CSU - Constellation Software

[Liberty]

Acquisition at the Real Estate group:

 

http://www.prweb.com/releases/constellation_real_estate_group_to_acquire_torchx_from_web_com/prweb16256463.htm

 

Built with more than 20 years of industry experience, TORCHx offers cloud-based marketing solutions to the real estate industry, providing IDX websites, CRM, marketing software, and lead generation services.

 

The acquisition of TORCHx will further expand CREG’s presence in an otherwise fragmented real estate technology market, providing sales and marketing solutions, back office software, and mortgage loan origination and servicing solutions for over half of a million real estate agents, brokerages, MLSs, and banks across the U.S. and Canada.

 

Also one at Harris:

 

Trancite Logic Systems is a Boise-based software company that develops and delivers the easiest to use, easiest to train, and most widely-deployed crash and crime scene diagramming tools into the United States Law Enforcement Community. Trancite products, such as EasyStreet Draw™ and ScenePD™, are commonly used throughout the United States and in many countries worldwide.

 

https://www.harriscomputer.com/en/news/?data-ipsquote-timestamp=1555992000&article=harris-rsquo-public-sector-group-acquires-trancite-logic-systems

 

And one at Jonas:

 

https://www.jonassoftware.com/About_Us/Latest_News/Jonas_Software_Announces_the_Acquisition_of_BEC_Le

 

“We are very excited to acquire BEC, a recognizable leader and pioneer in the legal software vertical,” says Matt Otchet, Group CEO at Jonas. “BEC has done a remarkable job in growing into the success it is today, and we look forward to collaborating with the BEC team to further build upon that foundation.  The entire team is dedicated to providing winning products supported with world-class service, and I believe that there will be a lot of opportunity to expand even further.  Please join me in welcoming the BEC team and customers to the Jonas family.”

 

h/t @pearnick

[Liberty]

Writeup about the company with a decent overview:

 

https://seekingalpha.com/article/4255039-constellation-software-sustainability-average-roics

[Liberty]

New acquisition at volaris:

 

http://www.prweb.com/releases/triple_e_technologies_joins_red_river_software_a_volaris_group_company_to_expand_offering_to_petroleum_and_c_store_industry_in_retail_vertical/prweb16260118.htm

 

Volaris Group today announced that Triple E Technologies has joined Red River Software, a Volaris Group company. The acquisition of Triple E provides Petroleum and Convenience Store (C-Store) customers with a broader offering of solutions to address the many challenges surrounding secure payment processing, PCI compliance, and EMV card transactions.

Triple E serves hundreds of sites across the United States, including many independent multi-site fuel marketers, as well as major brands.

The company’s solution suite, called OneTouch, integrates with a wide range of systems used at retail locations and facilitates fuel control and inventory management, as well as major credit card and closed-loop proprietary card transactions. The OneTouch solution is also used to operate unattended, autonomous retail fuel-dispensing locations

 

h/t @pearnick

[Liberty]

Getting closer to the AGM (May 2). Like the past couple of years, I'm planning on having drinks with whoever shows up the night before (May 1st). Very likely to be at the 'C'est What' pub again (I don't know any other pubs in Toronto, to be honest). More details to come..

 

https://goo.gl/maps/jSM4XtVu2tLAiciR6

 

[gary17]

I was almost going to travel on May 1st to Toronto for my work; next time!

[Liberty]

Getting closer to the AGM (May 2). Like the past couple of years, I'm planning on having drinks with whoever shows up the night before (May 1st). Very likely to be at the 'C'est What' pub again (I don't know any other pubs in Toronto, to be honest). More details to come..

 

https://goo.gl/maps/jSM4XtVu2tLAiciR6

 

 

So I'm going to Toronto tomorrow (May 1st). Plan is to meet whoever wants to come at C'Est What (address above), I'll aim to be there around 6-7 PM. Will post on Twitter when I'm more sure of the time (hard to estimate how long it'll take to do various thing in an unfamiliar city).

 

Hopefully I see some of you there tomorrow!

[khturbo]

Sounds great, see you tomorrow! Looking forward to it!

[gary17]

seems like a weak quarter

 

https://www.csisoftware.com/docs/default-source/press-releases/csi---press-release-q1-2019---final.pdf

 

 

[Shooter MacGavin]

seems like a weak quarter

 

https://www.csisoftware.com/docs/default-source/press-releases/csi---press-release-q1-2019---final.pdf

 

It's not that bad.  It's actually fairly good.

 

They bought a company in 4Q18 which had a 13M EBITDA loss in 1Q19 for which they got $53M from the seller to plug the hole.  Therefore normalized for that EBITDA grew almost 21%.  Depreciation expense would've been 7M but they adopted IAS16.  So there is some increased depreciation relative to last year.  This is due to the totally unnecessary right of use stuff showing up on balance sheets for leases. 

 

If you normalize - then you get something like a 21% growth in Adj. EPS, with $9 in excess cash on the books after subtracting the dividends payable. 

 

There's some fx stuff too and bargain purchase gains.  But that's my initial take.

[snowball82]

With that news we can expect more large acquisitions..

 

Constellation Software Inc. Announces Reduction in Hurdle Rate for Large

Acquisitions

TORONTO, May 01, 2019 -- Constellation Software Inc. (TSX:CSU) announced today that the Board of Directors has approved

lowering the hurdle rate for acquisitions requiring an equity investment of at least US$100 million. Management believes that

by lowering the hurdle rate the Company will become more price competitive on these larger transactions.

About Constellation Software Inc.

Constellation Software acquires, manages and builds vertical market software businesses.

Contact:

Jamal Baksh

Chief Financial Officer

416-861-9677

[thefatbaboon]

Weird.  Why in the world would this be announced?

[Shooter MacGavin]

Weird.  Why in the world would this be announced?

 

it's probably an advertisement.

[walkie518]

seems like a weak quarter

 

https://www.csisoftware.com/docs/default-source/press-releases/csi---press-release-q1-2019---final.pdf

 

It's not that bad.  It's actually fairly good.

 

They bought a company in 4Q18 which had a 13M EBITDA loss in 1Q19 for which they got $53M from the seller to plug the hole.  Therefore normalized for that EBITDA grew almost 21%.  Depreciation expense would've been 7M but they adopted IAS16.  So there is some increased depreciation relative to last year.  This is due to the totally unnecessary right of use stuff showing up on balance sheets for leases. 

 

If you normalize - then you get something like a 21% growth in Adj. EPS, with $9 in excess cash on the books after subtracting the dividends payable. 

 

There's some fx stuff too and bargain purchase gains.  But that's my initial take.

 

no one thinks negatively on the "bargain purchase gain" accounting here?  seems like a net income boost without merit? ... ie they paid what they paid, shouldn't be marked as if they paid more?

 

[bizaro86]

Weird.  Why in the world would this be announced?

 

"We've offered you a crappy price for your business in the past, but we're getting less cheap. Get back in contact and we'll make you a better offer!"

 

Probably makes sense to do this. If they're anticipating having excess capital, it'd be better to deploy it at slightly lower rates than they've been getting in the past than to keep it as cash. It is also likely better than doing buybacks at the current valuation.

 

 

[walkie518]

Weird.  Why in the world would this be announced?

 

"We've offered you a crappy price for your business in the past, but we're getting less cheap. Get back in contact and we'll make you a better offer!"

 

Probably makes sense to do this. If they're anticipating having excess capital, it'd be better to deploy it at slightly lower rates than they've been getting in the past than to keep it as cash. It is also likely better than doing buybacks at the current valuation.

 

on this point, I think the '15 letter noted that once the managers show the ability to make disciplined acquisitions, the bar gets raised... if so, one has to imagine, that the large dividend was likely a 1x item?

 

[Liberty]

no one thinks negatively on the "bargain purchase gain" accounting here?  seems like a net income boost without merit? ... ie they paid what they paid, shouldn't be marked as if they paid more?

 

I'm not expert on accounting arcana, but I suspect that they're just following the rules on these types of weird transactions where you basically get paid to take a distressed asset off of the former owner's hands (which in the meantime will depress margins and FCF and uses up working capital, as well as not really count in the nominal amount of capital deployed, but I'll take real economic value creation over optics).

[Liberty]

Weird.  Why in the world would this be announced?

 

"We've offered you a crappy price for your business in the past, but we're getting less cheap. Get back in contact and we'll make you a better offer!"

 

Probably makes sense to do this. If they're anticipating having excess capital, it'd be better to deploy it at slightly lower rates than they've been getting in the past than to keep it as cash. It is also likely better than doing buybacks at the current valuation.

 

They were not seeing a lot of larger transactions. The brokers employed by the sellers were likely not calling them because they weren't known for giving top dollars. They're trying to increase their coverage of what is sold to improve the chances that they'll get some once in a while. It's an experiment that will affect few transactions, from which they will learn where to go next. The hurdle probably went from the high 20s to still somewhere in the 20s (mid? low?), so not exactly going Softbank quite yet...

[Shooter MacGavin]

seems like a weak quarter

 

https://www.csisoftware.com/docs/default-source/press-releases/csi---press-release-q1-2019---final.pdf

 

It's not that bad.  It's actually fairly good.

 

They bought a company in 4Q18 which had a 13M EBITDA loss in 1Q19 for which they got $53M from the seller to plug the hole.  Therefore normalized for that EBITDA grew almost 21%.  Depreciation expense would've been 7M but they adopted IAS16.  So there is some increased depreciation relative to last year.  This is due to the totally unnecessary right of use stuff showing up on balance sheets for leases. 

 

If you normalize - then you get something like a 21% growth in Adj. EPS, with $9 in excess cash on the books after subtracting the dividends payable. 

 

There's some fx stuff too and bargain purchase gains.  But that's my initial take.

 

no one thinks negatively on the "bargain purchase gain" accounting here?  seems like a net income boost without merit? ... ie they paid what they paid, shouldn't be marked as if they paid more?

 

they strip it where they report Adjusted Net Income.

[jsgcapital13]

is the AGM every recorded or are there transcripts/presentation materials?

[walkie518]

is the AGM every recorded or are there transcripts/presentation materials?

letters and calls are done

 

the Q & A,however, is published as are regular filings on sedar

 

has anyone ever compared the French and English statements?  I didn't dig through all of the figures, but did notice some discrepancies (however minor)

 

that said, 6x sales has been the historical multiple... 6x 2018 looks like USD $18.4B mcap (today seems to trade just south of USD $18B or CAD $24.3B)

 

discounting historical revenue delta might give us $3.4B of sales in 2019... if 14% is the number for the year then buying at current levels might be just under 6x sales for 2019

 

it doesn't look super cheap, but the mcap is small enough that growth can certainly continue and there should be plenty of available acquisitions...

 

given asset-light model, growth of maintenance, historical figures etc, I find value closer to USD $20B ... anyone think this is crazy or is this conservative?

[Liberty]

Acquisition at Harris:

 

https://uniphyhealth.com/harris-healthcare-acquires-uniphy-health/

 

Uniphy Health Systems LLC, a highly-rated clinical communication and collaboration platform, has been acquired by Harris Computer Systems [...]

 

With the Uniphy Health Communications Platform, Harris can now offer its clients new ways to improve care coordination, physician and patient engagement. Uniphy Health’s highly-adopted mobile and desktop apps reach over 90,000 clinicians at leading healthcare providers such as Hackensack Meridian Health, UNC Health Care, Catholic Health Services of Long Island and BayCare. The solutions have at been deployed across hundreds of healthcare facilities and are EHR agnostic.

 

h/t @pearnick

[Liberty]

Recording with 4 people who've had their VMS acquired by CSU, talking about their experience of the acquisition and since:

 

https://csiperseus.com/explore/webinar-selling-software-business/

 

Via

[walkie518]

Weird.  Why in the world would this be announced?

I'm starting to think that this is a very positive sign. 

 

In the '15 letter, there was talk about waiting for the right time to have the M&A teams in the subs "go loose" so to speak.  It seems that while this announcement doesn't spell anything out in great detail, it seems that Leonard might now be comfortable with the subs and how they go about those acquisitions for the company. 

 

Given the company's history of discipline in capital allocation, I can't see why this doesn't turn Constellation from a $24B business to a $100B business now that there are more managers able to look at more deals?

[FiveSigma]

walkie518,

 

I don't think your assessment is correct.

 

During the recent AGM that I attended management expressed the following sentiment:

- Mark and all 6 BU managers were extremely cautious about adjusting the M&A process that took a long time to perfect

- BU managers are still describing scaling M&A (i.e., pushing down) as 'journey', 'experiment', 'try and see', etc.

- One or two BU managers legit said they take their underlings off M&A if they don't see it as their strength/passion

 

Finally, this reduction of hurdle will only affect large deals (small fraction of all) that would be made at the level of Mark, the board, and top-level BU managers.

 

I don't think there is anything in what management said to suggest that they are about to 'go loose in the subs'.

 

However, I do agree that overall CSU will get to $100B much faster with willingness to bag more elephants, hopefully at ROIC rates still well above the market rates.

[Liberty]

I second what FiveSigma said. I don't think this will lead to any kind of huge step change. It's a tweak to improve coverage on larger deals, and hopefully increase success rate. They didn't give exact numbers, but it sounds like the hurdle was reduced from high 20s to mid or low 20s, so it's not like suddenly they're aiming for 12%.