A Value Investor in the Software Industry

Date Added: June 6, 2016 | Comments Off on A Value Investor in the Software Industry | Filed under: Blog

I had the rare opportunity to hear Mark Leonard, founder, President, and Chairman of Constellation Software speak at a private luncheon organized by a friend last week.

In case any of you are not familiar with whom Mark is, it is probably by design as he keeps a notoriously low profile, despite the fact that Constellation has been a huge success – started by Mark with $25m from a couple of private equity/venture capital sources the Company now has a market value in excess of $11b.

What I find fascinating about Mark is that despite the fact that he operates in the world of software, an area often ignored by value investors, that he is in fact a value investor. He is focused on price, and the return on capital invested. His capital allocation record is superb. He also made the point that he felt that in order to be successful one needed to be a concentrated investor – a classic value investing idea which has been hotly debated in recent years with the marked resurgence of passive investing strategies.

Constellation has grown by making in excess of 270 acquisitions over its life, but is concentrated in the sense that all of these acquisitions are in what is called Vertical Market Software. Making and integrating acquisitions has been the comeuppance of many a Management group and yet Constellation has done 100s of them. When I asked Mark about this he attributed their success to a culture of accelerating the development and responsibilities of a capable #2 within the acquired company in conjunction with Company wide metrics that rank each acquired company among its peers, and which fosters peer interaction as they try to improve their relative ranking.

The Company issues no stock options but rather pays cash bonuses and has a policy that managers will invest 75% of their bonus in Constellation shares with a hold period.

Like Warren Buffett, another well known value investor, Mark has occasionally stated that he felt that Constellation shares were overpriced.

To read more about Mark and Constellation please click on the link below to a Globe and Mail story from 2014

Constellation Software’s elusive CEO

We do not own shares of Constellation Software and never have. This is not an investment recommendation but rather information about a unique CEO in the software industry who thinks like a value investor – a rarity.


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