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Sydnee Gatewood
Sydnee Gatewood
Articles (3504) 

Ruane Cunniff Comments on Constellation Software

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February 26, 2021 | About: TSX:CSU +1.86%

Constellation Software (TSX:CSU) experienced a deceleration in growth in the second quarter as customers put off license purchases and acquisition activity slowed, but the business saw a quick rebound by the next quarter. Constellation enjoys a very steady base of business because it provides mission-critical solutions and derives most of its revenue from recurring maintenance sales. Over the course of the year, the team learned how to make acquisitions remotely and the company continues to deploy significant capital at attractive rates of return.

In May, Constellation'sTotal Specific Solutions (TSS) unit reached a deal to merge with Topicus.com BV, another large Dutch software vendor with a unique approach to organic growth. TSS was itself acquired by Constellation in 2013, shortly before we invested. The combined TSS-Topicus entity spun out into a separately listed company in the first quarter of 2021.

Costellation's shares trade for a healthy 30x multiple of our estimate of the company's forward cash earnings per share. And while we acknowledge that this is a premium valuation, we also believe that this is an exceptional company led by a terrific team with plenty of arrows in its quiver.

From Ruane Cunniff (Trades, Portfolio)'s Sequoia Fund 2020 annual report.

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