Constellation Software Inc. due diligence report.

Oto Suvari
5 min readFeb 13, 2020

Hatchworks has conducted due diligence on Constellation Software Inc., a leading provider that engages in the development, installation, and customization of software to various markets. It builds a portfolio of software companies and grows them to be leaders in their particular niche. Headquartered in Toronto, Canada, Constellation Software Inc. is listed on the Toronto Stock Exchange, under the symbol ‘’CSU’’.

The company operates in the public and private sectors as follows:

  • Public Sector — developing and distributing software solutions primarily to government and government-related customers.
  • Private Sector — developing and distributing software solutions, principally to commercial customers. The Company also provides related professional services and support.

The company’s business strategy is to acquire software startups, holding them for the long term. To date, it has acquired over 260 startups. They’re mainly focused on vertical market software companies, i.e. software developed for niche applications or for a specific clientele. There is typically not a lot of competition in vertical markets, but it can still be a risky industry since developers are highly dependent on specific clients to buy their products.

Constellation Software Inc (CSU) has 6 vertical market software operating companies, namely:

  • Volaris Group: Grows vertical market software companies, enabling them to be clear leaders within their focused industries like, Agri-food, financial services, education, biosciences and drinks.
  • Harris Computer Systems: Serving the public and private sector like, utilities and healthcare.
  • Jonas Software: Operates in the hospitality, construction sectors, clubs & resorts and spa & fitness, payments and moving & storage.
  • Vela Software: Focuses on the industrial sector like, oil and gas, manufacturing, financial services and public housing.
  • Perseus Operating Group: Operates in a variety of industries like, home building, pulp and paper, pharmaceutical manufacturing and dealerships.
  • Total Specific Solutions: focuses on software companies in the UK and Europe. Operating in sectors like, government, real estate, healthcare and automotive. It has over 80 independently managed software Business Units in Europe.

Financials — Constellation Software Inc.

Constellation Software Inc’s current market cap is $23.4B and stock price is around $1105.

With a predicted net-income of 20% for 2020E and 2021E, and a net income estimate for 2021E of in excess of $407M, this points to a P/E ratio of 57.6x.

The revenue/sales forecast is $4B for 2020E, indicating an EV/Sales ratio of 5.83x.

In terms of profitability, an operating margin of 15.7% is predicted for 2020E. This is lower than competitors such as, Open Text Corporation (OTEX) for example, who has a stronger operating margin of 35.5% for 2020E.

Constellation Software Inc. (CSU) is a yielding equity with a yield of 1.68% for 2020E.

66.9% of Constellation Software Inc’s. (CSU) revenue comes from the Public Sector and the remaining 33.1% from the Private Sector. 44.8% of revenues come from the U.S., and it is also worth noting that, following the last recession, the share price of Constellation Software Inc. (CSU) has remained flat and stable.

Constellation Software Inc. (CSU) year-on-year earnings growth has been positive over the past five years. This consistent market outperformance illustrates a robust track record of delivering strong returns over a number of years.

Q3 2019 headlines:

  • Revenue grew 15% to $870 million compared to $759 million in Q3 2018.
  • Net income increased 24% to $82 million from $66 million in Q3 2018.
  • A number of acquisitions were completed for aggregate cash consideration of $278 million. Deferred payments associated with these acquisitions have an estimated value of $67 million, resulting in total consideration of $345 million.

According to our analysis, Constellation Software Inc. shows strong growth prospects, causing the P/E and EV/Sales ratio to appear somewhat overvalued. They have a very low debt position, but a small operating margin. Factoring all this, combined with the current overheated market and uncertain economic conditions, Hatchworks will not be investing at this stage.

The Hatchscore is 5 out of 10. Full details can be found on Hatchnet:

What is Constellation Software inc.?

Constellation Software Inc is a leading provider that engages in the development, installation, and customization of software to various markets. The company operates in both the public and private sector. It builds a portfolio of software companies and grow them to be leaders in their particular niche.

Big Investors:

  • Fidelity Management & Research Co.
  • Janus Capital Management LLC.
  • Mawer Investment Management Ltd.
  • The Vanguard Group, Inc.
  • Morgan Stanley Investment Management, Inc.

Advisors and Bookrunners:

  • RBC Capital Markets.
  • BMO Capital Markets.
  • CIBC.
  • Scotiabank.

What are the risks?

  • As Constellation Software Inc. continue to grow their business, their operating expenses and capital expenditures may increase, and as a result, they’ll need to generate additional revenue to maintain profitability.
  • Demand for Constellation Software Inc. software solutions may fluctuate with market conditions which may reduce their profitability in the future.
  • Developers in the vertical market software sector are highly dependent on specific clients to buy their products.


  • Open Text Corporation (OTEX).
  • Kinaxis Inc. (KXS).
  • Paycom Software(PAYC).
  • Ringcentral Inc. (RNG).

Management team:

  • Mark Leonard: Chairman.
  • Jamal Baksh: CEO.
  • Mark Miller: COO.
  • Bernard Anzarouth: CIO.

The Hatchwork Team

The forecast figures are based on the data of, and not from hatchworks:

Legal Disclaimer — This report summary has been generated as a result of Hatchworks’ proprietary company vetting and filtering system. The level of due diligence conducted on investible assets conducted ranges from mediocre to significant, the latter being the case where Hatchworks has explicitly taken strategic positions in. By no means is the information in this file to be relied on as investment advice; this includes Hatchworks’ algorithmic composite score known as ‘Hatchscore’. Hatchworks has not received any compensation for this research. For more information you can reach us at This report is not for distribution in the United States of America. It is closed to U.S citizens. If you are a U.S. citizen, you should delete this report or return to sender.



Oto Suvari

Heading up the group’s R&D activities for Hatchworks.