CSU - Constellation Software

[Liberty]

New acquisition by HomeBuilder (Perseus):

 

https://www.prnewswire.com/news-releases/constellation-homebuilder-systems-acquires-landdev-a-leading-system-for-real-estate-land-developers-301066540.html

 

acquired LandDev, a leading cloud-based software system for commercial and residential real estate land developers. With many of its most notable customers already using LandDev, the acquisition will allow Constellation HomeBuilder Systems to expand deeper into the construction process.

 

"Zoominfo shows 29 employees (Leverance Inc)"

 

h/t @pearnick

[Liberty]

Board additions:

 

https://www.csisoftware.com/category/press-releases/2020/06/02/constellation-software-announces-appointments-to-its-board-of-directors

 

Also, TSS FY19:

 

[Liberty]

TSS acquisition in France:

 

https://www.totalspecificsolutions.com/about-us/transaction-updates?tid=61

 

Tribofilm, a company that delivers Computerized Maintenance Management Systems (CMMS) for leading manufacturing customers and local governments in France, has joined Total Specific Solutions (TSS). This is the seventh company in France to join the European VMS group.

 

CMMS solutions provide daily assistance to the maintenance service staff in their job to sustain the infrastructure in the best possible way. Tribofilm has over 25 years of experience in this domain, and its portfolio includes Progilub, one of the first in lubrication management software solutions, and Mainti4, a maintenance management solution. Their suite consists of made-to-measure modules and applications that are fully adaptable to the customers’ needs, internal structures, and the IT equipment. Tribofilm is active in local government and several industrial sectors, from small local authorities to large corporations.

 

"300 customers

1,000 locations

15,000+ users

20 countries translated into 8 languages

 

23 employees, growing and profitable"

 

h/t @pearnick

[Liberty]

First acquisition in Uruguay, by Vela:

 

https://velasoftwaregroup.com/vela-software-acquires-infocorp/

 

H/t @pearnick

[Liberty]

Volaris acquisition in Israel:

 

https://www.globenewswire.com/news-release/2020/06/10/2046292/0/en/Volaris-Group-Signs-Agreement-to-Acquire-Flash-Networks-Ltd-Looks-to-Expand-Position-in-Communications-Media-Vertical.html

 

its fifteenth acquisition in the Communications and Media vertical with Flash Networks Ltd (“Flash”), subject to a closing process to comply with regulatory requirements in Israel. Flash is a provider of optimization solutions that enable telecommunications operators to improve Radio Access Network spectral efficiency, boost network speed, optimize video and web traffic, and generate over-the-top revenues from the mobile internet.

 

Founded in 1996 in Herzliya Israel, with a heritage in TCP/IP network performance, Flash launched in 2007 its Harmony platform designed to create a fast, safe, adaptive and personalized user experience while harmonizing network infrastructure.  Since then, Flash has accumulated customers globally across 5 continents.

 

“We have been talking with Volaris regularly since 2016 and we are now convinced they are the best home for Flash as they are able to provide access to their global communications customer and partner ecosystem. Flash continues to operate autonomously, leveraging Volaris’ extensive experience, best practices and financial resources to enable us to grow sustainably and entertain future M&A of our own,” said Tomer Itah, CEO of Flash. “A key element to our decision is the Volaris unique acquisition principle of ‘buy and hold forever’ as well as their commitment to allowing us to maintain our corporate identity and accelerate the brand we have worked so hard to build over 2+ decades in the market,” added Liam Galin, Chairman of the Board and former CEO.

 

Today, Flash’s customer base includes global tier 1 telecommunications operators, Globe Telecom, Verizon, T-Mobile, Safaricom, Vodafone and Orange.

 

h/t @pearnick

[Liberty]

Harris acquisition:

 

https://www.harriscomputer.com/en/news/?data-ipsquote-timestamp=1592452800&article=harris-expands-its-utilities-portfolio-with-the-acquisition-of-silverblaze

 

Headquartered in Ontario, Canada, SilverBlaze specializes in providing self-service portal and intelligent form software to electric, water, gas, telecom, and multi-service utility companies throughout Canada, the United States, and the Caribbean.

 

"LinkedIn shows 18 employees"

 

h/t @pearnick

[snowball82]

 

ALPHAPAY, ACCEO LOGIVISION TO INCREASE MOBILE PAYMENT TECHNOLOGY FOR RETAILERS

 

AlphaPay, a North American leader in borderless payment technology, and Constellation Software Inc.'s ACCEO Logivision, a high-speed retail point-of-sale software provider, have entered a partnership to enable integration of UnionPay, Alipay and WeChat Pay across ACCEO's extensive reseller network.

 

https://www.stockwatch.com/News/Item?bid=Z-C%3aCSU-2930737&symbol=CSU&region=C

[Liberty]

Acquisition at TSS:

 

https://www.totalspecificsolutions.com/about-us/transaction-updates?tid=63

 

DOBRICK + WAGNER offers its clients a full range of solutions for the needs of Social Affairs. The VIA-S suite has, among others, client management, documentation, order processing, accounting and payrolling solutions. They also offer partner solutions for planning and archiving, including a workflow integration supplement. Overall it is a full solution suite for the social care market which is completed by a service offering that includes project management, consultancy, and training to help clients efficiently serve their customers.

 

h/t @pearnick

[Liberty]

Another one at TSS:

 

https://www.totalspecificsolutions.com/about-us/transaction-updates?tid=64

 

The Dutch software company Reflecta Automation, a well-known fashion software supplier supporting over 250 brands, has joined Total Specific Solutions (“TSS”). It is a strong addition to the fashion retail cluster of TSS, which includes companies as ACA, Divide, and prohandel.

 

Relfecta has a full-suite ERP fashion software solution, XL-ENZ, covering all the logistics and financial administrative needs of fashion wholesalers. Additionally, the XL-ENZ solution can integrate with webshops, sales apps or CRM, and other additional functionality.

 

h/t @Pearnick

[LC]

I just need to bite the bullet and purchase. Thanks for continuing to post relevant news, Liberte!

[villainx]

I just need to bite the bullet and purchase. Thanks for continuing to post relevant news, Liberte!

 

Thanks too! 

[Liberty]

New acquisition by Vela in Australia:

 

https://www.dataminesoftware.com/datamine-acquires-snowden/

 

We are excited to announce that Datamine has acquired Snowden, incorporating the Supervisor and Reconcilor software solutions and its well-regarded advisory consulting business.

 

Supervisor is a complementary solution to Datamine’s existing resource estimation suite, offering a simple intuitive interface and workflow, advanced local and global estimation optimisation functionality and compatibility with all major mine planning software packages.

 

Reconcilor provides a robust system to identify differences between grade and tonnage estimates, plans and actual mine production. The Reconcilor solution is highly complementary to Datamine’s inventory tracking and metal balancing solutions, with several customers already using the combined systems.

 

h/t @pearnick

[sane]

Hey Liberty, do you have any thoughts or further information about the TSS spin-off?  Thanks.

 

 

[Liberty]

Hey Liberty, do you have any thoughts or further information about the TSS spin-off?  Thanks.

 

I know what's been said publicly + what I posted here about Topicus. Haven't seen anything new since, but TSS has made a few more acquisitions, so it's a good sign that they aren't too distracted. I don't know when it'll take place.

[sane]

Thanks.  Although the wording was far from concrete, it raised the possibility to me that in future Constellation will own a smaller proportion of what is currently TSS: 

 

"it is anticipated that Constellation would remain a significant shareholder of Topicus.com"

 

Presumably CSU shareholders would not want them to sell any shares in the new company, but might this be required under the terms of the deal, or by regulation?

 

Separately, TSS does not seem to need to raise new equity:

 

"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."

 

So does the child (TSS) even need the parent (CSU) any more?  TSS never was a typical structure for CSU like Volaris et al, partly due to the large minority interest owned by management.  But does this spin-off indicate CSU's shareholders will reap less of the benefits of future acquisitions, which no longer require shareholder capital? 

[Liberty]

Thanks.  Although the wording was far from concrete, it raised the possibility to me that in future Constellation will own a smaller proportion of what is currently TSS: 

 

"it is anticipated that Constellation would remain a significant shareholder of Topicus.com"

 

Presumably CSU shareholders would not want them to sell any shares in the new company, but might this be required under the terms of the deal, or by regulation?

 

Separately, TSS does not seem to need to raise new equity:

 

"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."

 

So does the child (TSS) even need the parent (CSU) any more?  TSS never was a typical structure for CSU like Volaris et al, partly due to the large minority interest owned by management.  But does this spin-off indicate CSU's shareholders will reap less of the benefits of future acquisitions, which no longer require shareholder capital?

 

I interpreted that as saying that they would distribute part of the shares to CSU shareholders and keep the rest, but we'll see.

[Liberty]

New acquisition at Volaris:

 

https://vertikal.net/en/news/story/35842/volaris-adds-to-rental-software-stable

 

Wynne Systems parent Volaris has confirmed the acquisition of Santa Monica, California based Unique Business Systems (UBS) which provides rental management software to the equipment rental market, with a focus on construction and audio visual rental companies.

 

UBS was established in 1984 by Pradeep Batra and Stan Sugimoto with first customers coming from the video rental market with its VideoTrace Inventory product. In 1991 the company began expanding into other rental sectors with RentTrace.

Its third generation R2 rental software is apparently used by around 650 companies across 30 countries, with four support offices.

[Liberty]

New acquisition in a new vertical at TSS:

 

https://www.totalspecificsolutions.com/about-us/transaction-updates

 

Total Specific Solutions (‘TSS’) B.V. has acquired Quality Positioning B.V. (‘QPS’), the global niche leader in maritime geomatics software and services from Saab AB, the Swedish defense-, aerospace- and maritime conglomerate. Considered non-core within Saab’s portfolio of activities, the divestment will allow both Saab AB and QPS to prioritize strategically.

 

QPS provides a full range of software solutions for various market segments within the global maritime industry, such as, dredging, offshore renewables, oil and gas, pipe/cable laying, ports, harbors & terminals, and piloting. The software suite includes Qinsy, a leading solution for survey planning, acquisition, and real-time hydrographic data processing. Fledermaus is a 4D geospatial analysis solution, Qastor is a product for precise piloting, Qimera for simple and intuitive hydrographic data processing, and Qarto for rapid, automated ENC production from high resolution source bathymetry. QPS services customers around the world through a dedicated network of resellers and has a local presence in the Netherlands, Canada, United Kingdom, and the United States.

 

h/t @Negative_GW

[Liberty]

Q2: https://www.csisoftware.com/docs/default-source/press-releases/csi---press-release-q2-2020---final.pdf

 

Q2 2020 Headlines:

 Revenue grew 9% (negative 8% organic growth, negative 7% after adjusting for changes in foreign

exchange rates) to $922 million compared to $846 million in Q2 2019.

 Net income increased 12% to $83 million ($3.90 on a diluted per share basis) from $73 million ($3.45 on

a diluted per share basis) in Q2 2019.

 Impairment of intangible and other non-financial assets was $4 million in Q2 2020 versus nil in Q2 2019.

 A number of acquisitions were completed for aggregate cash consideration of $67 million (which includes

acquired cash). Deferred payments associated with these acquisitions have an estimated value of $17

million resulting in total consideration of $84 million.

 Cash flows from operations (“CFO”) were $237 million, an increase of 370%, or $186 million, compared

to $50 million for the comparable period in 2019.

 Free cash flow available to shareholders1

(“FCFA2S”) increased $178 million to $190 million compared to

$12 million for the same period in 2019.

 CFO and FCFA2S were positively impacted by the deferral of approximately $29 million of tax instalment

payments to the second half of 2020 in conjunction with the certain government’s COVID-19 relief

programs.

 The Company determined that certain of its subsidiaries qualified for an estimated aggregate amount of

$17 million of grants from various government authorities, and recognized such amounts as a reduction to

expenses in the quarter.

 On May 20, 2020 the Company entered into a binding agreement with IJssel B.V. to purchase 100% of the

shares of Topicus.com B.V., a Netherlands-based diversified vertical market software provider. The

transaction is currently expected to close in 2020, subject to the satisfaction of certain closing conditions.

 Subsequent to June 30, 2020, the Company completed or entered into agreements to acquire a number of

businesses for aggregate cash consideration of $64 million (which includes acquired cash). Deferred

payments associated with these acquisitions have an estimated value of $14 million resulting in total

consideration of $78 million.

 

Plus some acquisitions that I don't think had been posted here:

 

https://www.fogsoftwaregroup.com/fog-software-group-announces-acquisition-of-quadrature-winpro/

 

https://www.unibiz.com/announcement.html

[gary17]

revenue and cash flow , less deferred taxes and government grants -- below RBC estimate of $1B top-line and $ 9 eps.

[Liberty]

revenue and cash flow , less deferred taxes and government grants -- below RBC estimate of $1B top-line and $ 9 eps.

 

So you're saying the analysts missed reality with their estimate?

[gary17]

ha

i am just saying if the market has been based in part on the expectations of the analyst... then the expectation has been slightly ahead. 

it's always interesting to understand how much of the market prices in analyst estimates.

 

sometimes a stock beats the estimate and price still goes down because Mr market is expecting a huge beat, not just a little beat

 

anyway... i'm just saying what RBC estimates are, and they are not the same as what has been reported just now.

[Liberty]

ha

i am just saying if the market has been based in part on the expectations of the analyst... then the expectation has been slightly ahead. 

it's always interesting to understand how much of the market prices in analyst estimates.

 

sometimes a stock beats the estimate and price still goes down because Mr market is expecting a huge beat, not just a little beat

 

anyway... i'm just saying what RBC estimates are, and they are not the same as what has been reported just now.

 

I was kidding. It's a pet peeve of mine, every time I hear about "missing targets" I can't help but translate it in my mind into "analysts missed reality".

 

I mean, I get that the market is largely influenced by analyst targets so when reality comes out different the price will adjust, sometimes violently, but I still think it's a weird way to phrase things, to say that it's the company that missed the targets that others were trying to guess about it.

[Sombunall]

Minor sell-off notwithstanding, the results looked fine to me -- especially considering the economic maelstrom that was Q2. Organic rev down a smidge for the year (ex everything except maintenance and recurring rev, which is the most important).

[Sombunall]

Also, latest issue of VII featured a bit on CSU -- from Joseph Shaposhnick at TCW Group:

 

VII, July 31, 2020

 

“A holding company based in Toronto that sells vertical-market software that is mission-critical in the running of its customers’ businesses. That may mean a city using its software to run the schedules for municipal transportation. It may mean a prison using its software to manage prisoner intake and release. Or a homebuilder using its systems to manage construction work flow. Or a dental group using its practice management and financial soft- ware to run their operation.

 

The business is highly predictable, with thousands and thousands of customers in hundreds of end markets, no customer concentration, and with more than half of revenues – and an even greater percentage of profits – driven by recurring software maintenance contracts. Returns on equity have been 40% or more, there’s no debt, and the company has compounded free cash flow per share at a remarkable 29% rate since it came public in 2006.

 

In our view, Constellation’s founder and CEO, Mark Leonard, is the best corporate capital allocator of the past 20 years, period. The business grows both organically and through a well-oiled pro- cess of acquiring small software providers that strengthen or deepen an existing product category or expand into an adjacent category or geography. He’s built a remarkable corporate culture based on trust, decentralized decision-making, ex- perimentation, learning and a sense of ownership. They’ve issued zero stock options since the company went public, but employees are incented – and in many cases required – to buy stock in the open market and hold it for an extended period of time. Mark is only 61 and still actively experiments with new ways to grow and improve the business.”

 

Is the growth runway for the company still long?

 

That seems to be what many investors consider the biggest risk in the story. The company is now pushing $4 billion in annual revenues, up from around $1 billion in 2013, so does that mean the incremental opportunity is shrinking? We don’t think so. While Constellation has expanded geographically, we still believe it has plenty of room to grow in the United States as well as in Europe. Its presence so far in South America is somewhat limited. The presence in Asia is limited. One focus area today for top management is Japan, and we think success there will open up tremendous opportunities to grow throughout Asia.

 

The competitive set has expanded – driven by a lot of interest from private equity – but we don’t feel like the industry has at all been overrun with capital. Constellation, as the destination of choice for many would-be sellers in its markets, should continue to be able to redeploy free cash flow toward acquisitions even while maintaining very high return hurdles.

One thing that I think sets the company apart from other acquirers is that it doesn’t shy away from buying companies that may not be growing very much, or even that aren’t making any money. If the price is right, they are fully capable of fixing the business and putting it on a profitable growth path.

 

How are you looking at valuation with the shares recently trading at just under C$1,600?

 

The company should be relatively insu- lated from short-term impacts due to the coronavirus. Organic growth could fall to zero in the very near term, but that may be offset by increased M&A activity if sellers are more motivated to deal than they were before the virus.

 

We generally expect low-teens annual revenue growth over the next three years, 3-5% of that organic and the rest from acquisitions. That’s not at all out of line with what the company has been doing. With that level of revenue growth, we would expect free cash flow per share to increase at least 15% annually over the period. The shares aren’t optically cheap, but we would again expect the shareholder re- turns to approximate the growth rate in free cash flow.

 

The evidence of success seems pretty clear here. Why would the market be underestimating something like this?

 

Part of our differentiated view is around the duration of the growth opportunity, which we talked about earlier. I also think part of it is that you have to work harder than usual to get to know the company and its culture. Mark Leonard rarely if ever goes on road shows with investors, and the company stopped doing conference calls two years ago. He and the company are just understated and not promotional.

 

That under-the-radar approach means we can maybe gain an advantage by getting to know Mark, his management team, and even the leadership levels one or two steps below. We're hoping the effort gives us some added insight into the company’s culture and its prospects. Without it, it would be more difficult to have the conviction in the story that we do to make Constellation our largest holding, at more than 14% of the portfolio.