Constellation Software Inc. Strengths, Domain Expertise, and Key Differentiators
Constellation Software (CSI) is actually a collection of acquired software companies serving vertical markets. After acquiring a company, CSI will not take over the day-to-day management of its businesses. It continues to rely on the managers and employees of its subsidiaries to run their businesses well, offer coaching and resources in a number of areas including establishing values and capital allocation processes, profit-sharing programs, benchmarking against other CSI businesses, the chance to share best practices with other CSI companies, formal management training and ongoing mentoring. But as a holding company, any recent developments involve mergers, acquisitions, and sometime divestitures.
All these acquired companies benefit from the resources and expertise of CSI from a general business management perspective, but in evaluating the purchase of any of these products, prospective buyers need to drill down to the specific operating group and company. CSI can more easily be compared to a private equity firm than a software company. While most of its competitors in this regard maximize financial leverage and flip their acquisitions within 3-7 years, CSI becomes a permanent and supportive stakeholder in the businesses it controls, even if their ultimate objective is to eventually be a publicly listed company. It allows tremendous autonomy to its business unit managers. Its financials show it has brought tremendous value to its shareholders, but the value to the ultimate end user of the software sold by its plethora of companies will vary by industry and also by the underlying technology used and developed by each one.
Constellation Software Inc. Recent Developments
In a letter to its shareholders, CSI President and Chairman of the Board, Mark Leonard outlined a change in operating strategy for the future: In the past CSI kept the (hurdle) rates high for small and mid-sized vertical market software ("VMS") acquisitions and made very few exceptions for large VMS acquisitions. The by-product of that was a perennial inability to invest all of the cash generated. The excess free cash flow available was used to pay three special dividends. For the last 10 years CSI has also paid a regular quarterly dividend.
Now, based on the belief that CSI can invest capital more effectively than the vast majority of CSI's shareholders, CSI will stop paying dividends and invest all of the cash produced, even if it means lowering its hurdle rates. Moving forward, CSI will continue to invest most of CSI's FCFA2S in small and mid-sized VMS acquisitions at its traditional hurdle rates. But CSI will add two initiatives: 1) increasing the number of very large VMS businesses (i.e., those requiring multi-hundred-million-dollar equity checks) that it pursues, and 2) developing a circle of investing competence outside of the VMS sphere. To that end, CSI is building a small, dedicated team at its head office to pursue large VMS acquisitions and to work with M&A brokers.
Constellation Software Inc. Mergers and Acquisitions (M&A) Activities
In June 2021, CSI acquired Fair Isaac Corporation’s Collection and Recovery business and placed it under the auspices of one of its companies, Constellations’ Jonas Software operating group.
In February 2021 CSI announced its wholly-owned division Volaris Group acquired SSP Limited, a supplier of technology systems and software for the property and casualty insurance industry.
In January 2021 CSI combined an acquisition with a divestiture. Acting through its Total Specific Solutions (“TSS”) operating group and its subsidiary TPCS Holding B.V., CSI completed the purchase of 100% of the shares of Topicus.com B.V. (“Topicus”), a Netherlands-based diversified vertical market software provider. In connection with the closing of the acquisition, TSS has been spun out of Constellation and now operates, together with Topicus, as a separate public company.
In May 2020 Constellation Software entered into a binding agreement with IJssel B.V. (the “Seller”) 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, Total Specific Solutions 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 a 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 on 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.
In November 2017, Vela Operating Group and its subsidiary Aquila Software, a wholly-owned division of CSI acquired Financial Aid Management for Education, a business providing Financial Aid Solutions and Student Information Systems to Higher Education clients. FAME, headquartered in Fort Lauderdale, FL, provides solutions to help Higher Education clients provide outstanding service to their students
Constellation Software Inc. Customers in ARTW Customer Database
Leveraging a rigorous data-centric research methodology, APPS RUN THE WORLD asks the simple question: Who’s buying Constellation Software Inc. applications and why? And we provide the answers – supported by decades of research – to our clients around the world. Our Customer database has over 100 data fields that detail company usage of Constellation Software Inc. and other enterprise apps by function, customer size, industry, location, implementation status, partner involvement, Line of Business Key Stakeholders and IT decision makers contact details. List of Verified Friedman ERP for hosting, customers.
Constellation Software Inc. Overview
Ownership: - CSU : TSE
Number of Employees: 25000
Key Verticals: Aerospace and Defense, Automotive, Banking and Financial Services, Communication, Construction, Real Estate, Consumer Packaged Goods, Distribution, K544, Higher Education, Federal Government, State and Local Government, Public Safety, Healthcare, Life Insurance, P&C Insurance, Specialty Insurance, Leisure and Recreation, Hospitality, Life Sciences, Manufacturing, Media, Faith-Based Nonprofit, Youth and Elderly Care, Special Cause Nonprofit, Oil and Gas, Chemicals, Professional Services, Retail, Transportation, Utilities,
Constellation Software Inc. Key Enterprise and Cloud Applications
Friedman ERP for hosting,
Constellation Software Inc. Revenues, $M:
|Type/Year||2020||2021||YoY Growth, %|
|Total Revenues, $M||Subscribe||Subscribe||Subscribe|
|Enterprise Applications Revenues, $M||Subscribe||Subscribe||Subscribe|
|Cloud Applications Revenues, $M||Subscribe||Subscribe||Subscribe|
* Enterprise Applications Revenues = License + Support & Maintenance + SaaS
** All revenue figures are estimates based on public records, Cloud and Non-Cloud business models in Apps Run The World's vendor database, and annual survey results including vendor feedback.
Constellation Software Inc. Revenue Breakdown By Type, $M:
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Constellation Software Inc. Enterprise Applications Revenues By Functional Markets, $M:
Constellation Software Inc. Enterprise Applications Revenues By Verticals, $M:
Constellation Software Inc. Revenues By Region, $M
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Constellation Software Inc. Direct vs Indirect sales
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Constellation Software Inc. Customers - Breakdown by Geo, Size, Vertical and Product
No. of Constellation Software Inc. Customers: 125000
No. of Constellation Software Inc. Enterprise Applications Customers: 125000
No. of Constellation Software Inc. Cloud Customers: x
No. of Constellation Software Inc. Cloud Subscribers: x
With over 125,000 customers in over 100 countries and a proven track record of solid growth, CSI is establishing a broad portfolio of software businesses to provide customers and shareholders with exceptional returns.
Many of its customers have been running these applications for decades and there is little need for CSI to boost sales and marketing spend just to get a few dollars extra from them on new modules or enhancements.
Instead, CSI invests in maintenance in hopes of extending the recurring revenue stream for a long time. Last year, for every dollar CSI put into maintenance, it yielded nearly $7. At Oracle, the enterprise software giant pocketed $16 for every dollar it spends on maintenance. Maintenance represents about 64% of CSI’s revenues, while maintenance and Cloud revenues make up about 61% of Oracle’s revenues.
Constellation Software Inc. Market Opportunities, M&A and Geo Expansions
CSI continues to grow revenue, with Q1 2021 showing an increase of 23%, and Q2 2021 with an increase of 35%. But this has largely been due to continued acquisitions. Organic growth measures 6% and 7% in the two quarters respectively. The opportunities for each software company within the overall structure is not disclosed and will vary tremendously, as will the opportunities. This is simply the nature of the beast when dealing with such vertically focused target markets.
In September 2020 Volaris Group a subsidiary of Constellation Software, acquired Infoview, leading expense management and industry benchmarking provider. Infoview is a technology expense management and industry benchmarking provider that enables clients to better interpret expense data for cost-savings and make strategic business decisions. Founded in Australia in 1998, the business has grown by enabling clients to dive deeper into their data to simplify and control expenses. In line with Volaris’ philosophy of acquiring, strengthening, and growing mission-critical software companies, Infoview maintains its independence and autonomy, while Volaris provides support, coaching, and new best practices. Sue Colclough continues to lead the business as Chief Executive Officer.
The increase for both the three and twelve-month periods ended December 2017, is primarily attributable to growth from acquisitions as the Company experienced organic growth of 8% and 3% respectively, 5% and 3% respectively after adjusting for the impact of changes in the valuation of the US dollar against most major currencies in which the Company transacts business.
Recent Constellation Software's acquisitions are: In January 2018, Vela Operating Group, a wholly-owned division of Constellation Software, acquired the ProArc unit of Tieto Oyj, a leading software provider of technical document management software to the engineering & construction industry. By joining Vela, ProArc will gain access to Vela’s and Constellation’s operating expertise across 200+ software businesses, their financial strength, and their global infrastructure.
The same period 2018, Total Specific Solutions, a wholly-owned division of Constellation Software, acquired all shares in the capital of Forsikringens Datacenter A/S, a leading software provider of property & casualty, life & pension, and health sector solutions for the insurance and pension industries in Denmark and other Scandinavian countries.
Jonas operating group, a wholly-owned division of Constellation Software, acquired Bookassist Holdings Limited, a leading provider of booking, digital marketing, web design, and distribution management technology solutions for the hospitality industry.
Constellation Software Inc. Risks and Challenges
There is no shortage of smaller vertically focused software companies that are potential targets for acquisition. In the past CSI has invested less than 10% of its Free cash flow available to shareholders ( FCFA2S) in this segment, making only three large VMS acquisitions during its entire 26 year history. But with the shift in strategy to execute some larger transactions, CSI estimates between 40 and 70 large vertical market segment (VMS) businesses are sold each year. The vast majority of these transactions are marketed to prospective buyers by less than a dozen major merger and acquisition (“M&A”) brokers. Over the last five years, CSI was aware of about 80% of the large VMS businesses that were sold, but were only invited to participate in 16% of the sales processes. Time will tell what this new strategy will bring in terms of real opportunity.
Similar to other Cloud vendors, CSI faces the same challenge of higher than normal churn rates among its SaaS customers, while racking up bigger expenses in acquiring or retaining them. Another challenge facing CSI is its foray into the healthcare vertical, a notoriously difficult market for many ERP vendors.
Sage, for instance, sold its healthcare apps business for a loss of $108 million to Vista Equity Partners in 2011 after years of failing to turn the former Emdeon division around. It’s possible that CSI has seen some sluggishness among its TSS healthcare customers with its professional services revenues(a prerequisite and substantial part of most healthcare apps implementations) dropping 16% in 2015, having contributed heavily to its top line in 2014 after the completion of the TSS purchase in December 2013.
Constellation Software Inc. Ecosystem, Partners, Resellers and SI
With its headquarters in Toronto, Canada, and offices in North America, Europe, and Australia, Constellation has over 19000 employees.
Constellation relies on its direct sales force and its ecosystem is made up of technology partners such as IBM and Microsoft as well as a host of hardware and add-on components that complement its core systems. Together with Total Specific Solutions, Constellation Software will further strengthen its Benelux and European position.
Constellation Software Inc. Cloud Infrastructure Insights
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