Business Breakdowns
Episode 97 Constellation Software: Principled, Profitable, Permanent
Business Breakdowns

Episode 97: Constellation Software: Principled, Profitable, Permanent

Business Breakdowns

Episode 97

Constellation Software: Principled, Profitable, Permanent

Chris Cerrone is a Partner and Portfolio Manager at Akre Capital Management. We cover Mark Leonard’s genius, why Constellation is the gold standard for employee compensation, and how the business has perfected its acquisition engine.

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[00:02:39] - [First question] - How Chris and Akre came across Constellation Software 

[00:05:23] - An overview of Constellation

[00:08:42] - The origins of Constellations’s 30-year legacy of extraordinary returns

[00:11:59] - A deeper explanation of vertical market software as it relates to Constellation

[00:15:32] - The impressive scale of Constellation despite its niche-targeted portfolio

[00:18:06] - Their incentive structures and their avoidance of stock-based compensation

[00:21:07] - Additional ways in which Constellation stands out, relating to the Rule of 40 

[00:23:22] - The barriers that keep competitors and copycats from overtaking them

[00:28:02] - The three legs of Constellation’s acquisition engine

[00:32:59] - Recent spin-offs of assets as opposed to straight acquisitions

[00:35:47] - How Constellation is planning for the future

[00:38:15] - Why they’re considering expansion towards non-VMS acquisitions

[00:40:32] - Capital allocation and Mark Leonard’s outlook more broadly

[00:43:48] - How the business reflects Mark’s nature and values

[00:47:33] - How much technology risk does the business face?

[00:50:58] - Is organic growth a concern? 

[00:57:42] - Lessons for operators when studying Constellation’s story

Constellation Software: Principled, Profitable, Permanent

Introduction

Zack
This is Zack Fuss an investor at Irenic Capital. And today, we're breaking down Constellation Software. Constellation is a software conglomerate that owns more than 500 vertical software businesses. It was founded by Mark Leonard in 1995 and has delivered remarkable returns to its shareholders since going public on Toronto Stock Exchange in 2006.

To breakdown Constellation, I'm joined by Chris Cerrone, a partner and portfolio manager at Akre Capital Management. We discuss Mark Leonard's unique approach to building the business, why Constellation could be considered the gold standard for its employee compensation policies and how the business has honed its acquisition engine to enable upwards of 100 acquisitions per year. Please enjoy this breakdown of Constellation Software.

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