How Constellation Software Managed to Boom More Than 4,500% Over the Decade

Founded in 1995 by President Mark Leonard, Constellation Software is an international provider of market leading software and services to industries in both the public and private sectors. The company was created to assemble a portfolio of vertical market software companies through acquisitions. Constellation targets businesses that it can manage and build to help develop specialized, mission-critical software solutions that meet the needs of particular industries.

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Over the past two decades plus, Constellation has growth through a combination of acquisitions and organic growth to a “constellation of companies” listing over 125,000 customers in more than 100 countries around the world. Headquartered in Toronto, Canada, Constellation employs 13,000 people in offices across North America, Europe, Australia, South America and Africa. The firm’s consolidated revenues exceed $2.1 billion.

Constellation hit the public markets in late August 2006, trading on the Toronto Stock Exchange under the ticker symbol CSU. In the IPO, $80 million was raised from selling 4.71 million shares at $17 a share. Shareholders have seen their investment grow nearly 46 times in the past decade. At a price of $777.50, Constellation is now valued at a whopping $16.48 billion.

Much of the company’s success, and what makes the firm unique in the software space, is its ability to really double down on the long term with the software acquisitions they make and the market rewards that they can generate. Constellation consistently makes relatively small purchases in niche areas in the tech space, adding to its profits while shielding itself against rivals by adding bold-on acquisitions.

“CSI recognizes the value of these rare companies, and following an acquisition, we leave them to continue their exceptional operations as they have in the past,” reads the company’s website.

When Martin Ferguson, “The Small-Cap King of Canada” was asked in an interview for the book “Market Masters” why he invested in Constellation after its highly illiquid IPO, the investor said the decision was based on the company’s compelling business model. “They had a customer turnover of less than 5%. So 5% turnover meant they were keeping their customers for 20 years. They had locked-in clients and they were buying additional companies at a 25% or above return on capital.”

Constellation focuses on industries wherein it can control the niche and have a majority market share against mom-and-pops struggling to reinvest. “Management understood how to create value by allocating capital to create more capital,” explained Martin. “When you actually looked at their competitive advantages over customers, over suppliers, over competitors, over new entrants, over existing rivals, all of the external checkmarks were checked off.”

The Toronto-based company’s last major purchased was in April, when its wholly-owned division Volaris Group entered into an agreement to acquire an asset management software provider.

Mark Leonard, founder, President and Chairman of the Board worked in the venture capital business for eleven years before starting CSI. He holds a BSc. From the University of Guelph and a MBA from the University of Western Ontario. Chief Investment Officer Bernard Anzarouth has been with CSI since 1995 and works closely with the company’s VMS business to identity and pursue opportunities for platform and tuck-in acquisitions. He has experience in leadership roles at companies such as Swiss-based Ascom and IBM. Mark Miller, another long-time manager at CSI, has been with the firm for over two decades, heading Volaris Operating Group and Trapeze Operating Group and serving as CSI’s Chief Operating Officer. Chief Financial Officer Jamal Baksh has been with the software company since 2003 and previously held various senior executive roles within Jonas Operating Group and Constellation. He is a Certified Management Accountant and holds an Honors Bachelor of Mathematics degree from the University of Waterloo.