Constellation Software Deep Dive

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Best business in the world?

How about a provider of a service that absent of which the business stops functioning entirely and only charges a small fraction of the overall cost base for it? Add in that the service isn’t just mission critical, but usually customized on the client’s dollar with both companies having their employees collaborate for months (or years) in order to get the product right. Not to mention that a material portion of the client’s employee base is trained to use the service on a day-to-day basis. Layer in such a small TAM that it only accommodates a couple players at most, thus not just avoiding the interest of larger players, but making it economically untenable for them to spend their way in to gain share.

This is the Vertical Market Software (VMS) business. A business that epitomizes customer stickiness and barriers to entry.

The problem though? 

The average VMS business may generate just $5mn in revenue, making it hard to utilize a meaningful amount of shareholder capital. 

Mark Leonard came up with a solution: a holding company that acquires as many VMS businesses as humanly possible and lets them run autonomously. Then push the capital allocation process down as much as possible so there are hundreds of employees looking to deploy capital attractively through acquisitions. The shareholders benefit by owning evermore competitively advantaged businesses, while continuing to deploy their incremental capital at high ROICs. 

This is the Constellation Software formula. 

With the stock having compounded in excess of 30% annually for almost two decades, this isn’t exactly a secret… but the question today is: As they have grown to over $5bn of revenues and a market cap over $30bn, what does the future portend for Constellation and their shareholders?

Check out Speedwell Research’s 12,000+ word deep-dive on Constellation Software to learn more about the business’ history, the vertical market software industry, capital allocation, the holding company’s management philosophy, potential prospective shareholder returns, and much more!

Subscribe and become a member today to gain access to this and subsequent reports! Alternatively, if you’re only interested in Constellation Software, you can purchase the individual report as well (link at end of page).

You can find the following (and more) in this report:

  1. Introduction
    • Founding History.
    • Business History.
  2. Business.
  3. VMS Moats.
    • Other Business Virtues.
  4. Hold Co. Philosophy.
  5. Capital Allocation.
  6. Hurdle Rates and ROIC.
  7. Topicus.
  8. Valuation.
  9. Risks.
  10. Model.
  11. Conclusion.

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