cutting-edge e-commerce websites and apps for wine and spirit stores that are easy for both retailers and customers to integrate and use.
Founded in 2004 and based in Chapel Hill, NC, USA, WineFetch helps brick and mortar wine retailers migrate their business digitally to better serve their customers, increase their customer base and retention to drive revenue. WineFetch’s user experience and interface makes it easy for clients and their customers to use. WineFetch also captures customer data to help you better understand your customers and proactively cater to their needs and wants.

And another one:

https://www.volarisgroup.com/news/article/delta-logic-joins-volaris-group

Quote
Based in Sursee, Swizterland, Delta Logic provides a comprehensive case management solution, called Tribuna, to courthouses and prosecutors throughout Switzerland.

The Tribuna solution helps to move approximately 40,000 people through the Swiss justice system on an annual basis. Its core functionality provides full case management for everything from offense to verdicts, along with accounting and reporting functionality. The solution is used by more than 3,000 users daily.

And another one at Home Builder:

https://www.prnewswire.com/news-releases/constellation-homebuilder-systems-to-redefine-the-home-building-landscape-through-newhomelistingservicecom-acquisition-300817236.html

Quote
acquired NewHomeListingService.com (NHLS™), a leader in new home listings, to connect buyers, builders and real estate agents. 

NewHomeListingService.com is an online SaaS solution to help homebuyers find new homes and condos faster, help builders find prospective buyers easily, and help real estate agents work effectively with both builders and buyers. "This acquisition provides a growth opportunity for both businesses and supports our strategy to help builders manage their business more successfully. Promoting new homes and condos is easier than ever before," says Chris Graham, Vice President of Constellation HomeBuilder Systems. "As builders look for more effective ways to connect with homebuyers, we will be well-positioned to support them on that journey." 

NewHomeListingService.com will be integrated with NEWSTAR, FAST and BuildTopia enterprise resource planning solutions from Constellation HomeBuilder Systems

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on March 27, 2019, 04:12:49 AM
https://www.csisoftware.com/docs/default-source/press-releases/cunningham-press-release-vice-chair.pdf

Lawrence Cunningham named vice-chairman of CSU.
Title: Re: CSU - Constellation Software
Post by: Liberty on March 27, 2019, 07:12:39 AM
There's a 30 minute video of CSI's CFO speaking at the Scotia TMT conference yesterday available online. Very interesting talk.

I think this link should work, but I don't know how long the video will stay up:

https://onlinexperiences.com/scripts/Server.nxp?LASCmd=AI:4;F:QS!10100&ShowUUID=18D07014-3BF9-4203-9C4A-59DDD18A90C0&Referrer=https%3A%2F%2Fwww.telus.com%2Fen%2Fabout%2Finvestor-relations%2Finvestor-events%2Fscotiabank-2019-tmt-conference

The CFO basically straight-up confirmed that Mark Leonard's share sale plan is just a way to signal to the market.
Title: Re: CSU - Constellation Software
Post by: khturbo on March 27, 2019, 08:58:49 AM
Awesome, thanks for sharing!
Title: Re: CSU - Constellation Software
Post by: Liberty on March 28, 2019, 01:39:24 PM
CSU in Pakistan!

https://fp.brecorder.com/2019/03/20190323457871/

http://contour-software.com

Quote
Contour Software, is registered with the SECP and PSEB since its beginnings in 2010.

While groundwork for its inception started as early as 2008, with pilot projects performed over an 18 month period in order to prove the concept, Constellation’s acquisition of Gladstone PLC (now Gladstone MRM) culminated in the launch of Contour. 

While Gladstone had had a small team in Karachi since 2007, Contour’s birth resulted in a tenfold increase in headcount, over the first three year period. Today, as many as 80 Constellation departments have teams located at the Contour offices in Karachi, Lahore & Islamabad.
Title: Re: CSU - Constellation Software
Post by: villainx on March 28, 2019, 07:57:55 PM
There's a 30 minute video of CSI's CFO speaking at the Scotia TMT conference yesterday available online. Very interesting talk.

I think this link should work, but I don't know how long the video will stay up:

https://onlinexperiences.com/scripts/Server.nxp?LASCmd=AI:4;F:QS!10100&ShowUUID=18D07014-3BF9-4203-9C4A-59DDD18A90C0&Referrer=https%3A%2F%2Fwww.telus.com%2Fen%2Fabout%2Finvestor-relations%2Finvestor-events%2Fscotiabank-2019-tmt-conference

Great.  Really helpful.
Title: Re: CSU - Constellation Software
Post by: Liberty on April 01, 2019, 12:58:43 PM
New acquisition at TSS:

https://www.totalspecificsolutions.com/about-us/transaction-updates?tid=39

Quote
Total Specific Solutions has taken its first steps into the mobility and personal transport vertical with the acquisition of Korton Software BV, a supplier of software solutions for mobility of specific target groups. With the acquisition, TSS strengthens its portfolio of software solutions for municipalities who are responsible for taking care of the transportation needs of special target groups....

Korton Software was founded in 1997 and is a supplier of a specialized software suite for mobility and personal transport. The software connects the passenger, transporter, planner, and the client. Korton ‘Personeelsplanner’ (Staff planner) is used in the mobility sector as well as the leisure and hospitality market for the efficiency of registration and the communication of staff schedules and work times.
The primary product, Korton Regie, is an end-to-end software suite developed for the transportation of specific target groups.

Looks a bit larger than usual.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on April 01, 2019, 05:26:06 PM
New acquisition:

https://www.prweb.com/releases/constellation_real_estate_group_acquires_mortgage_builder/prweb16208056.htm

Quote
Founded in 1999, Mortgage Builder provides industry-leading loan origination software to mortgage banks, community banks, credit unions and other financial institutions with software solutions that include: loan origination, servicing, relationship management, document management, and a production portal.

Looks like it could be a decent-sized one:

https://twitter.com/pearnick/status/1113064314846375937

Revenues estimated at $31.4m
Title: Re: CSU - Constellation Software
Post by: sane on April 05, 2019, 03:06:49 AM
When they talk hurdle rates for acquisitions are these pre-tax or post-tax?

Anyone got a live link for the CFO's Scotia presentation?  I missed the one Liberty kindly posted.  Thanks.
Title: Re: CSU - Constellation Software
Post by: Liberty on April 09, 2019, 06:01:35 AM
New acquisition by TSS in Sweden:

https://www.totalspecificsolutions.com/about-us/transaction-updates?tid=40

Quote
FDT is a vertical market software (VMS) company that is part of the Swedish white goods and consumer electronics retail chain the Elon Group that operates in Sweden, Denmark, Finland, Norway, and Iceland.

FDT is one of the market leaders in Sweden for retail solutions. Their software suite consists of Excellence Retail, a modern cloud-based POS solution with the latest integrations for payments. Avance is a (back-office) ERP system that covers all the processes within a retail store or chain. Their new ERP product Sellus is a web-based back-office system that combined with the POS solution offers the flexibility to integrate into other directions as well.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: sane on April 09, 2019, 06:05:22 AM
Liberty - do you know if Jamal was referring to pre-tax or post tax hurdle rates when he was reported to have recently said "we have a something in the low 20s for a larger and something in the higher 20s for our regular acquisition"?  Thanks.
Title: Re: CSU - Constellation Software
Post by: Liberty on April 09, 2019, 12:32:21 PM
Liberty - do you know if Jamal was referring to pre-tax or post tax hurdle rates when he was reported to have recently said "we have a something in the low 20s for a larger and something in the higher 20s for our regular acquisition"?  Thanks.

I don't know about his specific comment, but if you go back to the president's letters where they calculate ROIC, they use average invested capital and adjusted net income (which is basically Cash EPS, with amortization added back, very very close to FCF), so that's after tax.
Title: Re: CSU - Constellation Software
Post by: Liberty on April 10, 2019, 04:49:48 AM
Another TSS acquisition:

https://www.totalspecificsolutions.com/about-us/transaction-updates?tid=41

Quote
Onetrail focuses on trading and retail companies, and public and governmental organizations. Product and order data of the purchasing and selling companies is updated continuously in real time by Onetrail via its Trading Partner Network. During the past years not only the advanced EDI (Electronic Data Interchange) processes have been developed but also several online applications, enabling dozens of parties to be connected to the data exchange network each month. Onetrail focuses more and more on onboarding hundreds of retail suppliers at a high pace.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on April 10, 2019, 11:17:49 AM
Proxy has proposal to increase max size of the board from 10 to 15, to give flexibility to add directors over time. It'll be interesting who they find over time..
Title: Re: CSU - Constellation Software
Post by: Liberty on April 11, 2019, 05:17:59 AM
Acquisition at Jonas:

https://www.jonassoftware.com/About_Us/Latest_News/Jonas_Software_Announces_the_Acquisition_of_mJobTi

Quote
“The acquisition of mJobTime further establishes Jonas as a global leader in the construction vertical. mJobTime’s time tracking software enables businesses to improve managing and tracking their field resources and streamlines control and processes, which in turn helps businesses save time and money. We are excited to welcome the team at mJobTime to the Jonas Construction Group as we work together to grow their business and help them achieve their professional milestones.”
...
Founded in 1994 and headquartered in Beaumont, TX, USA, mJobTime provides customizable, scalable time-tracking software to help businesses improve on their processes and efficiencies, while decreasing their costs and expenses. mJobTime has received many accolades including being named one of the 50 Hottest Companies by Construtech Magazine, and more recently, being named the Technology Enabler for Construtech Vision award winner, Heico Construction Group.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: villainx on April 11, 2019, 07:16:20 AM
Pace of acquisition seems to be stepping up.  But not super big?
Title: Re: CSU - Constellation Software
Post by: Liberty on April 11, 2019, 07:21:33 AM
Pace of acquisition seems to be stepping up.  But not super big?

(https://i.imgur.com/Qj57wul.png)

And there's that distressed asset that they basically got for free that isn't showing there, but that is likely to provide nice returns too since it seemed decently big.
Title: Re: CSU - Constellation Software
Post by: tenyearsout on April 12, 2019, 05:24:35 PM
Are the Q1/2019 numbers legitimate?  Are they from the company? 
Based on the acquisitions from @pearnick I would have guessed a higher number than 60
Title: Re: CSU - Constellation Software
Post by: Liberty on April 13, 2019, 06:01:44 AM
Are the Q1/2019 numbers legitimate?  Are they from the company? 
Based on the acquisitions from @pearnick I would have guessed a higher number than 60

The "e" in front of them means estimate. The official numbers don't come out before the quarter is announced. This is the analyst's estimate.
Title: Re: CSU - Constellation Software
Post by: Liberty on April 17, 2019, 12:36:16 PM
Harris acquisition:

https://www.newswire.ca/news-releases/pg-solutions-announces-the-acquisition-of-tailbase-inc--874000814.html

Quote
N. Harris Computer Corporation (« Harris ») announced  today that PG Solutions, a proprietary subsidiary, acquired Tailbase Inc. (Tailbase), a supplier of innovative and completely optimized, web technology solutions designed for furniture, major appliance, consumer electronic and bedding retailers and manufacturers. Tailbase offers a web site solution that includes high-end product catalogues with improved content supported by an effective marketing strategy.

Tailbase customers will now join the more than 40,000 North American Harris customers.

"Tailbase's desire to grow and the synergies that will be generated by the pooling of our activities have been complementary factors in bringing our two companies closer together. PG Solutions welcomes all Tailbase employees and is committed to continuing business relationships with its customers," said PG Solutions Executive Vice President, Natasha Villeneuve.

https://www.tailbase.com

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on April 23, 2019, 06:50:31 AM
Acquisition at the Real Estate group:

http://www.prweb.com/releases/constellation_real_estate_group_to_acquire_torchx_from_web_com/prweb16256463.htm

Quote
Built with more than 20 years of industry experience, TORCHx offers cloud-based marketing solutions to the real estate industry, providing IDX websites, CRM, marketing software, and lead generation services.

The acquisition of TORCHx will further expand CREG’s presence in an otherwise fragmented real estate technology market, providing sales and marketing solutions, back office software, and mortgage loan origination and servicing solutions for over half of a million real estate agents, brokerages, MLSs, and banks across the U.S. and Canada.

Also one at Harris:

Quote
Trancite Logic Systems is a Boise-based software company that develops and delivers the easiest to use, easiest to train, and most widely-deployed crash and crime scene diagramming tools into the United States Law Enforcement Community. Trancite products, such as EasyStreet Draw™ and ScenePD™, are commonly used throughout the United States and in many countries worldwide.

https://www.harriscomputer.com/en/news/?date=1555992000&article=harris-rsquo-public-sector-group-acquires-trancite-logic-systems

And one at Jonas:

https://www.jonassoftware.com/About_Us/Latest_News/Jonas_Software_Announces_the_Acquisition_of_BEC_Le

Quote
“We are very excited to acquire BEC, a recognizable leader and pioneer in the legal software vertical,” says Matt Otchet, Group CEO at Jonas. “BEC has done a remarkable job in growing into the success it is today, and we look forward to collaborating with the BEC team to further build upon that foundation.  The entire team is dedicated to providing winning products supported with world-class service, and I believe that there will be a lot of opportunity to expand even further.  Please join me in welcoming the BEC team and customers to the Jonas family.”

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on April 23, 2019, 11:09:08 AM
Writeup about the company with a decent overview:

https://seekingalpha.com/article/4255039-constellation-software-sustainability-average-roics
Title: Re: CSU - Constellation Software
Post by: Liberty on April 25, 2019, 01:44:38 PM
New acquisition at volaris:

http://www.prweb.com/releases/triple_e_technologies_joins_red_river_software_a_volaris_group_company_to_expand_offering_to_petroleum_and_c_store_industry_in_retail_vertical/prweb16260118.htm

Quote
Volaris Group today announced that Triple E Technologies has joined Red River Software, a Volaris Group company. The acquisition of Triple E provides Petroleum and Convenience Store (C-Store) customers with a broader offering of solutions to address the many challenges surrounding secure payment processing, PCI compliance, and EMV card transactions.
Triple E serves hundreds of sites across the United States, including many independent multi-site fuel marketers, as well as major brands.
The company’s solution suite, called OneTouch, integrates with a wide range of systems used at retail locations and facilitates fuel control and inventory management, as well as major credit card and closed-loop proprietary card transactions. The OneTouch solution is also used to operate unattended, autonomous retail fuel-dispensing locations

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on April 26, 2019, 01:52:23 PM
Getting closer to the AGM (May 2). Like the past couple of years, I'm planning on having drinks with whoever shows up the night before (May 1st). Very likely to be at the 'C'est What' pub again (I don't know any other pubs in Toronto, to be honest). More details to come..

https://goo.gl/maps/jSM4XtVu2tLAiciR6

https://twitter.com/LibertyRPF/status/1121879553637527553
Title: Re: CSU - Constellation Software
Post by: gary17 on April 26, 2019, 02:05:26 PM
I was almost going to travel on May 1st to Toronto for my work; next time!
Title: Re: CSU - Constellation Software
Post by: Liberty on April 30, 2019, 09:34:55 AM
Getting closer to the AGM (May 2). Like the past couple of years, I'm planning on having drinks with whoever shows up the night before (May 1st). Very likely to be at the 'C'est What' pub again (I don't know any other pubs in Toronto, to be honest). More details to come..

https://goo.gl/maps/jSM4XtVu2tLAiciR6

https://twitter.com/LibertyRPF/status/1121879553637527553

So I'm going to Toronto tomorrow (May 1st). Plan is to meet whoever wants to come at C'Est What (address above), I'll aim to be there around 6-7 PM. Will post on Twitter when I'm more sure of the time (hard to estimate how long it'll take to do various thing in an unfamiliar city).

Hopefully I see some of you there tomorrow!
Title: Re: CSU - Constellation Software
Post by: khturbo on April 30, 2019, 12:04:52 PM
Sounds great, see you tomorrow! Looking forward to it!
Title: Re: CSU - Constellation Software
Post by: gary17 on May 01, 2019, 03:27:17 PM
seems like a weak quarter

https://www.csisoftware.com/docs/default-source/press-releases/csi---press-release-q1-2019---final.pdf

Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on May 01, 2019, 04:34:10 PM
seems like a weak quarter

https://www.csisoftware.com/docs/default-source/press-releases/csi---press-release-q1-2019---final.pdf

It's not that bad.  It's actually fairly good.

They bought a company in 4Q18 which had a 13M EBITDA loss in 1Q19 for which they got $53M from the seller to plug the hole.  Therefore normalized for that EBITDA grew almost 21%.  Depreciation expense would've been 7M but they adopted IAS16.  So there is some increased depreciation relative to last year.  This is due to the totally unnecessary right of use stuff showing up on balance sheets for leases. 

If you normalize - then you get something like a 21% growth in Adj. EPS, with $9 in excess cash on the books after subtracting the dividends payable. 

There's some fx stuff too and bargain purchase gains.  But that's my initial take.
Title: Re: CSU - Constellation Software
Post by: snowball82 on May 01, 2019, 06:44:30 PM
With that news we can expect more large acquisitions..

Constellation Software Inc. Announces Reduction in Hurdle Rate for Large
Acquisitions
TORONTO, May 01, 2019 -- Constellation Software Inc. (TSX:CSU) announced today that the Board of Directors has approved
lowering the hurdle rate for acquisitions requiring an equity investment of at least US$100 million. Management believes that
by lowering the hurdle rate the Company will become more price competitive on these larger transactions.
About Constellation Software Inc.
Constellation Software acquires, manages and builds vertical market software businesses.
Contact:
Jamal Baksh
Chief Financial Officer
416-861-9677
Title: Re: CSU - Constellation Software
Post by: thefatbaboon on May 02, 2019, 11:40:56 AM
Weird.  Why in the world would this be announced?
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on May 02, 2019, 12:25:41 PM
Weird.  Why in the world would this be announced?

it's probably an advertisement.
Title: Re: CSU - Constellation Software
Post by: walkie518 on May 07, 2019, 02:25:38 PM
seems like a weak quarter

https://www.csisoftware.com/docs/default-source/press-releases/csi---press-release-q1-2019---final.pdf

It's not that bad.  It's actually fairly good.

They bought a company in 4Q18 which had a 13M EBITDA loss in 1Q19 for which they got $53M from the seller to plug the hole.  Therefore normalized for that EBITDA grew almost 21%.  Depreciation expense would've been 7M but they adopted IAS16.  So there is some increased depreciation relative to last year.  This is due to the totally unnecessary right of use stuff showing up on balance sheets for leases. 

If you normalize - then you get something like a 21% growth in Adj. EPS, with $9 in excess cash on the books after subtracting the dividends payable. 

There's some fx stuff too and bargain purchase gains.  But that's my initial take.

no one thinks negatively on the "bargain purchase gain" accounting here?  seems like a net income boost without merit? ... ie they paid what they paid, shouldn't be marked as if they paid more?
Title: Re: CSU - Constellation Software
Post by: bizaro86 on May 07, 2019, 02:34:44 PM
Weird.  Why in the world would this be announced?

"We've offered you a crappy price for your business in the past, but we're getting less cheap. Get back in contact and we'll make you a better offer!"

Probably makes sense to do this. If they're anticipating having excess capital, it'd be better to deploy it at slightly lower rates than they've been getting in the past than to keep it as cash. It is also likely better than doing buybacks at the current valuation.

Title: Re: CSU - Constellation Software
Post by: walkie518 on May 07, 2019, 03:45:48 PM
Weird.  Why in the world would this be announced?

"We've offered you a crappy price for your business in the past, but we're getting less cheap. Get back in contact and we'll make you a better offer!"

Probably makes sense to do this. If they're anticipating having excess capital, it'd be better to deploy it at slightly lower rates than they've been getting in the past than to keep it as cash. It is also likely better than doing buybacks at the current valuation.

on this point, I think the '15 letter noted that once the managers show the ability to make disciplined acquisitions, the bar gets raised... if so, one has to imagine, that the large dividend was likely a 1x item?
Title: Re: CSU - Constellation Software
Post by: Liberty on May 07, 2019, 03:51:18 PM
no one thinks negatively on the "bargain purchase gain" accounting here?  seems like a net income boost without merit? ... ie they paid what they paid, shouldn't be marked as if they paid more?

I'm not expert on accounting arcana, but I suspect that they're just following the rules on these types of weird transactions where you basically get paid to take a distressed asset off of the former owner's hands (which in the meantime will depress margins and FCF and uses up working capital, as well as not really count in the nominal amount of capital deployed, but I'll take real economic value creation over optics).
Title: Re: CSU - Constellation Software
Post by: Liberty on May 07, 2019, 03:53:57 PM
Weird.  Why in the world would this be announced?

"We've offered you a crappy price for your business in the past, but we're getting less cheap. Get back in contact and we'll make you a better offer!"

Probably makes sense to do this. If they're anticipating having excess capital, it'd be better to deploy it at slightly lower rates than they've been getting in the past than to keep it as cash. It is also likely better than doing buybacks at the current valuation.

They were not seeing a lot of larger transactions. The brokers employed by the sellers were likely not calling them because they weren't known for giving top dollars. They're trying to increase their coverage of what is sold to improve the chances that they'll get some once in a while. It's an experiment that will affect few transactions, from which they will learn where to go next. The hurdle probably went from the high 20s to still somewhere in the 20s (mid? low?), so not exactly going Softbank quite yet...
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on May 07, 2019, 05:40:22 PM
seems like a weak quarter

https://www.csisoftware.com/docs/default-source/press-releases/csi---press-release-q1-2019---final.pdf

It's not that bad.  It's actually fairly good.

They bought a company in 4Q18 which had a 13M EBITDA loss in 1Q19 for which they got $53M from the seller to plug the hole.  Therefore normalized for that EBITDA grew almost 21%.  Depreciation expense would've been 7M but they adopted IAS16.  So there is some increased depreciation relative to last year.  This is due to the totally unnecessary right of use stuff showing up on balance sheets for leases. 

If you normalize - then you get something like a 21% growth in Adj. EPS, with $9 in excess cash on the books after subtracting the dividends payable. 

There's some fx stuff too and bargain purchase gains.  But that's my initial take.

no one thinks negatively on the "bargain purchase gain" accounting here?  seems like a net income boost without merit? ... ie they paid what they paid, shouldn't be marked as if they paid more?

they strip it where they report Adjusted Net Income.
Title: Re: CSU - Constellation Software
Post by: jsgcapital13 on May 07, 2019, 09:13:55 PM
is the AGM every recorded or are there transcripts/presentation materials?
Title: Re: CSU - Constellation Software
Post by: walkie518 on May 08, 2019, 11:03:47 AM
is the AGM every recorded or are there transcripts/presentation materials?
letters and calls are done

the Q & A,however, is published as are regular filings on sedar

has anyone ever compared the French and English statements?  I didn't dig through all of the figures, but did notice some discrepancies (however minor)

that said, 6x sales has been the historical multiple... 6x 2018 looks like USD $18.4B mcap (today seems to trade just south of USD $18B or CAD $24.3B)

discounting historical revenue delta might give us $3.4B of sales in 2019... if 14% is the number for the year then buying at current levels might be just under 6x sales for 2019

it doesn't look super cheap, but the mcap is small enough that growth can certainly continue and there should be plenty of available acquisitions...

given asset-light model, growth of maintenance, historical figures etc, I find value closer to USD $20B ... anyone think this is crazy or is this conservative?
Title: Re: CSU - Constellation Software
Post by: Liberty on May 09, 2019, 11:29:48 AM
Acquisition at Harris:

https://uniphyhealth.com/harris-healthcare-acquires-uniphy-health/

Quote
Uniphy Health Systems LLC, a highly-rated clinical communication and collaboration platform, has been acquired by Harris Computer Systems [...]

With the Uniphy Health Communications Platform, Harris can now offer its clients new ways to improve care coordination, physician and patient engagement. Uniphy Health’s highly-adopted mobile and desktop apps reach over 90,000 clinicians at leading healthcare providers such as Hackensack Meridian Health, UNC Health Care, Catholic Health Services of Long Island and BayCare. The solutions have at been deployed across hundreds of healthcare facilities and are EHR agnostic.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on May 13, 2019, 04:59:54 PM
Recording with 4 people who've had their VMS acquired by CSU, talking about their experience of the acquisition and since:

https://csiperseus.com/explore/webinar-selling-software-business/

Via https://twitter.com/adrivalue/status/1128036592801607680
Title: Re: CSU - Constellation Software
Post by: walkie518 on May 14, 2019, 03:21:50 PM
Weird.  Why in the world would this be announced?
I'm starting to think that this is a very positive sign. 

In the '15 letter, there was talk about waiting for the right time to have the M&A teams in the subs "go loose" so to speak.  It seems that while this announcement doesn't spell anything out in great detail, it seems that Leonard might now be comfortable with the subs and how they go about those acquisitions for the company. 

Given the company's history of discipline in capital allocation, I can't see why this doesn't turn Constellation from a $24B business to a $100B business now that there are more managers able to look at more deals?
Title: Re: CSU - Constellation Software
Post by: FiveSigma on May 14, 2019, 04:35:35 PM
walkie518,

I don't think your assessment is correct.

During the recent AGM that I attended management expressed the following sentiment:
- Mark and all 6 BU managers were extremely cautious about adjusting the M&A process that took a long time to perfect
- BU managers are still describing scaling M&A (i.e., pushing down) as 'journey', 'experiment', 'try and see', etc.
- One or two BU managers legit said they take their underlings off M&A if they don't see it as their strength/passion

Finally, this reduction of hurdle will only affect large deals (small fraction of all) that would be made at the level of Mark, the board, and top-level BU managers.

I don't think there is anything in what management said to suggest that they are about to 'go loose in the subs'.

However, I do agree that overall CSU will get to $100B much faster with willingness to bag more elephants, hopefully at ROIC rates still well above the market rates.
Title: Re: CSU - Constellation Software
Post by: Liberty on May 15, 2019, 04:18:09 AM
I second what FiveSigma said. I don't think this will lead to any kind of huge step change. It's a tweak to improve coverage on larger deals, and hopefully increase success rate. They didn't give exact numbers, but it sounds like the hurdle was reduced from high 20s to mid or low 20s, so it's not like suddenly they're aiming for 12%.
Title: Re: CSU - Constellation Software
Post by: Liberty on May 17, 2019, 09:12:51 AM
TSS going into France:

https://www.totalspecificsolutions.com/about-us/transaction-updates

Quote
Félix Informatique is a software provider focusing on several vertical markets with industry-specific ERP solutions. Ecolix is the multi-language management software suite for the retail furniture market, which manages the entire commercial activity from a single store to multi-brands and covers point of sale and e-commerce activities. Furthermore, Félix offers management and cash flow solutions for the restaurant and food retail industry, under the brand Orchestra Software.

Félix Informatique also has a solution for metrology, from the management of measuring instrument fleets and calibration assistance, quality control and statistical analysis, industrial weighing management, to weighing management and traceability.

Next to Cosoluce and Héliantis, this is our second investment in France, creating a solid base to continue growing and expanding our foothold there.

For over 30 years, Félix Informatique has been designing business software for commerce and industry serving around 3,000 clients.

H/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on June 01, 2019, 04:47:29 AM
Volaris acquisition :

https://www.volarisgroup.com/news/article/volaris-group-acquires-Advantage-360

H/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on June 06, 2019, 09:02:37 AM
TSS second acquisition in Finland:

https://www.totalspecificsolutions.com/about-us/transaction-updates?tid=44

Quote
Arter has two industry-leading solutions for the public, healthcare, and manufacturing verticals: IMS and ARC. The IMS platform enables Arter’s customers to be aligned with quality management standards and building integrated management systems and processes by offering core functionalities such as process mapping, document and risk management, feedback and evaluation processing, and measuring results. IMS visualizes and standardizes an organization’s operations, making them easily accessible. The ARC solution is an easy-to-use tool for planning and visualizing different business areas such as strategy, goals, processes, technology, and enterprise architecture. ARC supports customers in implementing their strategies into operations effectively and complying with different data management-related regulations.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on June 10, 2019, 10:21:13 AM
CSI has put audio for the 2019 AGM on the website. Hope they keep doing this every year!

https://www.csisoftware.com/investor-relations/annual-general-meeting/2019/05/16/audio-and-transcript-of-the-2019-agm

h/t @acesandfaults
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on June 10, 2019, 10:22:11 AM
CSI has put audio for the 2019 AGM on the website. Hope they keep doing this every year!

https://www.csisoftware.com/investor-relations/annual-general-meeting/2019/05/16/audio-and-transcript-of-the-2019-agm

h/t @acesandfaults

awesome thanks!
Title: Re: CSU - Constellation Software
Post by: Liberty on June 17, 2019, 08:26:59 AM
New Volaris acquisition in Switzerland:

https://www.volarisgroup.com/news/article/infogate-ag-joins-volaris-group-in-social-welfare-vertical

Quote
Infogate provides comprehensive software to help handle the various complexities of social work administration and management. The company’s solutions are used throughout Switzerland, Germany, and Austria by various municipalities, cities, social welfare organizations, and non-profit organizations.  


h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on June 18, 2019, 05:32:32 PM
https://seekingalpha.com/instablog/48301605-adrian-hernandez/5317250-constellation-software-2019-agm-highlights-and-transcript

Thanks to Adrian for transcribing this.
Title: Re: CSU - Constellation Software
Post by: Liberty on June 20, 2019, 08:41:27 AM
Short interview with Jonas group CEO:

https://www.axial.net/forum/how-to-pull-off-a-2-billion-roll-up/
Title: Re: CSU - Constellation Software
Post by: Liberty on June 26, 2019, 07:45:17 AM
New acquisition around $20:

http://www.globenewswire.com/news-release/2019/06/26/1874465/0/en/CAKE-Announces-Acquisition-by-Constellation-Software-Inc.html?culture=fr-ca

Quote
CAKE, the leading global performance marketing software provider, today announced that the company has been acquired by Constellation Software Inc., a $20-billion international provider of market-leading software and services. The acquisition investment furthers CAKE’s innovation in performance marketing software and solutions for affiliate marketing, lead generation and multichannel marketing; and reinforces the company’s commitment to superior customer support, providing performance marketers, advertisers and publishers with new opportunities to increase margin.

“We are pleased to have acquired CAKE,” said Dexter Salna, President of Perseus, a Constellation operating group. “Their strong management team and focus on serving performance marketing customers make them a promising addition to Perseus.”

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on June 26, 2019, 08:50:29 AM
a $20B provider (big numbers! ......probably worth of gross merchandise volume that they do marketing for)...doesn't say much about revenue. 
Title: Re: CSU - Constellation Software
Post by: Liberty on June 26, 2019, 08:51:57 AM
a $20B provider (big numbers! ......probably worth of gross merchandise volume that they do marketing for)...doesn't say much about revenue.

I think they just meant the market cap. It's a weirdly written press release.
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on June 26, 2019, 08:54:20 AM
a $20B provider (big numbers! ......probably worth of gross merchandise volume that they do marketing for)...doesn't say much about revenue.

I think they just meant the market cap. It's a weirdly written press release.

ohhhhh! thanks for clearing that up  ::)
Title: Re: CSU - Constellation Software
Post by: Liberty on June 28, 2019, 12:56:28 PM
https://csiperseus.com/news/constellation-homebuilder-systems-company-acquires-online-listing-service/

"Constellation HomeBuilder Systems, a provider of home building software and services, announced the acquisition of online listing service NewHomeListingService.com."

Quote
With the common goal of connecting buyers, builders and real estate agents, the NewHomeListingService.com team will be joining Constellation HomeBuilder Systems to further expand the most comprehensive homebuilding and land development platform in the industry.

NewHomeListingService.com will be integrated with the NEWSTAR, FAST, and BuildTopia enterprise resource planning platforms of Constellation HomeBuilder Systems. The integration will allow data to sync in real-time so that prospective buyers have access to the accurate and updated information.

h/t @adrivalue
Title: Re: CSU - Constellation Software
Post by: Liberty on July 03, 2019, 07:45:18 AM
3 acquisitions (Ecuador, Brazil and Australia -- truly scouring the globe):

https://www.fisagrp.com/noticias/fisa-group-ahora-forma-parte-de-constellation-software-inc.html

https://www.nsctotal.com.br/colunistas/estela-benetti/vela-do-grupo-canadense-constellation-adquire-a-catarinense-aurum

surefiresystems . com/news/

h/t @Pearnick
Title: Re: CSU - Constellation Software
Post by: FiveSigma on July 03, 2019, 11:03:29 AM
Clicking the surefire link redirects to something that looks like a malicious destination:

http://sweeps7523.fuckingmonday116.agency/1732501027/?utm_campaign=bKMuT7EMVXU5Z6UvvSHONGlfu-yV43iC8T8uYixAFxs1&t=main9_0a96022c08210a534d022d0afd&f=1

Am I the only one who’s seeing it?
Title: Re: CSU - Constellation Software
Post by: Liberty on July 03, 2019, 11:05:36 AM
Clicking the surefire link redirects to something that looks like a malicious destination:

http://sweeps7523.fuckingmonday116.agency/1732501027/?utm_campaign=bKMuT7EMVXU5Z6UvvSHONGlfu-yV43iC8T8uYixAFxs1&t=main9_0a96022c08210a534d022d0afd&f=1

Am I the only one who’s seeing it?

The link I put there works for me, but just in case I de-linked it.
Title: Re: CSU - Constellation Software
Post by: tenyearsout on July 03, 2019, 11:16:19 AM
Put out by CSU so likely over 50m
https://finance.yahoo.com/news/volaris-group-constellation-software-company-120453473.html?.tsrc=applewf
Title: Re: CSU - Constellation Software
Post by: Liberty on July 04, 2019, 04:38:51 AM
One at Jonas:

https://www.jonassoftware.com/About_Us/Latest_News/Jonas_Software_Announces_the_Acquisition_of_CORVID

Quote
PayGate is a payment processing software business that provides data validation and services to support automated banking and e-commerce transactions.

H/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on July 05, 2019, 04:13:40 AM
TSS acquisition in France:

https://www.totalspecificsolutions.com/about-us/transaction-updates

Quote
Metamicro has a leading position in the French software market for the financial services industry with multiple solutions, specifically for large banks and insurance companies. The company’s product suite consists of four different products, which can be offered on-premise as well as in the cloud (SAAS). Ligis is a solution for debt recovery, Heremus includes tools for the management of succession files whereby banks are compliant with the inheritance regulations. Saisar is a software solution whereby banks can automate the processing of civil enforcement procedures (PCE). And lastly, Caris is a software product that supports companies to optimize their customer relations.

H/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on July 09, 2019, 11:58:15 AM
Volaris acquisition in Italy:

https://www.binarysystem.eu/en/press-reviews/binary-system-e-volaris-group

Quote
Binary System S.r.l. ​is the leading Italian company for the production of software solutions conceived to manage operational activities of railway undertakings. Thanks to a team of 30 collaborators among researchers and developers of latest web and mobile technologies, railway industry experts well-established partnerships with most important devices manufacturers, Binary System has developed a suite of products which represents the excellence on the market for its usability, integration and mobility.
With a customer portfolio that today boasts 45 references between Italy, Germany, France, Belgium and Austria in few years Binary System has become a benchmark in the market for supplying applications to rail undertakings with S​ oftRail®​, the suite of modular software that covers every management and operational need.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on July 10, 2019, 04:36:37 PM
Constellation Real Estate Group Acquires offrs.com

http://www.constellationreg.com/press-creg-acquires-offrs/

Quote
Constellation Data Solutions Inc., part of the Constellation Real Estate Group (CREG), announced today that it has acquired offrs.com (offrs), a market-leader in predictive analytics and lead generation in real estate.
offrs leverages Big Data and its proprietary machine learning algorithm to predict future home sales and transactions, otherwise known as “Smart Data”. offrs distributes its Smart Data to real estate agents and other financial verticals including mortgage and title companies.
“With data and artificial intelligence at the forefront of innovation in the real estate industry, offrs’ robust platform, predictive analytics and Smart Data deliver truly advanced data and insights that move the industry forward,” said Scott Smith, President of Constellation Real Estate Group. “offrs has a strong team with powerful technology, and we’re excited to welcome them to the Constellation Real Estate Group portfolio.”
Title: Re: CSU - Constellation Software
Post by: Liberty on July 12, 2019, 12:56:04 PM
Volaris acquisition:

https://www.enlightenmentmag.com/news/windward-software-owners-retire-sell-business-to-volaris-group

https://www.windwardsoftware.com/company/about-us.html

Quote
We are specialists in inventory control, point of sale, invoicing and accounting software systems for the retail and customer service industries. Using a series of soft switches, Windward Software ERP software adapts to the way you do business. Unlike many of our competitors, we don’t believe that a company should have to change its existing business practices to suit a software package.

Windward Software has been in the business since 1984, and our client base includes businesses throughout the world. Our clients are based in Canada, United States, Australia, Barbados, Cayman Islands, Jamaica, Bermuda, Philippines, Malaysia, Brunei and many others.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: jschembs on July 12, 2019, 04:51:47 PM
Volaris acquisition:

https://www.enlightenmentmag.com/news/windward-software-owners-retire-sell-business-to-volaris-group

https://www.windwardsoftware.com/company/about-us.html

Quote
We are specialists in inventory control, point of sale, invoicing and accounting software systems for the retail and customer service industries. Using a series of soft switches, Windward Software ERP software adapts to the way you do business. Unlike many of our competitors, we don’t believe that a company should have to change its existing business practices to suit a software package.

Windward Software has been in the business since 1984, and our client base includes businesses throughout the world. Our clients are based in Canada, United States, Australia, Barbados, Cayman Islands, Jamaica, Bermuda, Philippines, Malaysia, Brunei and many others.

h/t @pearnick

I only flipped through a few statutory reports, but didn't see much disclosure regarding P&L performance of acquisitions. Have you attempted to break out organic vs acquired growth?
Title: Re: CSU - Constellation Software
Post by: Liberty on July 12, 2019, 05:32:40 PM
Volaris acquisition:

https://www.enlightenmentmag.com/news/windward-software-owners-retire-sell-business-to-volaris-group

https://www.windwardsoftware.com/company/about-us.html

Quote
We are specialists in inventory control, point of sale, invoicing and accounting software systems for the retail and customer service industries. Using a series of soft switches, Windward Software ERP software adapts to the way you do business. Unlike many of our competitors, we don’t believe that a company should have to change its existing business practices to suit a software package.

Windward Software has been in the business since 1984, and our client base includes businesses throughout the world. Our clients are based in Canada, United States, Australia, Barbados, Cayman Islands, Jamaica, Bermuda, Philippines, Malaysia, Brunei and many others.

h/t @pearnick

I only flipped through a few statutory reports, but didn't see much disclosure regarding P&L performance of acquisitions. Have you attempted to break out organic vs acquired growth?

The company breaks organic out in pretty good detail. I'm on my phone so don't have it in front of me, but it's in the fillings, and also was in the letters.
Title: Re: CSU - Constellation Software
Post by: jschembs on July 13, 2019, 05:31:32 AM
Volaris acquisition:

https://www.enlightenmentmag.com/news/windward-software-owners-retire-sell-business-to-volaris-group

https://www.windwardsoftware.com/company/about-us.html

Quote
We are specialists in inventory control, point of sale, invoicing and accounting software systems for the retail and customer service industries. Using a series of soft switches, Windward Software ERP software adapts to the way you do business. Unlike many of our competitors, we don’t believe that a company should have to change its existing business practices to suit a software package.

Windward Software has been in the business since 1984, and our client base includes businesses throughout the world. Our clients are based in Canada, United States, Australia, Barbados, Cayman Islands, Jamaica, Bermuda, Philippines, Malaysia, Brunei and many others.

h/t @pearnick

I only flipped through a few statutory reports, but didn't see much disclosure regarding P&L performance of acquisitions. Have you attempted to break out organic vs acquired growth?

The company breaks organic out in pretty good detail. I'm on my phone so don't have it in front of me, but it's in the fillings, and also was in the letters.

Found it, thanks. Didn't see the 2019 letter on the list, but assume that's floating around somewhere. Certainly refreshing to see frank discussion of performance:

The return on our shareholders’ Average Invested Capital (“ROIC”) dropped to 29% in 2017. The
decrease was a function of a slew of new investments with lower ROIC’s and of our increasing cash
balance. I expect this metric to continue to drop.

Constellation's Organic Net Revenue growth has averaged only 2% during the last decade. This has been
disappointing for me and the Operating Group managers. Some of our businesses serve shrinking
verticals or those that are otherwise troubled, so we don’t necessarily expect strong organic growth from
them. We do expect each business unit (“BU”) to provide constantly evolving software and systems that
help their clients refine and strengthen their businesses, even in the face of industry headwinds. In 2017
our Organic Net Revenue growth was 4%.

Title: Re: CSU - Constellation Software
Post by: Liberty on July 13, 2019, 08:40:52 AM
They break out the organic growth in the MD&A:

(https://i.imgur.com/ZfWrVED.jpg)

Note that most of the value comes from the maintenance and recurring line, which is the sticky, high-margin revenue. They will often reduce or cut less profitable professional services and hardware sales at acquired companies if they don't feel it creates enough value, so it can be a headwind to the aggregate number without affecting much how much economic value is being created.
Title: Re: CSU - Constellation Software
Post by: jschembs on July 14, 2019, 07:59:03 AM
They break out the organic growth in the MD&A:

(https://i.imgur.com/ZfWrVED.jpg)

Note that most of the value comes from the maintenance and recurring line, which is the sticky, high-margin revenue. They will often reduce or cut less profitable professional services and hardware sales at acquired companies if they don't feel it creates enough value, so it can be a headwind to the aggregate number without affecting much how much economic value is being created.

I'm sure you're the most knowledgeable CSU follower on COBF, so I'm curious how you model this business over the longer term? Even the sticky organic revenue only grows at 3-4% annually. Also, if the sticky, high-margin revenue represents an increasingly large proportion of legacy revenue, why do EBIT margins hover around 15% (which also seems quite low for a collection of slow-growth software businesses)?

Do you add back the acquisition-related intangibles in thinking about FCF? Seems for a core business growing 0-3% annually, that is heavily reliant on acquisitions to deliver the growth that the multiple is predicated upon, those are real expenses. I remember folks arguing VRX intangibles should be added back because they weren't ongoing expenses, which is true, but not consistent with the economics of a serial acquirer. I'm not implying this is VRX, just curious your view on the intangible expenses.
Title: Re: CSU - Constellation Software
Post by: Liberty on July 14, 2019, 10:36:48 AM
I think this has been discussed earlier in this thread. Probably not a good use of time to go over it de novo. There's also a shareholder letter where Mark goes over amortization.
Title: Re: CSU - Constellation Software
Post by: Liberty on July 17, 2019, 04:01:20 PM
Looks like more details on the larger one that was press-released at the CSI level not that long ago:

https://www.globenewswire.com/news-release/2019/07/17/1884292/0/en/Volaris-Group-a-Constellation-Software-Company-Completes-Acquisition-of-MDS-Global-Ltd.html

Title: Re: CSU - Constellation Software
Post by: jschembs on July 17, 2019, 09:58:50 PM
I think this has been discussed earlier in this thread. Probably not a good use of time to go over it de novo. There's also a shareholder letter where Mark goes over amortization.

Great, thanks!
Title: Re: CSU - Constellation Software
Post by: sane on July 18, 2019, 04:20:08 AM
If the MDS Global acquisition cost at least $50 million that makes valuation at least 11x free cash flow ($4.5 million, adj. EBITDA $4.8 million) and 1.7x sales ($29 million: all FYE Dec 2018).  Course it could be much higher. 

16.3% adj. EBITDA margins, 89% of sales in UK with rest also to Europe. 

Seller was 66 year old founder, with non-owner exec team in place.

"Gary Bunney, who remains the CEO of MDS Global, said, “We are very excited by this acquisition. As part of the Volaris family of companies, we can further invest in, and grow, our business. We are now part of a larger network of like-minded organizations dedicated to delivering world-class solutions in very specific and focused industries. This will allow us to scale more rapidly beyond our historical base in the UK and Europe to address the needs of new disruptive MVNOs, IoT providers, and next-generation B2B operators across the globe.”  https://www.mdsglobal.com/2019/07/18/volaris-acquires-mds-global-adding-a-market-leading-cloud-based-bss-platform-to-their-communications-and-media-portfolio/
Title: Re: CSU - Constellation Software
Post by: Liberty on July 18, 2019, 05:40:08 AM
If the MDS Global acquisition cost at least $50 million that makes valuation at least 11x free cash flow ($4.5 million, adj. EBITDA $4.8 million) and 1.7x sales ($29 million: all FYE Dec 2018).  Course it could be much higher. 

16.3% adj. EBITDA margins, 89% of sales in UK with rest also to Europe. 

Seller was 66 year old founder, with non-owner exec team in place.

"Gary Bunney, who remains the CEO of MDS Global, said, “We are very excited by this acquisition. As part of the Volaris family of companies, we can further invest in, and grow, our business. We are now part of a larger network of like-minded organizations dedicated to delivering world-class solutions in very specific and focused industries. This will allow us to scale more rapidly beyond our historical base in the UK and Europe to address the needs of new disruptive MVNOs, IoT providers, and next-generation B2B operators across the globe.”  https://www.mdsglobal.com/2019/07/18/volaris-acquires-mds-global-adding-a-market-leading-cloud-based-bss-platform-to-their-communications-and-media-portfolio/

A little more details:

https://twitter.com/adrivalue/status/1151736465669464064

https://twitter.com/pearnick/status/1151815420913098753

https://twitter.com/adrivalue/status/1151743032674439168

"MDS signed three new customers outside the UK in late 2018, including one £8M contract (there aren't a lot of telecos out there...). They also extended contracts with their biggest customers for the next 3-5 years, one of them = £8.8M"

(https://pbs.twimg.com/media/D_vRRJoWkAAyfXo.png:large)

Looks to me like they're paying for some of that forward revenue.

And if they expect that they can eventually bring margins to company average, the multiple is further reduced by a significant amount.

Chances are that the effective multiple is within their traditional range.
Title: Re: CSU - Constellation Software
Post by: sane on July 18, 2019, 06:55:58 AM
Quote
Looks to me like they're paying for some of that forward revenue.

And if they expect that they can eventually bring margins to company average, the multiple is further reduced by a significant amount.

Chances are that the effective multiple is within their traditional range.

Agreed.  Thanks for the links.
Title: Re: CSU - Constellation Software
Post by: Liberty on July 19, 2019, 04:23:12 PM
Another press release at the CSI level, which should denote $50m+:

https://www.csisoftware.com/docs/default-source/press-releases/tss-signing---acquisition---july-2019.pdf

H/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on July 23, 2019, 11:28:22 AM
Acquisition at Harris:

https://www.harriscomputer.com/en/news/?date=1563854400&article=harris-rsquo-local-government-division-acquires-ims-enterprises-inc-

Quote
IMS Enterprises Inc., a division of Harris Local Government, is a full-service credit and debit payment processor that specializes in providing payment processing software solutions to government and public sector organizations.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on July 24, 2019, 11:50:38 AM
Volaris published something on their acquisitions so far this year:

https://explore.volarisgroup.com/acquisitions/h1-2019-acquisition-update

Quote
In the first half of 2019 Volaris Group acquired over a dozen businesses in diverse verticals and geographies. New to Volaris Group are 2 vertical market software companies in Latin America, 2 in Australia, 5 in Europe, and 5 in North America. Volaris strengthened its presence in its core markets and entered the Healthcare, Social Welfare and Banking verticals.
Title: Re: CSU - Constellation Software
Post by: Liberty on July 25, 2019, 03:17:10 AM
One at Vela in Australia:

https://independentsolutions.com.au/vela-software-group-acquires-independent-solutions/

H/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on August 01, 2019, 12:47:02 PM
New acquisition at Volaris, this one in Australia:

https://www.volarisgroup.com/news/article/volaris-group-welcomes-valuepro-to-property-valuation-vertical

Quote
Volaris today announced that it has acquired ValuePRO Software Pty Ltd. (ValuePRO) based in Brisbane, Australia. ValuePRO is a leader in enterprise-grade software platforms for Property Valuers and represents Volaris’ first company in the Property Valuation vertical.

ValuePRO offers property valuation professionals around the world a proven, easy to use and feature-rich platform for running their business. “ValuePRO has built a reputation for reliability, great customer service and market-leading innovation over the past 15 years”, said Piers Macrae Cockram, Founder & CEO of ValuePRO. “Now as part of Volaris, we can invest even further and faster in strengthening our product and growing our platform for the mutual benefit of all of our customers, partners and hardworking team.”

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on August 02, 2019, 05:59:14 AM
TSS buys one in France:

https://www.globenewswire.com/news-release/2019/08/01/1895625/0/en/Total-Specific-Solutions-a-Constellation-Software-Company-Completes-Acquisition-of-Salvia-Développement-SAS.html

"a French provider and integrator of software solutions for private companies, real estate- and local public entities."
Title: Re: CSU - Constellation Software
Post by: Liberty on August 02, 2019, 04:12:29 PM
CSU Q2:

https://www.csisoftware.com/docs/default-source/press-releases/csi---press-release-q2-2019---final.pdf

Quote
A number of acquisitions were completed for aggregate cash consideration of $82 million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $28 million resulting in total consideration of $110 million.

Subsequent to June 30, 2019, the Company completed or entered into agreements to acquire a number of businesses for aggregate cash consideration of $190 million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $30 million resulting in total consideration of $221 million.

Ex-FX, CSU's organic growth for licenses and maintenance were 8% and 4% respectively in Q2. It's professional services and hardware (lower ROIC, less valuable businesses that they sometimes cut on purpose after acquisitions) that dragged things down. Looks solid to me.

https://twitter.com/LibertyRPF/status/1157430399888502786

Private sector organic growth of licenses ex-FX was 20% in Q2. That's after being 11% and 18% the previous two Qs sequentially. Some big sales going on there...
Title: Re: CSU - Constellation Software
Post by: Liberty on August 16, 2019, 01:36:10 PM
New acquisition at Jonas:

https://www.newswiretoday.com/news/171105/Jonas-Software-Announces-the-Acquisition-of-ITWERCS-Point-of-Sale/

Quote
“We are thrilled to welcome the ITWERCS team into the Jonas family,” says Matt Otchet, Portfolio CEO at Jonas. “ITWERCS adds a tremendous platform to our growing POS portfolio. They have developed cutting edge technology serving the needs of food and beverage professionals in a multitude of business environments from quick serve to fine dining.”

ITWERCS CEO Chris Duncan had this to say,“We are eager to work with Jonas to continue building on and growing the ITWERCS business. Myself and our employees have already been impressed with what we’ve seen so far, and are excited to realize the opportunities that are possible with Jonas’ backing and resources.”

About ITWERCS

ITWERCS (itwercs.com) was founded in 2016 in Marietta, Georgia, USA. Their cloud platform was originally launched in 2007 inside a major restaurant brand and provides a robust and comprehensive solution which covers POS, payments, kitchen display systems, scheduling, inventory, marketing & loyalty, and waitlist & reservations.
Title: Re: CSU - Constellation Software
Post by: Liberty on August 19, 2019, 09:33:00 AM
A few more from earlier this month:

https://www.volarisgroup.com/news/article/volaris-group-enters-the-isv-vertical-with-acquisition-of-akuiteo

Quote
Volaris Group Inc. (“Volaris”) today announced that it has acquired Akuiteo Développement (“Akuiteo”) based in Lyon, France. Akuiteo is a leading provider of SaaS based software for software manufacturers and represents Volaris’ first company in the ISV (independent software vendor) vertical.

https://www.volarisgroup.com/news/article/volaris-group-welcomes-portfolio-to-banking-credit-union-vertical

Quote
Portfolio+ connects financial institutions with customers and partners using innovative technologies. Its banking software & digital financial solutions are widely used by financial institutions and represents Volaris’ third company in the Banking and Credit Union vertical.

https://www.totalspecificsolutions.com/about-us/transaction-updates?tid=46

Quote
Total Specific Solutions (“TSS”) has taken its first steps into the domain of legal content management and distribution with the acquisition of Square Information Solutions, supplier of solutions for libraries and knowledge centers. Square focuses especially on the public sector and law firms. By joining TSS, Square takes the next step in its growth.

Square began developing information management software solutions in the seventies. One of its products is BIBIS, a library system to register (e-)books, and other documentation. EASY is a portal to search simultaneously online and in internal information sources. And Square has XPOSI, a publisher independent software solution for the use of e-books. Furthermore, it also offers additional products such as SIGN.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on August 20, 2019, 05:11:36 AM
One more at the real estate group:

https://www.prweb.com/releases/the_constellation_real_estate_group_acquires_assets_of_smartzip/prweb16512401.htm

Quote
The Constellation Real Estate Group (“CREG”), has announced today that it has acquired certain assets of SmartZip Analytics Inc. (“SmartZip”), a pioneer in predictive analytics and award-winning provider of data-driven marketing automation and lead generation products for the real estate industry.

The acquisition includes SmartZip’s SmartTargeting platform, patent-pending predictive analytics, data solutions, and automated referral-building content system, Reach150. The addition of SmartZip, which closely follows the recent acquisition of the Offrs.com business in July, marks CREG’s second predictive analytics company and fourth new portfolio business in 2019, and aligns with CREG’s strategy of investing in forward-thinking technology companies with a focus on strong solutions and its commitment to being a long-term, stable technology partner for the real estate industry.
Title: Re: CSU - Constellation Software
Post by: Liberty on August 28, 2019, 04:36:31 PM
Looks like a distressed asset acquisition in France by Harris:

https://www.cegedim.com/Communique/Cegedim_Pulse_Disposal_20190828_ENG.pdf

"According to Cegedim's website, Pulse Systems consists of 6 healthcare software products."

H/t @pearnick
Title: Re: CSU - Constellation Software
Post by: sane on August 30, 2019, 08:24:24 AM
Liberty, do you recall Mark Leonard writing about newspapers as an attractive business?  At this year's AGM, when asked about non-VMS acquisitions, he made a random reference to newspapers.  I cannot understand if he was joking.  Are you familiar with the reference he made?

"So we have been looking for some other companies that have been able to find multiple platforms around which they have been able to do significant numbers of acquisitions because we think that that is stuff that we would be good at.  And we have found a few.  The difference between companies that succeed in one vertical and just rolling up or buying up in one vertical, and those that do it in multiple verticals is something that I don’t yet understand.  But I suspect from what I have seen so far is just that they run out of space in the little vertical that they chose as their first one.  And they end up going to a second and a third etc.  So I am trying to study them and figure out what other people have done and how they might have blown their brains out and how we can avoid doing that – the brains blowing out part – ourselves as we start to look around for other things to do other than Vertical Market Software.  That newspaper thing that I wrote about sounded kind of cool, maybe we can do that."
Title: Re: CSU - Constellation Software
Post by: Liberty on August 30, 2019, 09:52:19 AM
Liberty, do you recall Mark Leonard writing about newspapers as an attractive business?  At this year's AGM, when asked about non-VMS acquisitions, he made a random reference to newspapers.  I cannot understand if he was joking.  Are you familiar with the reference he made?

"So we have been looking for some other companies that have been able to find multiple platforms around which they have been able to do significant numbers of acquisitions because we think that that is stuff that we would be good at.  And we have found a few.  The difference between companies that succeed in one vertical and just rolling up or buying up in one vertical, and those that do it in multiple verticals is something that I don’t yet understand.  But I suspect from what I have seen so far is just that they run out of space in the little vertical that they chose as their first one.  And they end up going to a second and a third etc.  So I am trying to study them and figure out what other people have done and how they might have blown their brains out and how we can avoid doing that – the brains blowing out part – ourselves as we start to look around for other things to do other than Vertical Market Software.  That newspaper thing that I wrote about sounded kind of cool, maybe we can do that."

I'm sorry, I don't remember the context of what he's referring to right now. I doubt he meant that he thinks newspapers are a good space, it's probably something else or a joke, IMO. Maybe it'll come back to me, or someone else remembers.
Title: Re: CSU - Constellation Software
Post by: Jerry Capital on August 30, 2019, 10:21:20 AM
He discussed this in his 2017 letter. So I think the context may be a joke. See attached.
Title: Re: CSU - Constellation Software
Post by: sane on August 30, 2019, 12:20:51 PM
Great, that makes sense.  Thanks both of you for your replies.  One more question on this subject to anyone interested:

"When we do invest in another sector, we’ll keep it as quiet as legally possible."  https://www.csisoftware.com/docs/default-source/investor-relations/shareholder-q-a/qa-september-2018-final.pdf 

What "legal" obligations would they have to disclose a non-VMS acquisition?  Their current policy of a $50 million acquisition threshold for disclosure, or..? 
Title: Re: CSU - Constellation Software
Post by: Liberty on September 06, 2019, 11:49:36 AM
Volaris acquisition in Australia:

https://www.volarisgroup.com/news/article/expanding-risk-and-compliance-offerings-acquisition-of-holocentric

Quote
Holocentric provides organisations with solutions to help capture, understand, change and optimise every detail of their business – from strategy, people, and processes to compliance obligations. Volaris saw Holocentric as a great opportunity to work with a mature organisation with great leadership and a blue chip client base.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on September 06, 2019, 12:20:26 PM
Another one at Harris too:

https://www.harriscomputer.com/en/news/?date=1567742400&article=harris-school-solutions-acquires-castle-learning

Quote
Harris Computer Corporation, through its Schools Group, has acquired Castle Software, Inc (Castle Learning), a software company focused on providing content specific learning technologies. Castle Learning will be integrated into the Harris Education Solutions business. Castle Learning’s former president, Scott Fischer, will take on the role of Director of Business Development and become a vital part of the Harris Education Solutions leadership team.

Also one at Jonas:

https://www.jonassoftware.com/About_Us/Latest_News/Jonas_Software_Announces_Acquisition_of_Uniware

Quote
Uniware is the leading, proven provider of EPoS systems for the hospitality and retail industries with more than 600 customers worldwide. Uniware is passionate about providing EPoS & Payment solutions that enable clients to maximize revenue, improve customer loyalty and increase stride within their hospitality & retail businesses.

One at Vela too:

https://www.fogsoftwaregroup.com/fog-acquires-volo-commerce/

Quote
UK-based Volo Origin is a powerful, multi-channel e-commerce platform with a broad feature set that has been serving customers for over 15 years in the UK and abroad. FOG has deep retail and e-commerce experience and saw the Volo Origin platform as a great opportunity to expand its reach into the UK market with a strong product and a dedicated, passionate team.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on September 11, 2019, 06:39:32 AM
One more at TSS, this time in France:

https://www.totalspecificsolutions.com/about-us/transaction-updates?tid=48

Quote
Leading software provider TECHNIDATA offers mission-critical solutions that cover all the laboratory disciplines: biochemistry, hematology, immunology, microbiology, blood banking, histology/cytology, genetics, and biobanking.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: banellie on September 19, 2019, 12:53:33 PM
Here is a thread on CSU's acquisition process:

https://twitter.com/kylerhasson/status/1174739746855124992
Title: Re: CSU - Constellation Software
Post by: Liberty on September 20, 2019, 04:07:29 PM
Two new board members:

https://www.globenewswire.com/news-release/2019/09/20/1918754/0/en/Constellation-Software-Announces-Appointment-of-Susan-Gayner-and-Dexter-Salna-to-its-Board-of-Directors.html
Title: Re: CSU - Constellation Software
Post by: crastogi on September 22, 2019, 09:54:54 AM
Is Susan Gayner related to Tom Gayner?
Title: Re: CSU - Constellation Software
Post by: Liberty on September 23, 2019, 07:02:07 AM
Is Susan Gayner related to Tom Gayner?

I've been told they are married, but not 100% sure.

Edit: Tyler confirms it: https://twitter.com/cdnvaluestocks/status/1176301327615483905?s=21
Title: Re: CSU - Constellation Software
Post by: crastogi on September 24, 2019, 08:52:23 AM
Thanks!
Title: Re: CSU - Constellation Software
Post by: Liberty on October 01, 2019, 06:25:02 AM
New acquisition by Harris in Austria:

https://www.mquadr.at/en/news-19100100,mquadr.at-is-now-part-of-the-Harris-group

Quote
With the acquisition of mquadr.at, the Harris Group is extending its own expertise by adding solutions for Internet service and telecommunication providers (ISPs) as well as valuable development knowhow in the area of user-friendly consumer software for leading operating systems. As part of the larger company structure, SIV.AG will profit from this expertise as well. mquadr.at offers software solutions with which customers in the telecommunications sector can reach significant cost advantages via intelligent self-service. mquadr.at is the European market leader in this field. Customers include, among others, A1 Telekom Austria, Swisscom, Magenta Telekom, o2 Telefònica, UPC, Proximus, NetCologne ...

mquadr.at has established itself as the leading expert in Europe for innovative self-service software regarding modems, home networks and smartphones. Internet service providers (ISPs) and telcos form the target audience for the cutting-edge solutions, which they in turn deliver to millions of their consumers. The core product m2suite allows the users to manage their home network including their Internet access completely independently. This way, the ISPs reach massive reductions of service costs (especially for service desks) as well as an increase in service quality (reduced customer churn) and lasting user education.

In the 20 years of its company history, mquadr.at has made a name for itself especially by delivering highest quality products, technology expertise and quick project realisations. This has established mquadr.at as a reliable partner for innovation for over 50 customers in the telco sector.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on October 01, 2019, 04:24:11 PM
New one at Jonas:

https://www.jonassoftware.com/About_Us/Latest_News/Jonas_Software_Announces_Acquisition_GuestVision

Quote
GuestVision Software was released into the marketplace, initially to the walk-in beauty salon chain market. Today, GuestVision is one of a few salon software packages flexible enough to span the breadth of the beauty industry with a focus on multi-national enterprises across cosmetology schools, salons, and barbershops. Today GuestVision offers not only software solutions but hardware, support, and consulting for an all-in-one stop for technology needs. GuestVision promises to continue providing innovation, exceptional service, and new technology to assist clients in all of their endeavors.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on October 02, 2019, 05:27:21 PM
Harris acquisition in Quebec:

https://doc.logilys.com/nouvelles/Press_Release_AN_OFFICIAL.pdf

H/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on October 04, 2019, 11:09:52 AM
Acquisition at Vela:

https://velasoftwaregroup.com/vela-software-acquires-mosaic/

Quote
MOSAIC is an industry leading integrated petroleum economic, decline analysis, reserves management and budgeting solution. MOSAIC enables oil and gas companies to achieve greater standardization, faster execution, higher data confidence, and improved productivity – from projects and properties through to corporate reporting. MOSAIC has offices in Calgary and Houston and will now rely on Vela’s existing international locations to provide a global support reach.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on October 07, 2019, 07:31:31 AM
New one at Harris:

https://www.bcms.com/gb/en-gb/article/canadian-investor-acquires-uk-healthcare-it-integrator-quicksilva

Quote
Quicksilva has been associated with prestigious projects in the public and private sectors, alongside a big focus on health and social care which built a long association with the NHS. Quicksilva’s interface to the NHS Spine* initiated Spine-in-a-Box, a test harness designed to mimic the functionality of the NHS Spine, enabling suppliers to have a practice run through before going through the compliance process of the Spine.

h/t @pearnick

Update: Another one at Harris, this one in Wyoming:

https://www.harriscomputer.com/en/news/?date=1570420800&article=harris-healthcare-acquires-connecture-inc-

Quote
announced today that it has completed the acquisition of Connecture, Inc. (“Connecture”). Connecture provides SaaS based solutions for Medicare shopping and enrollment and serves customers including insurance carriers, insurance brokers and pharmacy benefit managers.

Connecture’s solutions complement Harris’ existing healthcare information technology portfolio. Harris will continue to develop, sell, implement and support Connecture’s applications.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on October 09, 2019, 10:25:09 AM
Volaris acquisition:

https://www.volarisgroup.com/news/article/volaris-group-strengthens-foodservice-hospitality-vertical-with-acquisition

Quote
IndiCater Limited (“IndiCater”), a UK-based software provider of process management solutions to help manage the full spectrum of foodservice and hospitality back-office operations. IndiCater joins CaterTrax, a Volaris Group company, in the Foodservice & Hospitality vertical.

IndiCater’s comprehensive portfolio of solutions supports all operational aspects of a business, including finance, profit, employment, stock, recipe, menus, ordering, and procurement management. Over 4,000 system users manage their business and streamline operational processes with IndiCater’s flexible hospitality solutions. Major clients include market-leading contract caterers, buying groups, and distributors throughout the UK.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: EricSchleien on October 09, 2019, 03:05:28 PM
Has anyone ever looked at Upland Software? Figured some of the people who are familiar with Constellation are familiar with this company too. There was a VIC writeup on it.

https://valueinvestorsclub.com/idea/UPLAND_SOFTWARE_INC/0371366189/messages/151783#description
Title: Re: CSU - Constellation Software
Post by: Liberty on October 09, 2019, 03:20:49 PM
Has anyone ever looked at Upland Software? Figured some of the people who are familiar with Constellation are familiar with this company too. There was a VIC writeup on it.

https://valueinvestorsclub.com/idea/UPLAND_SOFTWARE_INC/0371366189/messages/151783#description

I’ve looked at them a few years ago and read that writeup. I don’t think the write up is correct in comparing them. Pretty different models. Not mission critical, using more debt and issuing more shares, etc.
Title: Re: CSU - Constellation Software
Post by: walkie518 on October 10, 2019, 10:36:21 AM
Has anyone ever looked at Upland Software? Figured some of the people who are familiar with Constellation are familiar with this company too. There was a VIC writeup on it.

https://valueinvestorsclub.com/idea/UPLAND_SOFTWARE_INC/0371366189/messages/151783#description
likely better to start another thread... Upland is pretty interesting though to Liberty's point a very different roll-up
Title: Re: CSU - Constellation Software
Post by: Liberty on October 10, 2019, 12:42:24 PM
New one by TSS in the Netherlands:

https://www.totalspecificsolutions.com/about-us/transaction-updates?tid=49

Quote
For over 25 years, Microcash has been supplying the Dutch specialty retail sector with store- and warehouse automation solutions. The Microcash POS and WMS solution cover the end-to-end need of single and multi-store retailers: from article and stock management, to purchase management, to customer retention options as well as having extensive cash register functionalities.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on October 16, 2019, 06:23:43 AM
Acquisition by Perseus in Texas:

https://csiperseus.com/news/perseus-group-adds-horizon-retail-solutions-to-its-expanding-portfolio-of-software-businesses/

Quote
Horizon Retail Solutions, LLC, an ERP software provider for large farm, ranch and home specialty retailers.

Established over 20 years ago, Horizon supports customers across the Midwest, from Wyoming to Missouri. Horizon’s solutions help retailers with store management, point of sale, accounting, inventory, warehouse and distribution centre management.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on October 16, 2019, 01:25:07 PM
Volaris acquisition in the UK:

https://www.volarisgroup.com/news/article/volaris-group-acquires-worldwide-chain-stores

Quote
acquired Worldwide Chain Stores (WCS), a leading supply chain execution company providing inventory management expertise to Grocery Retailers and Wholesalers.

WCS offers grocery retailer and wholesalers proven, easy to use and feature-rich warehouse management systems. “WCS has built a reputation for reliability, great customer service and market-leading innovation over the past 50 years,” said Joshila Makan, CEO of WCS. “Now as part of Volaris, we can invest even further and faster in strengthening our product and growing our platform for the mutual benefit of all of our customers, partners and hardworking team.”

Zoominfo shows 42 employees and $8.1M revenues

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on October 16, 2019, 06:58:22 PM
Has anyone ever looked at Upland Software? Figured some of the people who are familiar with Constellation are familiar with this company too. There was a VIC writeup on it.

https://valueinvestorsclub.com/idea/UPLAND_SOFTWARE_INC/0371366189/messages/151783#description

I’ve looked at them a few years ago and read that writeup. I don’t think the write up is correct in comparing them. Pretty different models. Not mission critical, using more debt and issuing more shares, etc.

I've owned this since late last year.  It's not Constellation in quality (measured by stickiness of customers, niche verticals, accounting conservatism, management, reputation etc) , but I think the upside from here is comparable to higher, simply because they use leverage like Transdigm does though they're not as aggressively levered, and of course they're a tiny fraction of the size of CSU by revenue (5% or so). Enterprise software is sticky obviously and recurring revenue is high so leverage is kind of a no brainer. It's a Vista or PE model.

The management is decent and experienced and incentivized and thinks about capital allocation well.  I could do without their need to constantly throw out/invent new sales-y, jargon-y terms like "lights out, best-in-class", "committed to customer excellence" with every call.  Seems to be a thing in software world though. They are a clearing house for VC funds.  VC funds need upland and other companies like them to liquidate their funds. Upland fires and outsources developers.  They use crossover and devfactory to get this done (owned by ESW, who incidentally is an owner).

You could make a case that since they're coming off a smaller base, that if present circumstances continue, (ability to redeploy all cash + debt into acquisitions) then you have a 30% compounder for the next several years. Organic revenue is higher than CSU's for the moment but of course these guys are all cloud based while CSU has a majority legacy license/maintenance type model. Organic revenue in software, as we all know, is magic, especially the recurring kind.

at 20x Adj. EPS, it's not terribly expensive. Oh and they get to buy a lot of companies with NOLs simply because they're buying money losing things out of a VC portfolio. If you scan Gartner for some of their products, they get good reviews, though I doubt any of them are leaders in their niche.
Title: Re: CSU - Constellation Software
Post by: Liberty on October 18, 2019, 06:43:07 AM
Acquisition in New Zealand by Jonas:

https://www.pacsoftmms.com/jonas-software-acquires-marina-management-experts-pacsoft/

Quote
acquisition of marina management software specialists Pacsoft International.


Headquartered in Auckland, New Zealand’s ‘City of Sails’, Pacsoft is best known for its PacsoftNG software used by marina, boatyard and shipyard managers to operate and manage their facilities. ...

Pacsoft has grown steadily since it launched PacsoftNG in 1999. The software is now used in 20 countries by businesses ranging from small marinas and boatyards to major harbours with thousands of berths.

PacsoftNG makes it simple for marina, boatyard, and shipyard managers to efficiently run all aspects of their business, including operations, administration, accounting, management and business analysis.

It offers comprehensive tools for management of services such as berth rental and makes administering and charging for ancillary services and utilities simple. It also offers add-on modules that make it easy to manage a schedule of boat lifters and hard stands and effectively create and monitor job quotes, invoices, job costings, and work in progress.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on October 22, 2019, 06:54:20 AM
Looks like a big acquisition in Brazil for Volaris:

https://berkerynoyes.com/berkery-noyes-represents-apdata-in-its-sale-to-volaris-group-a-constellation-software-company/

Quote
Founded in 1984, Apdata has a long history and deep experience in software development and outsourcing capabilities for Human Capital Management (HCM). Its fully integrated, propriety “all in one” Technology (*GA – Global Antares) provides simplicity, productivity, mobility and automation, tailored specifically for both international and domestic HCM clients, streamlining the HR process into a single, easy-to-use technology. The Company operates with small, medium, and large organizations in different segments and has a portfolio of more than 730 clients.

Volaris Group, a wholly owned division of Constellation Software Inc. (TSX:CSU), acquires, strengthens, and grows vertical market technology companies. Constellation has a market cap of nearly $28 billion and a portfolio of software businesses with over 125,000 customers throughout more than 100 countries.

Quote
-730 clients
-423 employees (Linkedin)
-Offices in Brazil and FL

h/t @pearnick

ACCEO had around 1000 employees, so that's almost half as big on that metric.

More context on potential size:

https://twitter.com/adrivalue/status/1186657037444354048

Quote
Apdata is the num. 2 HCM vendor in Brasil, maybe N. 10 global?

2016-2017 Revenue Growth: 12% YoY

2018 Revenue ~US$20M (R$80M)
Title: Re: CSU - Constellation Software
Post by: villainx on October 22, 2019, 08:57:04 AM
Is there something that shows constellation's business by geographic area?  Or its evolution?

Mainly to gauge the ramp in international acquisition.
Title: Re: CSU - Constellation Software
Post by: snowball82 on October 30, 2019, 10:34:18 AM
Some don’t see CSU expensive from here !

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aCSU-2825342&symbol=CSU&region=C
Title: Re: CSU - Constellation Software
Post by: gary17 on October 31, 2019, 03:12:13 PM
results are avaialble now
in the MD&A mark wrote a nice long explanation why they are switching from adjusted net income to free cash flow.

CSU is expensive now IMO.

https://www.csisoftware.com/docs/default-source/press-releases/csi---press-release-q3-2019---final.pdf
Title: Re: CSU - Constellation Software
Post by: Liberty on October 31, 2019, 03:13:52 PM
CSU is expensive now IMO.

What is your estimate of fair value, where would you buy?
Title: Re: CSU - Constellation Software
Post by: Liberty on October 31, 2019, 03:22:06 PM
Page 21 here is an explanation of the new FCF metric:

https://www.csisoftware.com/docs/default-source/press-releases/q3-2019-shareholder-report.pdf
Title: Re: CSU - Constellation Software
Post by: Liberty on October 31, 2019, 04:49:56 PM
I wonder if Mark's foreshadowing something here:

Quote
I did like the fact that ANI, unlike CFO, was net of the cost of servicing the capital provided by other stakeholders
(e.g. interest on debt, dividends on preferred stock, and lease payments). The deductions from CFO that we've made
to create FCFA2S reflect this cost. This may become an increasingly important adjustment if we do more partnering
with other investors and operators or create spin-out businesses
.
Title: Re: CSU - Constellation Software
Post by: snowball82 on October 31, 2019, 05:24:49 PM
CSU is expensive now IMO.

What is your estimate of fair value, where would you buy?

I still own my full position here but usualy I try - like P Lynch said- to be carefull if the PEG ratio is + 1. So at 15 x cash flow I'm a buyer ! You ?
Title: Re: CSU - Constellation Software
Post by: gary17 on October 31, 2019, 05:49:49 PM
this is at 47x fcf....  did i do my math wrong ?
Title: Re: CSU - Constellation Software
Post by: Liberty on October 31, 2019, 05:53:07 PM
this is at 47x fcf....  did i do my math wrong ?

The stock trades in CAD but the financials are in USD, so you have to convert the currency.
Title: Re: CSU - Constellation Software
Post by: snowball82 on October 31, 2019, 06:22:45 PM
Of course I mean if the stock price is at 15 X cash flow -and the execution continue - I could be a buyer. Based on the current valuation, I don’t see I will have the opportunity to add soon..
Title: Re: CSU - Constellation Software
Post by: gary17 on October 31, 2019, 07:21:06 PM
thanks Liberty.  i used to know this but had forgotten.   so 47/1.3= 36x.  not cheap
Title: Re: CSU - Constellation Software
Post by: Liberty on November 19, 2019, 06:53:30 AM
4 new acquisitions disclosed:

Jonas: https://www.jonassoftware.com/About_Us/Latest_News/Jonas_Software_Acquires_Critical_Impact_Software

Harris: https://www.harriscomputer.com/en/news/?date=1573016400&article=harris-acquires-bobcad-cam-inc-

Volaris: https://its-uk.org.uk/imperial-prepares-for-next-phase-of-growth-by-joining-volaris-group/

Harris: https://www.harriscomputer.com/en/news/?date=1574053200&article=harris-public-sector-group-acquires-thomson-reuters-tax-amp-accounting-professionals-government-business

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on November 21, 2019, 06:55:38 AM
One more at Vela:

http://www.ilight.com/en/news/fieldview-acquired-by-vela

Quote
For more than twenty-five years, Intelligent Light has advanced the world of CFD post-processing through its FieldView software. In October 2019, Intelligent Light sold the right to develop, sell and support FieldView to Vela Software International. Vela is the same company that purchased Tecplot four years ago and has helped the Tecplot business thrive to the benefit of Tecplot users worldwide.

The new company, FieldView CFD, Inc., will join a family with Tecplot and Tecplot Europe (formerly Genias Graphics GmbH). FieldView CFD, Inc. will be a separate group dedicated to delivering for the FieldView user while being able to take advantage of the synergies of scale that joining a large group like Vela provides.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on November 22, 2019, 05:53:09 AM
New one at Jonas, this one in Australia:

https://www.jonassoftware.com/About_Us/Latest_News/Jonas_Software_Acquires_Impos_Solutions

Quote
acquisition of Impos Solutions International Pty Ltd. Headquartered in Melbourne, Australia, Impos is best known for being a leading provider of integrated POS Solutions to the Australian Hospitality industry. The past few years has seen substantial growth with the extension to schools, corporate enterprises and government bodies, providing customised solutions and becoming a market leader in providing consultative services to a broader range of clients.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on November 27, 2019, 10:38:49 AM
Two new acquistions:

https://www.harriscomputer.com/en/news/?date=1574830800&article=acceo-solutions-inc-a-wholly-owned-subsidiary-of-n-harris-computer-corporation-acquires-la-solution-int

Quote
ACCEO Solutions Inc., a wholly owned subsidiary of N. Harris Computer Corporation, announces that it has acquired Informatique Nouvelle Technologie Inc. (“La Solution INT”), designer of the PROCARDEX and PROAVO-K software solutions, dedicated to supporting notaries and lawyers in their practice. La Solution INT will be an integral part of the ACCEO Solutions SMB unit.

https://www.volarisgroup.com/news/article/volaris-group-welcomes-policy-processing-systems-to-insurance-and-benefits

Quote
the businesses of Policy Processing Systems Corporation Group Inc. (PPSC) and its subsidiaries Insuresoft, Red Hawk, and Covenir were acquired by a subsidiary of Volaris.

PPSC is a unique technology and service collaborative with the mission of removing the fundamental technology constraints insurers face so they can better serve their clients. Today, PPSC has over 40 insurers processing close to $5 billion in annual premiums in personal and commercial lines across all 50 states.


h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on December 04, 2019, 06:36:17 AM
Acquisition at Harris:

https://www.force-uk.com/force-information-systems-acquired-by-n-harris-computer-systems/

Quote
Force Information Systems (FIS) software business, including the Centurion, Optio, Gatekeeper, Tribune and Senatus software has been purchased by N. Harris Computer Systems (Harris), a leading provider of mission-critical software for Public Safety agencies, Utilities, and Municipal Governments. Harris has over 3,600 employees and 10,000 customers throughout North America and Europe.

One as Jonas:

https://www.jonassoftware.com/About_Us/Latest_News/Jonas_Software_Acquires_Automated_Integration

Quote
Jonas Software expands its construction portfolio with the recent acquisition of Automated Integration. Automated Integration is the leading provider of enterprise resource planning systems for the field service industry. Founded in 1993, Automated Integration has been dedicated to helping field service businesses drive their bottom line.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on December 10, 2019, 09:24:14 AM
constellation is down ~10% in December?? must be a large seller..... or more likely the whole thing is a giant fraud that is quickly unfolding.  probably the latter.  :'(
Title: Re: CSU - Constellation Software
Post by: Liberty on December 10, 2019, 09:28:07 AM
constellation is down ~10% in December?? must be a large seller..... or more likely the whole thing is a giant fraud that is quickly unfolding.  probably the latter.  :'(

All the way down to where it was in November
Title: Re: CSU - Constellation Software
Post by: Shooter MacGavin on December 10, 2019, 09:30:29 AM
constellation is down ~10% in December?? must be a large seller..... or more likely the whole thing is a giant fraud that is quickly unfolding.  probably the latter.  :'(

All the way down to where it was in November

I already spent all my November end gains. :-\
Title: Re: CSU - Constellation Software
Post by: chrispy on December 10, 2019, 09:54:54 AM
I hope it continues until year end bonus time
Title: Re: CSU - Constellation Software
Post by: Liberty on December 11, 2019, 02:28:06 PM
Two new ones at Jonas:

https://www.jonassoftware.com/About_Us/Latest_News/Jonas_Software_Acquires_Retail_Sport_Systems

https://www.jonassoftware.com/About_Us/Latest_News/Jonas_Software_Acquires_Motion_Software

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: gary17 on December 16, 2019, 06:23:54 PM
Seems like analysts think CSU is over valued by 20%,!

Title: Re: CSU - Constellation Software
Post by: wisowis on December 16, 2019, 06:51:18 PM
Seems like analysts think CSU is over valued by 20%,!
Quote
"We cut our FY 19 estimate to $28.54".

...but their sum of actuals 1Q to 3Q, plus their 4Q estimate, is $20.19...?
Title: Re: CSU - Constellation Software
Post by: zurgenfeldt on December 16, 2019, 08:05:39 PM
I have them overvalued by 16% right now using just perpetual annuity back-of-the-napkin (owner earnings/cost of capital). I keep hoping for a dip so I can scoop up a bunch of shares and hold them for 10 years.
Title: Re: CSU - Constellation Software
Post by: writser on December 17, 2019, 01:43:26 AM
I have them overvalued by 16% right now using just perpetual annuity back-of-the-napkin (owner earnings/cost of capital). I keep hoping for a dip so I can scoop up a bunch of shares and hold them for 10 years.

So you don't buy now because it is slightly overvalued but if you had shares already you'd hold them for a decade? If that's the case I think you should just buy today ..
Title: Re: CSU - Constellation Software
Post by: Liberty on December 17, 2019, 03:31:53 AM
Seems like analysts think CSU is over valued by 20%,!

That’s why analysts have held CSU for the past decade, because they’re great at valuing it!
Title: Re: CSU - Constellation Software
Post by: Spekulatius on December 17, 2019, 04:07:41 AM
Sometimes you get the dips, sometimes you don’t. I personally have target prices as well, but you have a downside that your inherently murky valuation undervalues the stock in question and you never get to buy it.

If your time span is truly a decade, a 16% difference isn’t that much. My own timespan is more like 3-5 years and in that case 16% matters.
Title: Re: CSU - Constellation Software
Post by: zurgenfeldt on December 17, 2019, 05:31:55 AM
Not to get too far off topic (CNSWF), but I compare the MOS of CNSWF with other buy-and-hold target companies and there are more attractive options to put $ into right now.
Title: Re: CSU - Constellation Software
Post by: Liberty on January 03, 2020, 03:07:41 PM
New acquisition:

https://www.precisionfarmingdealer.com/articles/4160-charter-software-inc-acquired-by-constellation-software

Quote
Charter Software Inc., the maker of the ASPEN Dealer Management System, announced today it has been acquired by Constellation Software (TXS: CSU), based in Toronto, Canada. The new company will be called Charter Software Solutions Inc. and will operate under the Perseus division of Constellation. Charter Software’s offices will remain headquartered in Littleton, CO.
Title: Re: CSU - Constellation Software
Post by: Liberty on January 06, 2020, 11:19:08 AM
Volaris acquisition:

https://www.volarisgroup.com/news/article/volaris-acquires-lifecycle-software

Quote
its thirteenth acquisition in the Communications and Media vertical with the acquisition of Lifecycle Software LTD (“Lifecycle”), a provider of mission critical billing, customer management, and business intelligence software solutions to mobile network operators, mobile virtual network operators, and mobile virtual network enablers and aggregators.

Founded in 1995 by Kim Craven, Lifecycle was formed to address a need by new UK market fixed communications providers and ISP resellers. In 2008 Lifecycle evolved its offerings to focus on the emerging needs of virtual mobile operators, enabling them with full subscriber management and billing turn-key solutions.

“We had been talking with Volaris regularly for quite some time and became convinced they would be the best home for Lifecycle for a number of reasons, mainly: the access to their global communications customer and partner ecosystem; being able to operate autonomously; and, the organization’s strong knowhow, best practices and financial resource to enable us to grow sustainably and entertain future M&A of our own,” said Kim Craven, Managing Director and Founder of Lifecycle. “We also liked their practice of ‘buy and hold forever’ as well as their dedication to allow us to maintain our corporate identity and accelerate the brand we have worked so hard to build over 2 decades in the market.”
Title: Re: CSU - Constellation Software
Post by: deepdiving on January 07, 2020, 05:05:40 AM
Liberty: most likely, CSU have been talking to them for 10 years, until their determination to stay independent collapsed...  ;)
Title: Re: CSU - Constellation Software
Post by: Liberty on January 07, 2020, 06:02:56 AM
Liberty: most likely, CSU have been talking to them for 10 years, until their determination to stay independent collapsed...  ;)

Trust is a seed that must be planted early and watered along the way for it to grow!
Title: Re: CSU - Constellation Software
Post by: Liberty on January 07, 2020, 12:56:33 PM
Volaris acquisition in Brazil:

https://www.volarisgroup.com/news/article/volaris-group-acquires-dealernet-brazil

Quote
acquired DealerNet (“DealerNet”), a provider of Dealer Management solutions to the automotive sector. DealerNet is based in Salvador, Bahia, Brazil.

DealerNet has a rich history of providing automotive dealer management software solutions to car dealers and OEMs throughout Brazil. Established in 1990, the company’s Windows DMS and Workflow DMS is a mission-critical platform that helps to transform automotive dealers. Today Workflow is used by 3,000 automotive dealers across Brazil.

H/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on January 09, 2020, 06:05:52 AM
Two more acquisitions:

https://www.totalspecificsolutions.com/about-us/transaction-updates?tid=52

Quote
Total Specific Solutions (TSS) has acquired Ping Pong AB. Ping Pong believes in lifelong learning for everyone and is the Swedish market leader in Learning Management Systems. With this acquisition, TSS expands its existing market presence in Sweden, where FDT and Infoflex are already part of the group.

Ping Pong offers educational solutions for schools, universities, public sector and companies. For schools, the Ping Pong platform allows teachers to involve students to participate and create content. It provides teachers an easy way to assess and monitor the development of each student, including assignments, grades, attendance records, and more.
For higher education, the Ping Pong platform complements the regular curriculum, offering students the opportunity to engage in active learning, individually or with others. And it allows students and professors to follow the progression over time. The solution offers, for example, flexible test tools for examination and self-testing, tools for collaborative learning in groups, and more.
For companies and public organizations, the solution is the online meeting places for knowledge exchange and sharing of experiences. It motivates employees to further their education. It has a course administration tool, including attendance management, course implementation, and certification.


https://www.volarisgroup.com/construction

Quote
"Enterprise Content Management (ECM) solutions -- contract management, knowledge-sharing and electronic document and email management - for the Utilities and Construction markets."

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on January 10, 2020, 10:15:11 AM
One at TSS, one at Volaris:

https://www.totalspecificsolutions.com/about-us/transaction-updates?tid=53

Quote
Vlot Solutions is the market leader in the Netherlands with its software solution Orthomatic servicing multiple clients in the medical aids sector such as orthopedic shoemakers and instrument manufacturers, wig makers, surgical truss makers and distributors for diabetes related conditions. Orthomatic provides clients a single end-to-end solution for the entire process from order, purchase and stock management, electronic client dossier, chain logistics, to performance and process management. And Orthomatic provides insights into several reports. The software solution supports the entire financial process, including the processing of expenses and receivables management.

https://www.volarisgroup.com/news/article/tribute-inc-joins-volaris-group

Quote
Based in Hudson, Ohio, Tribute Software provides integrated ERP software solutions to help industrial distributors serve their customers better, streamline their operations, lower costs, and enhance margins through better cost control. Tribute systems power millions of dollars in transactions every month and supply thousands of users with critical information day and night.

Tribute has a deep understanding of the unique business needs of industrial distributors. The company serves hundreds of customers throughout North America providing specialized solutions for fluid power and motion control, industrial hoses, fluid handling, and more.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: sane on January 22, 2020, 07:19:40 AM
Does anybody know when the Constellation AGM will be in 2020 please?  They seemed to fit it next to the Omaha weekend last year, I wonder if they are deliberately trying to attract those groupies. 
Title: Re: CSU - Constellation Software
Post by: FiveSigma on January 22, 2020, 08:04:19 AM
It's typically during the first week of May,  they announce it at the same time as the date for the Q1 earnings, which happens in mid-April.
Title: Re: CSU - Constellation Software
Post by: Liberty on January 22, 2020, 08:44:56 AM
CFO told me: "The date is tentatively scheduled for Friday May 8."
Title: Re: CSU - Constellation Software
Post by: sane on January 22, 2020, 08:52:30 AM
Thanks a lot, both of you.
Title: Re: CSU - Constellation Software
Post by: Liberty on January 24, 2020, 08:52:52 AM
Two new acquisitions:

https://www.ejuniper.com/en/blog/2020/01/24/juniper-acquires-tsi/

"TSI provides products and services related to TPF/ALCS and Digital Enterprise technologies to some of the Fortune 500 companies"

https://www.petrosys.com.au/petrosys-acquires-globe-claritas/

“Claritas is a globally-recognised seismic processing solution and has been used in 30 countries by more than 75 organisations."


h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on January 27, 2020, 11:32:18 AM
Volaris acquisition:

Google translate for the press release:

https://www.saatmann.de/cms/?node=1163

Quote
Saatmann GmbH & Co. KG joined Volaris Group Inc. on January 1, 2020. As a long-term partner, the Volaris Group enables Saatmann GmbH & Co. KG's growth and success course to continue unchanged. Saatmann GmbH & Co. KG will continue to develop its industry software for quality assurance and birth documentation as an independent business unit from the Worms location. The two main shareholders Simon Saatmann and Günther Weber hand in their tasks, Arndt Lorenz will continue his work as managing director of Saatmann GmbH & Co. KG with the established team in the usual way and without changes.

"With Volaris, we have found a partner who enables us to continue to run the company as a whole and thus to guarantee unchanged security for employees and customers. As part of the financially strong Constellation Software Inc., we now have further strategic growth options," said Arndt Lorenz, managing director of SAATMANN GmbH & Co. KG.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on January 28, 2020, 07:07:19 AM
Jonas reviewing its acquisitions this year (17), including a new one we didn't know about:

https://info.jonassoftware.com/blog/2019-acquisition-year-in-review

Achiga: "Servicing the hotel industry for over 20 years, with 13,000+ users worldwide" 28 employees

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on February 07, 2020, 07:37:34 AM
New acquisition at Vela:

https://www.fogsoftwaregroup.com/fog-software-group-announces-acquisition-of-asc-software/

Quote
Dayton, OH-based ASC is a leader in supply chain solutions. Their award-winning ASCTrac® software is an enterprise solution combining warehouse management (WMS), manufacturing execution (MES) and financial accounting to help manufacturers, distributors, and third-party logistics providers (3PLs) to better manage their complex operations.

"Zoominfo shows 144 employees and $27.7M in sales"

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: wisowis on February 08, 2020, 04:11:26 PM
CSU is expensive now IMO.

What is your estimate of fair value, where would you buy?

We can get this information from the president's letters, which I recommend you read. In 2013, they got their 8 analysts to do DCFs of Constellation Software:




Quote
CSI’s stock price has appreciated something like 68% per annum over the last two years while our
revenue per share and CFO/Shr have increased by only 25% and 27% per annum respectively. The
divergence between the appreciation in the stock price and the fundamentals prompted us to do an
experiment to see if the multiple expansion could be rationalized (revenue per share and ANI per share
multiples have roughly doubled during that period).
We contacted 8 analysts from the investment banks and brokerage firms that cover CSI and asked them
for their discounted cash flow valuation ("DCF") models.
The analysts also use peer comparisons, market
multiples and other methods as part of their valuation process, so their DCF results don’t entirely explain
their valuations for CSI. Nevertheless, the analysts’ models do tend to highlight their underlying
assumptions about the company. When we examined the average of the analysts’ assumptions for organic
growth, acquired growth, acquisition pricing, cost of capital, margins, tax rates, and terminal growth rates,
we found that we felt reasonably comfortable with most of their assumptions.

The assumptions with which we felt least comfortable were the future cash tax rates and terminal growth rates (both of which
seemed low to us). We adjusted for these changes to create a DCF model consisting of the average of the
analysts assumptions plus a couple of CSI tweaks, which I’ll call the “Consensus Model”. The Consensus
Model generated a stock price that was at a slight premium to the current share price, though without the
margin of safety that we would seek when investing CSI’s capital. The upshot of the exercise was that
one could mathematically justify the current stock price based on assumptions similar to those achieved
by the company in the past.

So we know that based on the assumptions made in 2013, the consensus model shows that their model price approximately matches the share price.

At that time:
- Share price( Dec 31, 2012): $108.09
- Share price( Dec 31, 2013): $208.24
- Share price USD( Dec 31, 2013): $196.10 (1.062 CAD = 1 USD)
- Revenue per share (2013, USD): $57.13
- Multiple of revenue: 3.43x
- Revenue CAGR (2004-2013)= 30%
- Cash flow CAGR (2004-2014)= 30%
- ROIC + Organic Net revenue growth (3 years, 2011-2013): 43, 37, 39

Now:
- Share price (Jan 10, 2020): $ 1356.6
- Share price USD (Jan 10, 2020): $ 1038.25  (1.307 CAD = 1 USD)
- Revenue per share (LTM, USD, 09/30/2019): $158.79
- Multiple of revenue: 6.54x
- Revenue CAGR (2008-2017)= 26%
- Cash flow CAGR (2004-2014)= 31%
- ROIC + Organic Net revenue growth (3 years, 2011-2013): 35, 32, 33

Revenue growth has slowed, from 2018 letter:

Quote
Constellation's Organic Net Revenue growth has averaged only 2% during the last decade.

So organic growth (2008-2017) has been 2% (actually 1.9%), and in the period of 2004-2013 (which the DCF was based off of), it assumed an organic growth rate of 4.9%. How sensitive is the share price to that value? In the 2013 letter:

Quote
Subtract 2.5% from the base line organic growth assumption and you lose almost half the intrinsic value of the stock.

So a subtraction of 3% cuts the intrinsic value of the shares by more than half.

He also thinks that current ROIC is going to continue to drop, from 2017 letter:
Quote
The return on our shareholders’ Average Invested Capital (“ROIC”) dropped to 29% in 2017. The
decrease was a function of a slew of new investments with lower ROIC’s and of our increasing cash
balance. I expect this metric to continue to drop.

He also writes (2013 letter):

Quote
I have difficulty forecasting long-term growth in Constellation’s intrinsic value per share that exceeds
12% per annum


So to return to the same revenue multiple as 2013, we need to drop by roughly 40-50%. Then we adjust 50% again for the 3% drop in organic growth. And then adjust again for potential slipping of ROIC. Then adjust again to account for drop in growth to 12%...where do we end up?

If you think I am a madman for suggesting such a big disconnect between the current share price and their DCF model (even though they wrote it!), consider his discussion of JKHY in the 2015 letter (Section: Great Companies Are Not Always Great Stocks), he writes:

Quote
There’s one last lesson from JKHY that I’d like to share. It relates to you as shareholders. There was a
ten year period during which JKHY’s shares both underperformed the S&P 500 (2000 until 2010) and
didn’t make any money for shareholders. The underperformance vs the S&P 500 was minor …
approximately 1%. JKHY’s revenues per share and ANI per share had compound average annual growth
rates of 14% and 21%, respectively during that decade....
When the market “corrected” the JKHY stock had no margin of safety.
When really good companies start trading at 5 and 6 times revenues, it’s time to start worrying. I hope
our shareholders are never in that position.

Going back to our table, his idea of extreme overvaluation from the 2001 tech bubble is in the range of 5-6x revenue, and CSU is currently trading above that, at 6.54x revenue.

Finally, I will leave you with this piece of wisdom:

Quote
Ideally, we’d like CSI’s stock price to appreciate in tandem with our fundamental economics. At any
point in time, we’d prefer the price to be high enough to discourage a takeover bid and low enough so that
our sophisticated long term oriented investors are not tempted to sell. It takes lots of time and effort to
attract and educate competent shareholder/partners. The last thing we want them to do, is sell.
If a stock is over-priced and sophisticated investors sell, they are generally replaced by unsophisticated
investors who are ultimately disappointed.
This may lead to a stock price that over-corrects and in turn
precipitate either a takeover bid, or more insidiously, a significant and predatory share buyback.
Title: Re: CSU - Constellation Software
Post by: villainx on February 09, 2020, 12:34:52 AM
Quote
Going back to our table, his idea of extreme overvaluation from the 2001 tech bubble is in the range of 5-6x revenue, and CSU is currently trading above that, at 6.54x revenue.


!
Title: Re: CSU - Constellation Software
Post by: peterHK on February 09, 2020, 09:33:50 AM
There are a few issues with this IMO.

1) Since 2010 they've invested an average of 75% of FCFE into acquisitions, and over the past 3 years it's been ~52%. Obviously that number can change and I think somewhere between 50-60% is an appropriate guess for the next 3 to 5 years.

2) We know they reinvest at extremely low multiples and generate at least 25% ROIC on new acquisitions, if not more.

Investing 55% of FCF @ 25% ROIC gets you ~13.75% growth in intrinsic value. Add to that a 2.2% free cash flow to equity yield and you're getting ~15% total returns assuming a constant multiple.

So the question about valuation...

1) in the 2000's the 10-year treasury rate was 6%. Equities (https://www.multpl.com/s-p-500-earnings-yield) traded at a 2% earnings yield, so a -400bps spread to treasuries.

Today the picture is reversed! Arguably, if rates fall in half, multiples assuming constant growth, margins and ROIC, should double, so the 6x sales in t he 2000's should really be 12x sales today.

So I don't think CSU is overvalued in the context of where the market is today. The greatest risk to CSU and frankly any high quality growth equity is that rates go up significantly in a short period of time causing rapid multiple contraction. If rates go from 2 to 4 over say 5 years, the growth in intrinsic value is going to offset the multiple contraction nicely.
Title: Re: CSU - Constellation Software
Post by: snowball82 on February 09, 2020, 05:01:23 PM
One key question is what is the current value if the capital deployment works and they can continue to make 75-100 acquisitions per year ?


Title: Re: CSU - Constellation Software
Post by: Liberty on February 10, 2020, 06:57:36 AM
CSU is expensive now IMO.

What is your estimate of fair value, where would you buy?

We can get this information from the president's letters, which I recommend you read. In 2013, they got their 8 analysts to do DCFs of Constellation Software:




Quote
CSI’s stock price has appreciated something like 68% per annum over the last two years while our
revenue per share and CFO/Shr have increased by only 25% and 27% per annum respectively. The
divergence between the appreciation in the stock price and the fundamentals prompted us to do an
experiment to see if the multiple expansion could be rationalized (revenue per share and ANI per share
multiples have roughly doubled during that period).
We contacted 8 analysts from the investment banks and brokerage firms that cover CSI and asked them
for their discounted cash flow valuation ("DCF") models.
The analysts also use peer comparisons, market
multiples and other methods as part of their valuation process, so their DCF results don’t entirely explain
their valuations for CSI. Nevertheless, the analysts’ models do tend to highlight their underlying
assumptions about the company. When we examined the average of the analysts’ assumptions for organic
growth, acquired growth, acquisition pricing, cost of capital, margins, tax rates, and terminal growth rates,
we found that we felt reasonably comfortable with most of their assumptions.

The assumptions with which we felt least comfortable were the future cash tax rates and terminal growth rates (both of which
seemed low to us). We adjusted for these changes to create a DCF model consisting of the average of the
analysts assumptions plus a couple of CSI tweaks, which I’ll call the “Consensus Model”. The Consensus
Model generated a stock price that was at a slight premium to the current share price, though without the
margin of safety that we would seek when investing CSI’s capital. The upshot of the exercise was that
one could mathematically justify the current stock price based on assumptions similar to those achieved
by the company in the past.

So we know that based on the assumptions made in 2013, the consensus model shows that their model price approximately matches the share price.

At that time:
- Share price( Dec 31, 2012): $108.09
- Share price( Dec 31, 2013): $208.24
- Share price USD( Dec 31, 2013): $196.10 (1.062 CAD = 1 USD)
- Revenue per share (2013, USD): $57.13
- Multiple of revenue: 3.43x
- Revenue CAGR (2004-2013)= 30%
- Cash flow CAGR (2004-2014)= 30%
- ROIC + Organic Net revenue growth (3 years, 2011-2013): 43, 37, 39

Now:
- Share price (Jan 10, 2020): $ 1356.6
- Share price USD (Jan 10, 2020): $ 1038.25  (1.307 CAD = 1 USD)
- Revenue per share (LTM, USD, 09/30/2019): $158.79
- Multiple of revenue: 6.54x
- Revenue CAGR (2008-2017)= 26%
- Cash flow CAGR (2004-2014)= 31%
- ROIC + Organic Net revenue growth (3 years, 2011-2013): 35, 32, 33

Revenue growth has slowed, from 2018 letter:

Quote
Constellation's Organic Net Revenue growth has averaged only 2% during the last decade.

So organic growth (2008-2017) has been 2% (actually 1.9%), and in the period of 2004-2013 (which the DCF was based off of), it assumed an organic growth rate of 4.9%. How sensitive is the share price to that value? In the 2013 letter:

Quote
Subtract 2.5% from the base line organic growth assumption and you lose almost half the intrinsic value of the stock.

So a subtraction of 3% cuts the intrinsic value of the shares by more than half.

He also thinks that current ROIC is going to continue to drop, from 2017 letter:
Quote
The return on our shareholders’ Average Invested Capital (“ROIC”) dropped to 29% in 2017. The
decrease was a function of a slew of new investments with lower ROIC’s and of our increasing cash
balance. I expect this metric to continue to drop.

He also writes (2013 letter):

Quote
I have difficulty forecasting long-term growth in Constellation’s intrinsic value per share that exceeds
12% per annum


So to return to the same revenue multiple as 2013, we need to drop by roughly 40-50%. Then we adjust 50% again for the 3% drop in organic growth. And then adjust again for potential slipping of ROIC. Then adjust again to account for drop in growth to 12%...where do we end up?

If you think I am a madman for suggesting such a big disconnect between the current share price and their DCF model (even though they wrote it!), consider his discussion of JKHY in the 2015 letter (Section: Great Companies Are Not Always Great Stocks), he writes:

Quote
There’s one last lesson from JKHY that I’d like to share. It relates to you as shareholders. There was a
ten year period during which JKHY’s shares both underperformed the S&P 500 (2000 until 2010) and
didn’t make any money for shareholders. The underperformance vs the S&P 500 was minor …
approximately 1%. JKHY’s revenues per share and ANI per share had compound average annual growth
rates of 14% and 21%, respectively during that decade....
When the market “corrected” the JKHY stock had no margin of safety.
When really good companies start trading at 5 and 6 times revenues, it’s time to start worrying. I hope
our shareholders are never in that position.

Going back to our table, his idea of extreme overvaluation from the 2001 tech bubble is in the range of 5-6x revenue, and CSU is currently trading above that, at 6.54x revenue.

Finally, I will leave you with this piece of wisdom:

Quote
Ideally, we’d like CSI’s stock price to appreciate in tandem with our fundamental economics. At any
point in time, we’d prefer the price to be high enough to discourage a takeover bid and low enough so that
our sophisticated long term oriented investors are not tempted to sell. It takes lots of time and effort to
attract and educate competent shareholder/partners. The last thing we want them to do, is sell.
If a stock is over-priced and sophisticated investors sell, they are generally replaced by unsophisticated
investors who are ultimately disappointed.
This may lead to a stock price that over-corrects and in turn
precipitate either a takeover bid, or more insidiously, a significant and predatory share buyback.

Hey, thanks for sharing your thoughts. I'll share some of mine.

Mark Leonard is probably the most financially conservative person in the world. On top of that, he has an incentive in talking down the price of the stock to allow his employees to buy it lower, which is a talent retention tool. He's also said at the AGM that his sales of the stock this year (Mark Miller also said it) were signalling to try to drive down the price of the stock.

Mark used the analyst consensus model because it's probably the less controversial thing to use, but does it mean that the analysts get it right? We can now know with hindsight that they had it totally wrong ever since IPO, by a lot. At almost any time you could've paid double (maybe triple or more, depending on when) what the analysts said was "fair value" and still performed very well.

Also, aggregate organic growth hides a lot. The company is composed of multiple revenue streams that are worth different things. Hardware is worth the least, then professional services, then licenses, and then maintenance/recurring. The latter, which is where most of the value resides, has been growing organically at 4-5%.

Another factor is that they buy distressed assets and runoffs. This makes organic growth seem lower even if these purchases create a lot of value (high IRRs) because they buy them at such low prices and are pretty good at turning them around or at least slowing down the melting and improving margins. Some periods have higher organic growth, maybe because they have fewer distressed assets in the acquisition pool, maybe because it was during the period when they invested more in organic initiatives (they reduced that investment because they found that they got better returns from acquisitions).

Another thing I'd point out is that using multiples of sales can also be very misleading. Not all revenue is the same, right? You won't compare a dollar of revenue of Visa to a dollar of revenue of a grocery store or a profitless startup.

"his idea of extreme overvaluation from the 2001 tech bubble is in the range of 5-6x revenue, and CSU is currently trading above that, at 6.54x revenue."

If a business with no profits and a very uncertain future is trading at 6x revenue, that's very different from a business with high FCF margins, very sticky cashflows, and a very high internal diversification by industry verticals and geography is trading at 6x revenue. The tech bubble took place in a very different context (nascent commercial internet) with different kind of companies (growth at any cost without profits or barriers to entry for most of them).

At a normalized FCF margin of 30% (which isn't too extravagant for this kind of software -- it can seem lower because they keep acquiring things that have lower margins, which has some transaction costs, and then they drive up margins over time), 6x sales is 20x FCF. Is 20x FCF that high for CSU when the SP500 trades where it trades and many other high quality businesses trade at 50x FCF? (look at TYL or MKTX or whatever).

If CSU is supposed to trade at 3x sales, that's like 10x FCF at 30% margins. Or 15x FCF at 20% margins. Does that make sense?

As for the JKHY example, if you go and look, JKHY peaked at 11.5x sales and 38.4x EBITDA in 2000, and yet it only just barely underperformed the SP500 by 1% over the next 10 years. That seems a positive data-point to me. I'd say that we're not in a 2000-like tech bubble right now.

Mark is used to buying VMS at 1-2x sales, so 6x sales sounds very high. But CSU isn't a VMS. These businesses don't have reinvestment opportunities, they are mostly cash cows that grow at maybe 1-2x GDP. CSU has a long-track record of high ROIC re-investment, which makes its cashflows worth a lot more than the cashflows for a single VMS.

As an evergreen buyer of software businesses, I'm sure he's very honest in saying that he thinks prices are too high...

Also, the market has been discovering the economic value of software over the past decade, and valuations have risen generally (as interest rates have been falling, also increasing valuation multiples), which has also been a tailwind to CSU. It doesn't mean it'll keep going, but it can mean that software was undervalued 10 years ago, rather than assume that the valuation 10 years ago was correct (right after the bigger crisis in almost a century, back when the internet was much smaller and the total spend on software was much lower?).

So yeah, ROIC might go down and shareholder returns almost assuredly won't be what they've been, but don't go too far in the other direction and be careful parsing what Mark Leonard says. He's like Buffett saying in 1980 that Berkshire was now way too big and wouldn't outperform like it did. He's eventually right, but it doesn't mean the game is quite over.

The company has been improving its coverage of small deals, expanding to new geographies (more deals in scandinavia, europe, australia, south america, japan) and shown that it can scale up capital deployment (2019 was a great year with no big and few medium deals.. past years that have been close in size all had much bigger deals), and they've become more competitive with larger deals with the use of fenced-off leverage, so we could wake up one morning to a decent-size deal. They've only deployed something like $3bn in acquisitions in their history, so if they ever do a 500m or 750m deal, it'll be a pretty big event.

These are some of my thoughts. I could be wrong, though.
Title: Re: CSU - Constellation Software
Post by: Liberty on February 11, 2020, 08:31:46 AM
More acquisitions:

https://www.bibliocommons.com/news/2020/2/10/bibliocommons-acquired-by-volaris-group

https://www.industrios.com/news/read/ShoplogixAcquiresIndustriOSSoftware,Inc.

As Pearnick says: "Constellation is pushing capital deeper into their business units:

CSU > Vela > FOG > Shoplogix > IndustriOS"

(https://pbs.twimg.com/media/EQggnoyX0AAaLVB?format=jpg&name=900x900)

https://twitter.com/pearnick/status/1227266766046482434?s=20

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on February 13, 2020, 07:03:46 AM
Harris acquisition:

https://www.harriscomputer.com/en/news/?date=1581310800&article=harris-healthcare-group-acquires-doc-tor-com

Quote
N. Harris Computer Corporation’s (“Harris”) healthcare group announced today that it has completed the acquisition of Doc-Tor.Com L.L.C. (“Doc-Tor.com”) of Allendale, NJ. Doc-Tor.com provides an easy-to-use, cloud-based practice management system for physician offices, allowing for efficient and seamless workflow, from scheduling through collections and analytics.

The Doc-Tor.com transaction also included the acquisition by Harris of New Ultimate Billing LLC (“Ultimate Billing”), a full-service revenue cycle management (RCM) provider with 20 years of combined administrative leadership and medical billing experience.

Pearnick writes: "19 employees (16+3)"

https://twitter.com/pearnick/status/1227793664325365761?s=20

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: gary17 on February 13, 2020, 04:06:26 PM
https://www.csisoftware.com/docs/default-source/press-releases/csi---press-release-q4-2019---final.pdf

results are out
Title: Re: CSU - Constellation Software
Post by: Liberty on February 14, 2020, 06:49:50 AM
Finally getting around to looking at CSU Q4. Looks decent to me. A little weak on organic growth, but always hard to know if it's weak or if they just bought more distressed assets lately...  Big swings in licenses and hardware, which can be lumpy.

IFRS 16 accounting makes things less clear for FCFA2S ("using the modified retrospective approach and accordingly the information presented for 2018 has not been restated"), but if you take it into account, looks good.

FY19 acquisitions: "$549 million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $139 million resulting in total consideration of $688 million". And that's with no big acquisitions that year.

Public sector revenue increased 18% in Q4, 15% for FY19.

Private sector revenue increase 9% in Q4, 12% for FY19.

ROIC looking good:

(https://pbs.twimg.com/media/EQvngMmXYAIOjXe?format=jpg&name=4096x4096)

Looks like they did over 90 acquisitions this year, versus about 55 last year. In 2014 they did in the 20s acquisitions during the year, so it's been quite a change in the capital deployment capability. And the ROIC doesn't seem (yet?) to have suffered.

"The Average Invested Capital for 2019 was $2,260 million"
Title: Re: CSU - Constellation Software
Post by: wisowis on February 19, 2020, 05:02:08 PM
Hey, thanks for sharing your thoughts. I'll share some of mine.
....


Thanks Liberty (and others), I appreciate the responses a lot.

You say that Mark Leonard is financially conservative, which I agree with. He knows how to value companies, having built a career on it. And he has told us what he thinks that CSU is worth, and given how much I respect his ability to value companies, I have trouble ignoring it. Thanks for pointing out interest rates, which I forgot (as always) to take into account. For a guy so scared of taking advantage of shareholders that he won't even buyback shares of his company (last line of my last response!), I don't think that his warning bells on valuation are mere posturing. I think he is truly fearful that his shareholders will suffer poor returns, even if he and his team deliver admirable business performance.

For what it's worth, I am bringing up the issue of valuation because I am long this company, bought at a much lower valuation that where it trades today. Somewhere in his letters Mark laments the year that his last critic capitulated. And with the sentiment around the company being so positive, I think some unsophisticated investors have joined the shareholder ranks, as he warns (as an unsophisticated investor myself, I can easily recognize my peers!).

Thanks again, I do appreciate the time you've taken to share your thoughts, cheers.
Title: Re: CSU - Constellation Software
Post by: snowball82 on February 19, 2020, 05:30:41 PM
Vermilion Energy Inc. Selects Omnira MOSAIC Software to Drive Growth

https://www.prnewswire.com/news-releases/vermilion-energy-inc-selects-omnira-mosaic-software-to-drive-growth-301006862.html
Title: Re: CSU - Constellation Software
Post by: Liberty on February 23, 2020, 06:13:26 PM
ACCEO acquisition:

https://acceo.com/en/news/acceo-solutions-inc-a-wholly-owned-subsidiary-of-n-harris-computer-corporation-acquires-solution-icc-technologies/

Quote
ACCEO Solutions Inc. (“ACCEO”), a wholly-owned subsidiary of N. Harris Computer Corporation (“Harris”), announces that it has acquired Informatique Côté Coulombe Inc. (“ICC Technologies”), a developer of high-end enterprise resource planning software offerings for the construction, distribution, retail, and printing sectors.

By joining the ACCEO family, ICC Technologies’ customers will be added to a base of more than 40,000 ACCEO customers, and more than 60,000 North American Harris customers.

This acquisition allows ACCEO to consolidate its position as a leader in management solutions in Quebec and Canada. The addition of ICC Technologies’ solutions to ACCEO’s portfolio expands the range of solutions offered and strengthens its position, particularly for the hardware and building materials industry.

Pearnick: "110+ employees, 800+ clients"

https://twitter.com/pearnick/status/1228707610574163971?s=20
Title: Re: CSU - Constellation Software
Post by: gary17 on February 23, 2020, 07:15:04 PM
given how expensive e this stock is now.  would people sell this given the coronavirus market sell off and buy later
or just hold and buy some more

i have gotten lucky to have held a few winners. but that’s a problem cuz. now i don’t know what to do lol!
Title: Re: CSU - Constellation Software
Post by: Liberty on February 24, 2020, 11:08:00 AM
Jonas acquisition:

https://www.jonassoftware.com/About_Us/Latest_News/Jonas_Software_Acquires_QuickQube

Quote
Jonas Software (“Jonas”) is pleased to announce the acquisition of the intellectual property of QuickQube from Solutions On The Go, LLC..

“We are very excited to continue to invest in the moving and storage industry as this is our third acquisition in the past few years,” explains Peyton Moore, President at EWS Group “Solutions On The Go has been a market leader and successful software company in the moving and storage industry. We are pleased to be able to acquire the QuickQube product, which will complement our existing offerings and drive even greater value to our collective office and industrial moving clients. We are pleased to welcome them to the Jonas family.”

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: sane on February 26, 2020, 08:08:07 AM
2019 acquisitions were at 2.1x P/S compared to 3.0x in 2018.  Seems odd, no?

Source: p.52-54 Shareholder report

4. Business acquisitions
(a) During the year ended December 31, 2019, the Company completed a number of acquisitions for aggregate cash consideration of $549 plus cash holdbacks of $102 and contingent consideration with an estimated fair value of $37 resulting in total consideration of $688.

b) The 2019 business acquisitions contributed revenue and net income of $267 and $3 during the year ended December 31, 2019. If these acquisitions had occurred on January 1, 2019, the Company estimates that consolidated revenue would have been $3,816 and consolidated net income for the year ended December 31, 2019 would have been $314 as compared to the amounts reported in the statement of income for the same period. In determining these amounts, the Company has assumed that the fair values of the net assets acquired that were estimated and accounted for on the dates of acquisition would have been the same as if the acquisitions had occurred on January 1, 2019. The net income from acquisitions includes the associated amortization of acquired intangible assets recognized as if the acquisitions had occurred on January 1, 2019.
Title: Re: CSU - Constellation Software
Post by: Liberty on February 26, 2020, 09:12:09 AM
2019 acquisitions were at 2.1x P/S compared to 3.0x in 2018.  Seems odd, no?

Source: p.52-54 Shareholder report

4. Business acquisitions
(a) During the year ended December 31, 2019, the Company completed a number of acquisitions for aggregate cash consideration of $549 plus cash holdbacks of $102 and contingent consideration with an estimated fair value of $37 resulting in total consideration of $688.

b) The 2019 business acquisitions contributed revenue and net income of $267 and $3 during the year ended December 31, 2019. If these acquisitions had occurred on January 1, 2019, the Company estimates that consolidated revenue would have been $3,816 and consolidated net income for the year ended December 31, 2019 would have been $314 as compared to the amounts reported in the statement of income for the same period. In determining these amounts, the Company has assumed that the fair values of the net assets acquired that were estimated and accounted for on the dates of acquisition would have been the same as if the acquisitions had occurred on January 1, 2019. The net income from acquisitions includes the associated amortization of acquired intangible assets recognized as if the acquisitions had occurred on January 1, 2019.

Seems to me like that's in good part a factor of size. In 2018 they had Acceo, which was probably at a higher multiple (but they used some leverage on it). 2019 they had no large transactions, so more small ones that tend to be at lower multiples.
Title: Re: CSU - Constellation Software
Post by: sane on February 27, 2020, 07:36:37 AM
Makes sense, thanks Liberty.
Title: Re: CSU - Constellation Software
Post by: Liberty on February 27, 2020, 08:30:02 AM
Three new acquisitions:

Jonas:

https://www.jonassoftware.com/About_Us/Latest_News/Jonas_Software_Acquires_Club_Caddie_Inc

Quote
Club Caddie was founded by enterprising Golf Course operators as an answer to their needs to manage all of the challenges of running a profitable golf operations in today’s market.

Volaris:

https://www.volarisgroup.com/news/article/volaris-group-acquires-MUSAC

Quote
acquisition of MUSAC Limited. (“MUSAC”), a leading provider of school and library management solutions for New Zealand schools. MUSAC represents Volaris’ seventh acquisition in the Education vertical and its fifth education software acquisition in the Australasia region.

Perseus:

https://www.prweb.com/releases/constellation_web_solutions_acquires_enterprise_business_from_web_com/prweb16942703.htm

Quote
Enterprise Online, formerly known as Web.com for Enterprise, provides customized digital marketing solutions that scale to solve the unique challenges of franchised, multi-location and networked businesses. Enterprise Online has worked with over 10,000 franchise locations and 150 national brands, empowering them with the online marketing tools they need to grow. Enterprise Online provides market leading websites, digital marketing services including search engine marketing, media buying and spend-optimization, analytics, and digital marketing platforms tailor made for franchise, multi-location and large enterprise clients.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on March 01, 2020, 06:18:40 AM
AGM is official for May 8:

https://www.globenewswire.com/news-release/2020/02/28/1992984/0/en/Constellation-Software-Inc-Announces-Annual-General-Meeting.html

Update: New acquisition at Vela:

https://www.quadient.com/news/Quadient-announces-the-sale-of-ProShip

Quote
Quadient, formerly Neopost[1], a leader in helping businesses create meaningful customer connections through digital and physical channels, today announced the sale of its subsidiary, ProShip, a global provider of automated multi-carrier shipping software, to FOG Software Group, a division of Constellation Software, Inc,  a company listed in Toronto (TSX: CSU).

"a leader in enterprise parcel shipping solutions"

Selling price: USD 15 million

"ProShip has about 100 employees"

https://twitter.com/pearnick/status/1234492988895715328?s=20

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: thefatbaboon on March 03, 2020, 01:21:00 AM
given how expensive e this stock is now.  would people sell this given the coronavirus market sell off and buy later
or just hold and buy some more

i have gotten lucky to have held a few winners. but that’s a problem cuz. now i don’t know what to do lol!

I think gary has a valid question here.

Simplistically:

Shares outstanding: 21.2m
Share price: CAD1373 , USD1028
Market Cap: USD 21.8bn

FCF 2019: USD 590m
Trailing FCF yield: 2.7%

2019 Maintenance Organic Public g: 2%
2019 Maintenance Organic Private g: 1%
2019 Wgtd Avg Org Growth: 1.6%

Assume that that is fair, that it is reasonable to expect a valuation at 2.7%. Assume also an improved organic growth of 2%. And that all FCF is used for acquisitions. 

How much return does a shareholder want from this business?  I would say minimum is 10%, no?  So that means the market cap has to add $2.18bn in value this year. and more each year going forward.

Existing business: $21.8bn is worth 2% more next year through organic growth: this adds +$430m of market cap value.
Still have to find $1.75bn of market cap...and the only way to do that is acquisition. Last year they acquired $688m of new businesses (including deferred payments).

Is it reasonable to expect that what they buy is immediately and predictably worth 2.5 times their cost, year after year?

I would hate to bet against this business and feel horrible closing a successful and enjoyable long but I think the valuation here requires a real leap of faith. A combination of the following three possibilities would help:

1.) Organic growth (of the key maintenance lines) picks back up to msd.
2.) The acquisition funnel that produced $688m of acquisitions ( about 10% more than in 2018). Ramps up faster without a diminution in quality.
3.) They find a large, one-off value enhancing acquisition.
Title: Re: CSU - Constellation Software
Post by: Liberty on March 03, 2020, 07:02:03 AM
New ones in Autralia by Vela:

https://velasoftwaregroup.com/vela-software-acquires-foresiight/

Quote
Vela Software Group announced today that it has acquired the shares of Foresiight Software Pty Ltd (“Foresiight”), trading through its subsidiary Vela Australia. Established in 1981, Foresiight Pty Ltd is an Australian software company that integrates point of sale, accounting, stock control and mobile commerce applications with their solutions ProfiitPlus, Alchemii and Liinc. Foresiight focus on a number of different industries such as Building & Hardware, Pharmacy, Tools & Industrial and Automotive.

Also: https://interica.com/petrosys-announces-acquisition-of-interica/

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: gary17 on March 03, 2020, 09:31:52 AM
given how expensive e this stock is now.  would people sell this given the coronavirus market sell off and buy later
or just hold and buy some more

i have gotten lucky to have held a few winners. but that’s a problem cuz. now i don’t know what to do lol!

I think gary has a valid question here.

Simplistically:

Shares outstanding: 21.2m
Share price: CAD1373 , USD1028
Market Cap: USD 21.8bn

FCF 2019: USD 590m
Trailing FCF yield: 2.7%

2019 Maintenance Organic Public g: 2%
2019 Maintenance Organic Private g: 1%
2019 Wgtd Avg Org Growth: 1.6%

Assume that that is fair, that it is reasonable to expect a valuation at 2.7%. Assume also an improved organic growth of 2%. And that all FCF is used for acquisitions. 

How much return does a shareholder want from this business?  I would say minimum is 10%, no?  So that means the market cap has to add $2.18bn in value this year. and more each year going forward.

Existing business: $21.8bn is worth 2% more next year through organic growth: this adds +$430m of market cap value.
Still have to find $1.75bn of market cap...and the only way to do that is acquisition. Last year they acquired $688m of new businesses (including deferred payments).

Is it reasonable to expect that what they buy is immediately and predictably worth 2.5 times their cost, year after year?

I would hate to bet against this business and feel horrible closing a successful and enjoyable long but I think the valuation here requires a real leap of faith. A combination of the following three possibilities would help:

1.) Organic growth (of the key maintenance lines) picks back up to msd.
2.) The acquisition funnel that produced $688m of acquisitions ( about 10% more than in 2018). Ramps up faster without a diminution in quality.
3.) They find a large, one-off value enhancing acquisition.

Thanks!
well,   thanks for the Fed, the risk free rate is now lower.
you can buy 10 year us bonds for 1% yield.... P/E of 100 for an asset that has no ability to increase earnings for 10 years.    CSU at present P/E seems like a better bet!
Title: Re: CSU - Constellation Software
Post by: Liberty on March 19, 2020, 12:19:57 PM
Volaris acquisition:

https://www.volarisgroup.com/news/article/volaris-group-acquires-Collab

Quote
"mission critical multi-media Contact Center solutions"

500+ customers
35,000+ call center agents on the system
104 employees (Linkedin)

"“We have been talking with Volaris regularly since 2017"

https://twitter.com/pearnick/status/1240718924880232452?s=20

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on March 26, 2020, 05:10:48 PM
AGM on May 8 to be streamed:

https://www.globenewswire.com/news-release/2020/03/26/2007332/0/en/Constellation-Software-Inc-Announces-Change-to-Annual-General-Meeting-Format.html
Title: Re: CSU - Constellation Software
Post by: chrispy on March 27, 2020, 08:18:03 AM
I can now attend! Thanks for the info
Title: Re: CSU - Constellation Software
Post by: Cox022 on March 27, 2020, 09:18:54 AM
Anyone have an informed point of view to share about how the business does in a situation like this?

I don't have the source at my fingertips (it's probably in a letter), but I recall the company saying that business owners were not eager to sell their businesses in the 08/09 downturn. 

I don't view this as a cause for concern, that's just what I have to contribute to the conversation.

Thanks peeps.
Title: Re: CSU - Constellation Software
Post by: Liberty on March 27, 2020, 02:23:39 PM
Anyone have an informed point of view to share about how the business does in a situation like this?

I don't have the source at my fingertips (it's probably in a letter), but I recall the company saying that business owners were not eager to sell their businesses in the 08/09 downturn. 

I don't view this as a cause for concern, that's just what I have to contribute to the conversation.

Thanks peeps.

I don’t think they’ll necessarily get a ton more very small ones, but they might get some big distressed ones. Carve outs from bigger companies, f.ex. And valuations generally might get better, weaker competitors might suffer more, letting them gain or buy them out eventually.
Title: Re: CSU - Constellation Software
Post by: Liberty on April 02, 2020, 05:51:39 PM
https://www.globenewswire.com/news-release/2020/04/02/2010411/0/en/Constellation-Software-Announces-a-Change-to-its-Board-of-Directors.html
Title: Re: CSU - Constellation Software
Post by: Liberty on April 03, 2020, 05:51:24 AM
Acquisition by the Real Estate group:

https://www.prweb.com/releases/constellation1_acquires_real_estate_tech_pioneer_virtual_properties/prweb16915381.htm
Title: Re: CSU - Constellation Software
Post by: Liberty on April 09, 2020, 07:32:11 AM
Three new acquisitions:

https://www.contronics.co.uk/news-articles/jonas-software-acquisition-of-contronics-ltd/

https://www.totalspecificsolutions.com/about-us/transaction-updates?tid=54

https://blog.kuriertecnologia.com.br/vela-software-gigante-do-grupo-canadense-constellation-adquire-kurier/

Via @pearnick: https://twitter.com/pearnick/status/1248230469738606593?s=20
Title: Re: CSU - Constellation Software
Post by: Liberty on April 17, 2020, 08:10:33 AM
New one at Vela:

https://optitex.com/optitex-acquired-by-constellation-software/

Quote
"Fashion design software developer"

Optitex was acquired by EFI in 2016 for a "maximum purchase price of $52.8M". EFI was then acquired by PE firm Siris Capital for $1.7B in July 2019.

144 employees

h/t @pearnick

https://twitter.com/pearnick/status/1251165506301820929?s=20
Title: Re: CSU - Constellation Software
Post by: smartone on April 22, 2020, 12:01:26 PM
Thanks Liberty for always keeping us updated on CSU
Title: Re: CSU - Constellation Software
Post by: Pauly on April 22, 2020, 12:25:00 PM
Just going by CSU's stock price you wouldn't know that the world is in chaos. I thought I might get a chance to pick this up at a discount but it refuses to go down. Is anyone buying or selling this here?
Title: Re: CSU - Constellation Software
Post by: chrispy on April 22, 2020, 03:55:14 PM
Just holding tight.
Title: Re: CSU - Constellation Software
Post by: Liberty on April 27, 2020, 10:13:57 AM
New acquisition at Vela:

https://www.fogsoftwaregroup.com/fog-software-group-acquires-efi-fiery-designpro-generation-digital-now-rebranded-aquario-design/

Quote
Aquario Design will operate as an independent business within FOG’s Apparel and Textile Technologies portfolio. This acquisition now brings three best-in-class textile and fashion technologies—NedGraphics, Optitex, and Aquario Design—under the same parent company. Here they will have the opportunity to work collaboratively to improve the customer experience while offering a range of design solutions that align with market needs.

Aquario Design’s software enables fashion designers to quickly and easily create, visualize, and produce production-ready textiles from designs created in Adobe Creative Cloud programs. As part of the FOG Software Group, Aquario will focus on expanding its core product functionality while maintaining the exceptional customer support that has enabled its growth to date. “We earned our position in the industry as one of the leading textile and fashion solutions by leveraging our experience as designers, and by working closely with our customers,” said Matt Forman, President of Aquario Design. “This acquisition only enhances our ability to serve designers all over the world.”

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on May 04, 2020, 11:30:09 AM
New acquisition by TSS:

http://ir.stratec.com/websites/stratec/English/2100/news-detail.html?newsID=1956447

Quote
TSS acquired STRATEC's Data Solutions business unit (Germany)

"STRATEC Data Solutions is one of the world’s leading software development companies for laboratory data management and analyzer communications."

5,000 worldwide installations

h/t @pearnick

https://twitter.com/pearnick/status/1257376379370377218
Title: Re: CSU - Constellation Software
Post by: FiveSigma on May 07, 2020, 02:06:49 PM
Q1 results are out:

https://www.globenewswire.com/news-release/2020/05/07/2030020/0/en/Constellation-Software-Inc-Announces-Results-for-the-First-Quarter-Ended-March-31-2020-and-Declares-Quarterly-Dividend.html
Title: Re: CSU - Constellation Software
Post by: Liberty on May 07, 2020, 04:41:24 PM
FCF up 24%, tiny impairment of 5m (guessing some businesses they recently bought in the most impacted verticals (hotels, restaurants, travel?). Looks like it's chugging along...

The online AGM will be tomorrow morning (8 AM EST), for those who want to take part:

https://www.csisoftware.com/category/press-releases/2020/03/26/constellation-software-inc-announces-change-to-annual-general-meeting-format

Update: Meeting has started.
Title: Re: CSU - Constellation Software
Post by: walnut on May 11, 2020, 12:17:30 PM
A worthwhile read on thinking about Constellation-type serial acquirers:  https://twitter.com/willschoebs/status/1259482657798402048
Title: Re: CSU - Constellation Software
Post by: dutchman on May 11, 2020, 04:48:03 PM
is there a recording of the meeting anywhere?
Thank you
Title: Re: CSU - Constellation Software
Post by: PJM on May 12, 2020, 01:38:00 AM

"his idea of extreme overvaluation from the 2001 tech bubble is in the range of 5-6x revenue, and CSU is currently trading above that, at 6.54x revenue."

If a business with no profits and a very uncertain future is trading at 6x revenue, that's very different from a business with high FCF margins, very sticky cashflows, and a very high internal diversification by industry verticals and geography is trading at 6x revenue. The tech bubble took place in a very different context (nascent commercial internet) with different kind of companies (growth at any cost without profits or barriers to entry for most of them).

At a normalized FCF margin of 30% (which isn't too extravagant for this kind of software -- it can seem lower because they keep acquiring things that have lower margins, which has some transaction costs, and then they drive up margins over time), 6x sales is 20x FCF. Is 20x FCF that high for CSU when the SP500 trades where it trades and many other high quality businesses trade at 50x FCF? (look at TYL or MKTX or whatever).

If CSU is supposed to trade at 3x sales, that's like 10x FCF at 30% margins. Or 15x FCF at 20% margins. Does that make sense?

As for the JKHY example, if you go and look, JKHY peaked at 11.5x sales and 38.4x EBITDA in 2000, and yet it only just barely underperformed the SP500 by 1% over the next 10 years. That seems a positive data-point to me. I'd say that we're not in a 2000-like tech bubble right now.

Mark is used to buying VMS at 1-2x sales, so 6x sales sounds very high. But CSU isn't a VMS. These businesses don't have reinvestment opportunities, they are mostly cash cows that grow at maybe 1-2x GDP. CSU has a long-track record of high ROIC re-investment, which makes its cashflows worth a lot more than the cashflows for a single VMS.


Hi - Was just going through this thread while reading Mark's letters. How did you get 30% FCF Margin? Yes you are right that 30% FCF margin is not extravagant in software business but historically CSU has been around 20% margin and given very low or negative top line organic growth, how do you expect CSU to increase the FCF Margin, also considering the fact that most units are run independently without trying to do any cost rationalisation? Thanks
Title: Re: CSU - Constellation Software
Post by: Liberty on May 12, 2020, 04:29:05 AM

"his idea of extreme overvaluation from the 2001 tech bubble is in the range of 5-6x revenue, and CSU is currently trading above that, at 6.54x revenue."

If a business with no profits and a very uncertain future is trading at 6x revenue, that's very different from a business with high FCF margins, very sticky cashflows, and a very high internal diversification by industry verticals and geography is trading at 6x revenue. The tech bubble took place in a very different context (nascent commercial internet) with different kind of companies (growth at any cost without profits or barriers to entry for most of them).

At a normalized FCF margin of 30% (which isn't too extravagant for this kind of software -- it can seem lower because they keep acquiring things that have lower margins, which has some transaction costs, and then they drive up margins over time), 6x sales is 20x FCF. Is 20x FCF that high for CSU when the SP500 trades where it trades and many other high quality businesses trade at 50x FCF? (look at TYL or MKTX or whatever).

If CSU is supposed to trade at 3x sales, that's like 10x FCF at 30% margins. Or 15x FCF at 20% margins. Does that make sense?

As for the JKHY example, if you go and look, JKHY peaked at 11.5x sales and 38.4x EBITDA in 2000, and yet it only just barely underperformed the SP500 by 1% over the next 10 years. That seems a positive data-point to me. I'd say that we're not in a 2000-like tech bubble right now.

Mark is used to buying VMS at 1-2x sales, so 6x sales sounds very high. But CSU isn't a VMS. These businesses don't have reinvestment opportunities, they are mostly cash cows that grow at maybe 1-2x GDP. CSU has a long-track record of high ROIC re-investment, which makes its cashflows worth a lot more than the cashflows for a single VMS.


Hi - Was just going through this thread while reading Mark's letters. How did you get 30% FCF Margin? Yes you are right that 30% FCF margin is not extravagant in software business but historically CSU has been around 20% margin and given very low or negative top line organic growth, how do you expect CSU to increase the FCF Margin, also considering the fact that most units are run independently without trying to do any cost rationalisation? Thanks

Steady state margin would likely be in that range. Margin is depressed by acquisitions because it takes time for their margin to be brought up after acquisition (they do cost rationalization and implement best practices and sometimes get rid of low value things like hardware sales or consulting), plus acquisition costs.
Title: Re: CSU - Constellation Software
Post by: Liberty on May 18, 2020, 07:54:10 AM
Acquisition in Spain by TSS:

https://www.totalspecificsolutions.com/about-us/transaction-updates?tid=57

Quote
Spyro, one of the leading suppliers of software solutions for the Spanish manufacturing vertical, has joined Total Specific Solutions (‘TSS’). This is the second company in Spain to join the European VMS group, following Ofimática, and the third in the industry vertical.

The VMS company Spyro has a flagship software product for industry and specifically for the machine tooling and metal casting sectors. Their core product is an ERP solution called Spyro, which is a multifunctional suite covering the strategic, production, management, and support processes for the industrial sector. Spyro ERP gives clients further control over the entire supply chain, helping them manage the operational processes as well. And it provides online mobile add-ons for direct access and ease of use.

"65 employees
250+ customers
35 years"

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on May 19, 2020, 12:44:13 PM
Perseus acquisition in the US, consolidating two competitors:

https://www.tune.com/blog/new-ownership-expands-tunes-market-position/

Quote
TUNE is the second acquisition in performance marketing under the Perseus Operating Group within Constellation. You might recall that the first was CAKE last year, TUNE’s longest-standing rival in affiliate software. We have often considered what a merger or consolidation might look like with CAKE, and now we’ll be joining forces with the backing of a major acquirer behind us. While TUNE and CAKE have different approaches to the market, we have an incredible amount of learnings, opportunities, and efficiencies we can now share. Combining this know-how, our market share, and plans for more acquisitions in performance marketing, I believe we’ll be able to deliver better, more sustainable software for our customers than ever before. Needless to say, TUNE and CAKE playing on the same team is a really big deal to those that know our ecosystem, and I can’t wait to see many more acquisitions on the horizon.   

"LinkedIn shows 166 employees"

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on May 20, 2020, 04:43:53 AM
TSS combining with Topicus:

https://www.globenewswire.com/news-release/2020/05/20/2036291/0/en/Constellation-Software-Inc-Reaches-Agreement-to-combine-its-TSS-Operating-Group-With-Topicus-com-to-form-a-new-Operating-Group.html

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to purchase 100% of the shares of Topicus.com B.V. (“Topicus”), a Netherlands-based diversified vertical market software provider. 

Once the transaction is completed, TSS and Topicus will operate together under the operating group name “Topicus.com”. Under the guidance of Constellation, Topicus.com intends to explore opportunities for a future public listing of its shares.  Pursuant to such listing, it is anticipated that Constellation would remain a significant shareholder of Topicus.com, and that the current Constellation shareholders would be entitled to receive, pro rata and via dividend, common shares in Topicus.com.

The purchase of Topicus will be financed with TSS’ cash on hand and its existing revolving line of credit and requires no funding from Constellation.  Consideration will be in the form of a cash payment plus the issuance to the Seller of approximately 9% of the shares of the new operating group Topicus.com (the merged TSS and Topicus economic entity).   Annual gross revenues of Topicus for 2019 were approximately €101M and total tangible assets at December 31, 2019 were approximately €7M.  Topicus employs approximately 1,000 employees (870 full time equivalents).   The transaction is currently expected to close in 2020, subject to the satisfaction of certain standard closing conditions including clearance from the Dutch Competition Authority.

Mark's funny:

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Mark Leonard, President of Constellation, said: “I cannot think of another vertical market software company that has achieved Topicus' size without using outside shareholder funding.  I look forward to spending more time with the Topicus founders as travel becomes easier.  I'm an old dog, but I'm certain that they have new tricks to teach me. More importantly, they have experience and practices that can benefit all of the Constellation operating groups.
Title: Re: CSU - Constellation Software
Post by: Liberty on May 20, 2020, 06:28:25 AM
CSU CFO told me about the Topicus listing: "We are still working on this, but will definitely list on a Canadian exchange." (also told me I could share the info)
Title: Re: CSU - Constellation Software
Post by: Jurgis on May 20, 2020, 06:46:19 AM
CSU CFO told me about the Topicus listing: "We are still working on this, but will definitely list on a Canadian exchange." (also told me I could share the info)

You'll have to create another topic for it then.  8)
Title: Re: CSU - Constellation Software
Post by: Liberty on May 20, 2020, 06:54:34 AM
CSU CFO told me about the Topicus listing: "We are still working on this, but will definitely list on a Canadian exchange." (also told me I could share the info)

You'll have to create another topic for it then.  8)

Create a new... TOPICUS  8)

 :-X
Title: Re: CSU - Constellation Software
Post by: LC on May 20, 2020, 07:28:55 AM
CSU CFO told me about the Topicus listing: "We are still working on this, but will definitely list on a Canadian exchange." (also told me I could share the info)

You'll have to create another topic for it then.  8)

Create a new... TOPICUS  8)

 :-X

Incredible how a history of years of quality contribution....can be evaporated in one comment.  ;D

More to the point. I want to own CSU. How do you suggest thinking about valuation? Obviously it is very acquisition heavy. Do we have a sense of how acquired companies are performing over time? I think the software roll up biz is a good one. Also one other item is, how do you think about Leonard's age in terms of key man risk?
Title: Re: CSU - Constellation Software
Post by: Liberty on May 20, 2020, 08:50:43 AM
Incredible how a history of years of quality contribution....can be evaporated in one comment.  ;D

¯\_(ツ)_/¯

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More to the point. I want to own CSU. How do you suggest thinking about valuation? Obviously it is very acquisition heavy. Do we have a sense of how acquired companies are performing over time? I think the software roll up biz is a good one. Also one other item is, how do you think about Leonard's age in terms of key man risk?

Have you read this thread? I think these points have been discussed.. I'd also recommend the president's letters and the transcripts of the AGMs. It all helps think about what the company is worth, which you can then compare to the price the market is asking for it vs your own personal hurdle.
Title: Re: CSU - Constellation Software
Post by: LC on May 20, 2020, 09:14:45 AM
I've followed the thread lightly over the years and yes valuation methodology has been discussed in the past, was wondering if your perspective has changed in the recent year or so.
Title: Re: CSU - Constellation Software
Post by: Liberty on May 20, 2020, 09:17:03 AM
I've followed the thread lightly over the years and yes valuation methodology has been discussed in the past, was wondering if your perspective has changed in the recent year or so.

Not really changed too much. I'm glad to see the progress of the KYC and decentralization of capital deployment experiments, and of geographical expansion into new areas. How that works out will have an impact on valuation, so it's something to track.
Title: Re: CSU - Constellation Software
Post by: arcube on May 20, 2020, 09:28:47 AM
CSU CFO told me about the Topicus listing: "We are still working on this, but will definitely list on a Canadian exchange." (also told me I could share the info)

How much do you think CSU owners will hold in the the spinoff entity?
Title: Re: CSU - Constellation Software
Post by: Liberty on May 20, 2020, 04:40:10 PM
Interview with CEO of Topicus (in Dutch, can use Google Translate):

https://managementscope.nl/magazine/artikel/1371-daan-dijkhuizen-topicus-semipublieke-sector

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The corona crisis also gives the company the wind in its sails. Ceo Daan Dijkhuizen: 'In a week, the number of users rose to a number that we hoped to reach in 2025.'

No, the reason for the crowds is that there is a lot of demand now for the applications, platforms and systems that the company has developed in recent years for government, healthcare and education. Topicus is also a service provider to RIVM, the government body that fights the pandemic caused by the coronavirus. For example, Topicus is building a platform that must record, analyze and merge research information from seven laboratories. The aim is to test approximately 500,000 healthcare workers, after which the test group may be expanded. Such semi-public assignments require great haste.   

The company has increased tenfold in the number of employees over the past ten years and is therefore the fastest growing employer in Overijssel.
decentralized structure of the company: employees form groups of seven to ten people, each with a relatively independent market focus. The groups are free to develop and exploit their own products - the pioneers also have the opportunity to take an interest.

With an average employment of eight years, the company turns out to be an attractive employer.

Take our video service Spreekuur.nl, which makes digital appointments with your GP possible. Since the quarantine, that service, which was intended to be used especially during evening shifts at the out-of-hours GP post, has often been used in the day shift.

Take our product Gynzy, an online platform where primary school students can practice core subjects. In recent years we have had to make a lot of effort to have 50,000 children on that platform. Now we saw the number of users increase from 50,000 to 300,000 students in a week, a number that we hoped to reach in 2025.

Parro, our messaging application for education linked to the education administration system ParnasSys, processed about 300,000 messages every ten minutes up to the quarantine measures. Now more than a million messages are sent every ten minutes.

Until the outbreak of COVID-19, acquisition around Gynzy meant for us that we went school after school to talk to the most digitally skilled teacher. Primary schools are simply organized locally. Acquiring customers was slow - around 14 percent of primary schools used our software. Now demand is increasing rapidly, towards 50 percent of primary schools.

In 2015, the company had 47 cells with 37 different company names. This caused problems with customers, who could be approached individually by our cells and subsequently discovered that they were contacting one and the same company. To avoid that kind of inconvenience, we have centralized more and adopted Topicus as the umbrella name.

The question of what an appropriate degree of centralization is for us has been a source of debate every day ever since. The balance between central and local needs permanent maintenance with us

 In the company, 25 employees - some of whom are responsible for our products ParnasSys and Somtoday - have an equity interest in their cells. Such a co-investment usually arises as an internal startup, from an idea of one of our employees. From that idea a product can emerge, which can become a company again. If we believe in this, the initiator will have a chance to build capital with it. We take care of the financing.

Via https://twitter.com/ErnestWongBWM/status/1263214769873575937?s=20
Title: Re: CSU - Constellation Software
Post by: chrispy on May 21, 2020, 12:06:46 PM
I finally got to catch up on this - exciting development.  Sounds like a great organization
Title: Re: CSU - Constellation Software
Post by: Liberty on May 21, 2020, 12:57:57 PM
Pearnick has found more good stuff on Topicus, I'll just post a link to his thread here:

https://twitter.com/pearnick/status/1263554441451646976
Title: Re: CSU - Constellation Software
Post by: gary17 on May 21, 2020, 01:42:03 PM
This feels like a good acquisition to me.
Title: Re: CSU - Constellation Software
Post by: villainx on May 21, 2020, 07:07:18 PM
This feels like a good acquisition to me.

This is a big-ish acquisition?  Like needle moving type?
Title: Re: CSU - Constellation Software
Post by: Liberty on May 22, 2020, 05:25:10 AM
This feels like a good acquisition to me.

This is a big-ish acquisition?  Like needle moving type?

We don’t have the exact financials, but it’s likely their biggest deal since TSS, and this sounds like a faster organic grower than their usual.
Title: Re: CSU - Constellation Software
Post by: chrispy on May 22, 2020, 07:21:57 AM
and more dutchies, lets gooo
Title: Re: CSU - Constellation Software
Post by: stockkevin on May 23, 2020, 04:21:09 PM
Still a good buy at these prices? What's the probability this will double in the next 3 years?
Title: Re: CSU - Constellation Software
Post by: Liberty on May 28, 2020, 09:23:46 AM
New acquisition by HomeBuilder (Perseus):

https://www.prnewswire.com/news-releases/constellation-homebuilder-systems-acquires-landdev-a-leading-system-for-real-estate-land-developers-301066540.html

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acquired LandDev, a leading cloud-based software system for commercial and residential real estate land developers. With many of its most notable customers already using LandDev, the acquisition will allow Constellation HomeBuilder Systems to expand deeper into the construction process.

"Zoominfo shows 29 employees (Leverance Inc)"

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on June 03, 2020, 03:32:26 AM
Board additions:

https://www.csisoftware.com/category/press-releases/2020/06/02/constellation-software-announces-appointments-to-its-board-of-directors

Also, TSS FY19:

https://twitter.com/karstwiggers/status/1268118975403175937?s=21
Title: Re: CSU - Constellation Software
Post by: Liberty on June 04, 2020, 06:18:15 AM
TSS acquisition in France:

https://www.totalspecificsolutions.com/about-us/transaction-updates?tid=61

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Tribofilm, a company that delivers Computerized Maintenance Management Systems (CMMS) for leading manufacturing customers and local governments in France, has joined Total Specific Solutions (TSS). This is the seventh company in France to join the European VMS group.

CMMS solutions provide daily assistance to the maintenance service staff in their job to sustain the infrastructure in the best possible way. Tribofilm has over 25 years of experience in this domain, and its portfolio includes Progilub, one of the first in lubrication management software solutions, and Mainti4, a maintenance management solution. Their suite consists of made-to-measure modules and applications that are fully adaptable to the customers’ needs, internal structures, and the IT equipment. Tribofilm is active in local government and several industrial sectors, from small local authorities to large corporations.

"300 customers
1,000 locations
15,000+ users
20 countries translated into 8 languages

23 employees, growing and profitable"

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on June 05, 2020, 06:20:41 AM
First acquisition in Uruguay, by Vela:

https://velasoftwaregroup.com/vela-software-acquires-infocorp/

H/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on June 10, 2020, 08:01:44 AM
Volaris acquisition in Israel:

https://www.globenewswire.com/news-release/2020/06/10/2046292/0/en/Volaris-Group-Signs-Agreement-to-Acquire-Flash-Networks-Ltd-Looks-to-Expand-Position-in-Communications-Media-Vertical.html

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its fifteenth acquisition in the Communications and Media vertical with Flash Networks Ltd (“Flash”), subject to a closing process to comply with regulatory requirements in Israel. Flash is a provider of optimization solutions that enable telecommunications operators to improve Radio Access Network spectral efficiency, boost network speed, optimize video and web traffic, and generate over-the-top revenues from the mobile internet.

Founded in 1996 in Herzliya Israel, with a heritage in TCP/IP network performance, Flash launched in 2007 its Harmony platform designed to create a fast, safe, adaptive and personalized user experience while harmonizing network infrastructure.  Since then, Flash has accumulated customers globally across 5 continents.

We have been talking with Volaris regularly since 2016 and we are now convinced they are the best home for Flash as they are able to provide access to their global communications customer and partner ecosystem. Flash continues to operate autonomously, leveraging Volaris’ extensive experience, best practices and financial resources to enable us to grow sustainably and entertain future M&A of our own,” said Tomer Itah, CEO of Flash. “A key element to our decision is the Volaris unique acquisition principle of ‘buy and hold forever’ as well as their commitment to allowing us to maintain our corporate identity and accelerate the brand we have worked so hard to build over 2+ decades in the market,” added Liam Galin, Chairman of the Board and former CEO.

Today, Flash’s customer base includes global tier 1 telecommunications operators, Globe Telecom, Verizon, T-Mobile, Safaricom, Vodafone and Orange.

h/t @pearnick
Title: Re: CSU - Constellation Software
Post by: Liberty on June 29, 2020, 06:14:25 AM
Harris acquisition:

https://www.harriscomputer.com/en/news/?date=1592452800&article=harris-expands-its-utilities-portfolio-with-the-acquisition-of-silverblaze

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Headquartered in Ontario, Canada, SilverBlaze specializes in providing self-service portal and intelligent form software to electric, water, gas, telecom, and multi-service utility companies throughout Canada, the United States, and the Caribbean.

"LinkedIn shows 18 employees"

h/t @pearnick