Constellation Software’s Lumine Group buys WideOrbit and files preliminary prospectus for spin-out
Constellation Software is a company that specializes in acquiring, managing, and building specialized software businesses. The company’s business model is centered around acquiring niche software companies, helping them to grow and expand their operations, and then managing them as part of its portfolio. This allows Constellation Software to generate revenue from a diverse range of specialized software products and services, while also providing its subsidiaries with the support and resources they need to thrive.
The company was founded in 1995 by Mark Leonard, who remains its Chairman today. It is headquartered in Toronto, Canada and has operations in more than 20 countries around the world. Over the years, Constellation Software has grown significantly through a combination of organic growth and strategic acquisitions. It now has a portfolio of more than 500 subsidiaries that provide software solutions for a wide range of industries, including public sector, healthcare, construction, and more.
One of the key aspects of Constellation Software’s business model is its focus on specialized software. Rather than trying to compete in highly competitive, mainstream markets, the company identifies and acquires software businesses that serve niche or underserved markets. This allows it to provide tailored solutions that meet the specific needs of its customers, while also avoiding direct competition with larger, more established players.
Once a software business has been acquired, Constellation Software provides it with the support and resources it needs to grow and expand. This includes access to capital for investment, expert advice on sales and marketing, and other operational support. The company also offers its subsidiaries a range of services, such as legal and financial support, to help them manage their day-to-day operations more efficiently.
Is Constellation Software A Good Company?
Constellation Software’s business model has proven to be successful over the years. The company has a track record of consistent revenue and profit growth, and its shares are traded on the Toronto Stock Exchange. It has also been recognized for its innovative approach to business, winning a number of awards and accolades.
The business also operates in the Vertical Market Software Industry, an industry with excellent barriers to entry and with small enough addressable markets so that not everyone is attempting to compete.
This shows in the stock’s track record. Constellation has increased 85 fold over the last 15 years. During that time, it returned more than 5x the company’s value 15 years ago in dividends and special dividends. Recently, it also It also spun-out Topicus, which is now more than 10x the value of the stock 15 years ago. That makes CSU a 100-bagger over the last 15 years.
Earlier this year, Constellation was even possible to buy at a higher free cash-flow yield than usual.
The Constellation Software Topicus Spin-Out
Topicus was the first company to be spun-out of CSU in February of 2021. Topicus.com is a European company that builds and acquires vertical market software businesses that provide mission-critical solutions and highly customized software to address specific customer needs. As a niche player, Topicus enjoys high customer loyalty, high margins from recurring revenues, and reliable free cash flows that support its growth strategy. The majority of the company’s revenue is recurring, providing a valuable stream of profits and cash flows to shareholders.
Using the same strategy as its parent company, Constellation Software, Topicus.com has the potential to generate significant returns for investors over the long term. Six directors appointed by Constellation Software sit on the company’s board to provide guidance and oversight. Despite a challenging couple of years for the tech sector since the spin-out, Topicus’ shares have gained 22% since the spin-out, and the company doubled in revenue since 2019.
The Lumine Group / WideOrbit Spinout
David Nyland, CEO of Lumine Group, acquired several businesses in the telecom and media space over the years. They grew by acquiring assets at very attractive valuations, under the Constellation umbrella. A lot of these assets were carve-outs: now it’s time for Lumine Group to be carved-out! In this spin-out, Constellation shareholders will get a view of a select group of businesses who are generating astounding returns for the company.
As per the playbook on which the business was built, Lumine is acquiring WideOrbit at a moment where it’s customers and industry are troubled and it is likely that the purchase price was a bargain one. The incremental acquired revenue for CSU as part of this transaction is $167M USD.
In conclusion, the shareholder friendly Constellation Software has been amongst the best stock in Canada for the past 15 years. It is likely to continue delivering for its shareholders, a lot of which are current or former employees of the company.