# Introduction & Performance - [Constellation Software - Wikipedia](https://en.wikipedia.org/wiki/Constellation_Software) - [A $30B Software Company from a $15m Investment by @ttunguz](https://tomtunguz.com/mark-leonard/) - From 2003 to 2014, Constellation’s revenues compounded from $80m to more than $5b, an average of 25% annually. - In 2014, Constellation grew revenues 40%, which today would place the company in the top quartile. But Constellation arrives at that growth in a very different way: they acquire to grow. ![[Modèle de boîte - Constellation Software (2018.02).png]] # Operating manual - [Mark Leonard (Constellation Software) Operating Manual — Colin Keeley](https://colinkeeley.com/blog/mark-leonard-constellation-software-operating-manual) - Mark Leonard, started Constellation with $25 million Canadian dollars in 1995 (equivalent to $32.85 million in 2021 US dollars) raised from investors. - Constellation’s market cap today is around $31 billion as of June 2021. CSI has reliably compounded at 30+% a year. - His colleagues have described him as "probably the most intensely private individual in IT." - Before founding Constellation, Leonard spent time working as a bounder, mason, gravedigger, dog handler, sapper, and wind energy researcher and then finally some years in traditional venture capital post-MBA. - Mark got his start at Ventures West, a Canadian venture capital firm. It didn’t go very well (mid-single digit returns). He was particularly irritated by VC's unflinching focus on companies operating in large addressable markets. - He was seeing plenty of companies operating in niche spaces that were great businesses. They just didn't have the upside potential to be huge venture outcomes. - VMS businesses were high gross margin and sticky, and selling mission-critical software that was instrumental in a buyer's operations. - Vertical market software is developed for and customized to industry-specific needs. These are businesses focused on a niche markets like spa & fitness or dealerships that have specific needs, but aren't attractive to the larger players. - Their favorite businesses are bought directly from Founders. They naturally have the best cultures. - **Criteria** from their website: - A mid-to-large-sized vertical market software company (a minimum of $1-million earnings before interest and tax) - Consistent earnings and growth — generally EBITDA/revenue + revenue growth of 20 percent or more per year - Experienced and committed management - An offering price that has been determined - **How does Constellation evaluate investments?** - Constellation uses the **First Chicago Method**, a weighted four independent scenario approach (winner, modest winner, walking wounded, wipeout) to assess investment prospects. - Another term for this is mutually exclusive collectively exhaustive scenario modeling or "MECE". - **The cash flows of each of the four scenarios are probability-weighted**, allowing them to use a single hurdle rate across all investment prospects, even if the investments have very different risk profiles. They have dependable base rates to use after hundreds of previous acquisitions. - **International organization** - Each OG (= operating group = business unit) essentially serves as a holding company for dozens of underlying software companies. They are basically a miniature Constellation, "the equivalent of what CSI was ten years ago (plus or minus three years)." - **BU managers are autonomous, often competing intensely with each other**, and are held accountable only for their own results. Most of the operating decisions are made at the BU level. - **What’s the typical size of these businesses purchased?** - The company acquires small VMS players, with an average price of $2-4 million. - Constellation bought 134 software companies in 2022: - Capital deployed: $1.743 billion - Median deal size: $3.3 million - Largest deal: $700 million - Almost 3 deals per week - **Market** - There are estimated to be 40,000+ vertical market software which are potential targets for Constellation. Raymond James wrote about the opportunity which Constellation is harvesting in August 2016: - **Multiples they pay?** - Constellation doesn't publicly disclose acquisition multiples, but Howard Leung, an analyst at Veritas Investment Research, estimates it pays an average of 0.8 times a target's annual sales (after accounting for any cash acquired). - Most of their competitors would say this is well below market. Constellation is known to turn down deals based on price more so than competitors that can pay higher prices based on squeezing out synergies. - **Types of businesses Constellation Software has bought/started?** - Government - roughly half of CSU’s revenue comes from customers in the public sector: municipalities, school boards, police departments, etc. Incentives in the public sector are notoriously absent and/or misaligned, so the impetus for a salaried government employee to lobby for a change in software vendor rarely exists. - **Management & Culture: Decentralized Human Scale** (cf.[[Management Playbook - How to be a better CEO]]) - If a large BU is not generating the organic growth that we think it should, the BU manager needs to be asked why employees and customers wouldn't be better served by splitting the BU into smaller units. Our favourite outcome in this sort of situation is that the original BU Manager runs a large piece of the original BU and spins off a new BU run by one of his/her proteges. Ideally, he/she has been grooming a promising functional manager who’ll be enthusiastic about running and growing a tightly focused, customer-centric BU. - *“Something wonderful happens when you spin off a new business unit.”* … *“With a clean sheet of paper, the leader only takes those he needs. They set up in an open office with good communication and no overheads. They cover for each other. They leave all the bureaucracy and the crap behind”*. I did record a couple of verbatim quotes from that conversation: *"Don't share sales, R&D, HR, etc. because the accountants never get the allocations right and the business units always treat the allocated costs as outside their control", and "When you get big you lose entrepreneurship".* - **Where does the desire for keeping teams small and independent come from?** - Mark has a history of playing team sports and a problem with authority. His team sports background taught him the power of small groups working together. - **Career path at Constellation Software** - Constellation lays out an explicit career path for its employees, starting as an employee, before ascending through the ranks to reach "Compounder" status. - Leonard outlines this trajectory in his 2018 letter: - _“A career path for an ambitious employee joining Constellation might be something like this: Immerse yourself in learning about the peculiarities of VMS economics. At some point, transition from analyst or knowledge worker into a leader of people...If you make sure that the team members are intelligent, energetic, and ethical people with whom you would want to work for the rest of your career, it won't be long until you are running one of our BU's (Business Units). Whatever vertical you end up in, that specialisation, that focus, will require a multi-year effort to build a trusted network of employees, customers, other industry participants, and even competitors..._ - _For those whose ambition exceeds their good sense, we have a role that we call a Player/Coach. A Player/Coach continues to run their BU, but ambition drives them to acquire a sizable business, usually in another geography or another vertical...The BU manager for the newly acquired business is nearly always from the acquisition itself, and hence has deep expertise in the vertical. Should the Player/Coach find a second or third stand-alone business to acquire, they eventually have to give up the day to day responsibilities for running their original BU and become a full-time Portfolio Manager ("PM")._ - _If the PM is good at finding acquisitions, and helping them learn relevant best practices, and continues to deploy at least the FCF produced by their portfolio, then we refer to them as a Compounder.”_ - **Compensation** - In the 2013 President Letter, Mark Leonard writes: - _“Our employee bonus plan requires that all employees who make more than a threshold level of compensation invest in CSI shares and hold those shares for an average of at least 4 years”_ - As of 2015, CSI reportedly had over 100 employee millionaires, with Leonard noting his intention to bring that figure to 500 over the next decade. Much of that wealth has likely been accumulated through Constellation's stock. Depending on their seniority, employees are required to deploy a portion to buy Constellation stock, up to 75%. - It aligns the constituents of discrete business units with the performance of the parent company. Given the autonomy individual companies have, it would be easy for factions to arise or empire-building to occur. This move ensures each group is incentivized to pull in the same direction. - **Scientific Method** - Marks says the scientific method is the best method for any business. - He recommends setting up a system of iterative improvements in your business. Sooner you can learn and iterate, the better. - After each deal, CSU does a post mortem 1 year in. They discuss and share learnings, improve process accordingly. - **What does the operating company and Mark do day-to-day?** - The head office has been pushing acquisitions down to the BU level. These divisional leaders are permitted to greenlight M&A deals up to $20 million, 4-5x the average deal size. - In the shareholders’ letter of 2015, Mark Leonard writes - _“I have been encouraging our Operating Groups to push down more of the acquisition activity to the Business Unit (“BU”) level, even if it means higher capital deployment costs. If we can train a couple of hundred BU managers to be competent part-time capital allocators and provide them with acquisition analysis and structuring support when they need it, then I can foresee the day when we are doing 100 acquisitions per annum, instead of 30”_ - Leonard outlines the counterintuitive guiding principle that undergirds Constellation's management: - _“Head office provides the Operating Groups with capital allocation assistance and decisions, and tries to disseminate some best practices, a few clear rules, a bit of coaching, and coughs up the occasional partly trained employee for the Operating Groups. Compliance, investor relations, and handling the finance function round out the head office duties. Whenever we feel stretched at head office, we download more of our work to the Operating Groups. This_ **_delegation to the point of abdication_** _philosophy (first discussed in the 2010 Letter to Shareholders) seems to have worked so far.”_ - **Study others** - He spends a lot of time studying other high-performance conglomerate (HPCs). **Mark thinks they should teach way more business history in schools**. - Mark is a huge collector of business history and business biography books (He has read 400+). - Roy Thompson is Mark’s business hero. Roy failed publicly 3 times before striking gold in his 40s (Mark really got his start with Constellation in his late-30s). Mark also respects that Roy pivoted from chasing high growth industries to investing in quality businesses. Roy went on to buy 200+ newspapers and turn his family into the wealthiest in Canada. - **What would Mark Leonard do differently today?** - **Incentivize Organic Growth** - He wishes he had changed the incentive structure to be focused on organic growth over acquired growth. The current incentive structure caused managers to become acquisitive over everything else. - That said, he still says that organic growth has a lower IRR on invested capital. - **Work / Life Balance** - Personally he says he wishes he spent more time with his family. He said it was hard to tell this was going to be a regret while in the midst of his career. - He credits the the Dunbar number, which basically states you can only really have ~50 meaningful relationships. If most of those are people you work with, it doesn’t leave much time for people outside of work. This makes work/life balance statistically difficult. - **2018 [Business Lessons from Mark Leonard (Constellation Software) – 25iq](https://25iq.com/2018/04/07/business-lessons-from-mark-leonard-constellation-software/)** -  We did terrific doing that in the ’08, ’09 period. We just didn’t deploy enough capital. - “**The high ROIC achieved over the last decade suggests that we have very good businesses**. If ROIC starts to erode significantly, then either we’ve damaged our existing businesses, or our new acquisitions are less attractive than those that we have made in the past. ROIC isn’t one of those metrics that is necessarily subject to ‘reversion to the mean’. Some businesses seem to be able to widen their moats at reasonable cost.” - **2016 [Constellation Software Writes Money Book On Apps](https://www.appsruntheworld.com/constellation-software-writes-money-book-on-apps/)** - Last year, Leonard went even further by asking his board to cut his total compensation to zero, saving about $1 million for CSI. The former venture capitalist, who owns a 6.7% stake in the company worth about $535 million, said instead of charging his company for coach tickets on business trips, he would pay for such travels out of his own pocket. - The rest is up to thousands of CSI employees located around the world running nearly 200 business units with the biggest employing about 500, trying to serve their customers better and ultimately making a buck out of their software IP. Instead of passing out options, CSI offers them incentives in the form of shares escrowed for three to five years. - **Acquisition** - Constellation has created a business development team that is constantly trying to find more software businesses to buy. They are always prospecting for new acquisitions. Capital allocation at Constellation is centralized but the actual operation of the businesses is very decentralized. What is unique about Constellation is that they have acquired so many companies (more than 330). - **Growths & ROIC** - **Organic growth** - “Growing organically while generating a high ROIC is, to my mind, the toughest task in the software business.” (compared to acquisitions) - “Constellation’s organic growth has averaged a respectable ~3% per year which is in-line with US Gross National Product (GNP) growth of ~3% over that same period.” - “If you add Organic Net Revenue Growth to ROIC, you get what we believe is a proxy for the annual increase in Shareholders’ value. In a capital intensive business you couldn’t just add Organic Net Revenue Growth to ROIC, because growing revenues would require incremental Invested Capital. In our businesses we can nearly always grow revenues organically without incremental capital.” - The significantly larger source of revenue and profit growth for Constellation has been inorganic increases via acquisitions of new businesses. This inorganic growth is where Constellation particularly shines and generates the lion’s share of its attractive financial returns. The Constellation formula is relatively simple: buy a diamond in the rough in the form of a vertical market software business and then apply polish to make it shine. - **Competition between acquired businesses** - Some people would say that Constellation is very disciplined about R&D spending. Others would argue that this a nice way of saying that Constellation cuts R&D once they buy the business. Leonard said that once way he gets managers to think intelligently about things like R&D spending is by creating “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 website lays out it’s approach to improving operations: - *“…we offer coaching and resources in a number of areas including establishing values and capital allocation processes, profit-sharing programs, benchmarking against our other businesses, the chance to share best practices with other CSI companies, formal management training and ongoing mentoring. CSI will not take over the day-to-day management of its businesses. We continue to rely on the managers and employees of our subsidiaries to run their businesses well.”* - **Buy from founders** - “Our favorite and most frequent acquisitions are the businesses that we buy from founders. When a founder invests the better part of a lifetime building a business, a long-term orientation tends to permeate all aspects of the enterprise: employee selection and development, establishing and building symbiotic customer relationships, and evolving sophisticated product suites. Founder businesses tend to be a very good cultural fit with Constellation, and most of the ones that we buy, operate as standalone business units managed by their existing managers under the Constellation umbrella." - **Churn** - *"Sometimes the higher churn is because lots of new potential clients are being created, and old ones are going bankrupt and merging. If it is the latter, these software businesses may be very attractive. If it is the former, then the software businesses are likely to be unpleasant, requiring tremendous effort to stay in much the same place."* - **No leverage** - Leonard is also making a point abut leverage in the quote just above. Borrowing in short term markets to buy assets for the long term is problematic to say the least. # Constellation Software Shareholder Letters - [Constellation Software Shareholder Letters - Lessons from Mark Leonard](https://athenarium.com/constellation-software-mark-leonard-shareholder-letters/) - The company’s Founder & President Mark Leonard gives a short description for their success: - *“Constellation owns robust businesses with inherently attractive economics run by good managers whose compensation is tightly aligned with that of shareholders”.* - Mark Leonard - **Measuring the true value of companies** - **Net and maintenance revenue** - Net revenue is GAAP revenue less third party expenses and flow-through expenses. Leonard likes the metric’s focus on ‘value-added’ revenue, which is sometimes lower for commodity hardware or third-party software. - Constellation also focuses on net maintenance revenue. This is **maintenance revenue less third party maintenance costs**. Leonard believes that net maintenance revenue is an important indicator of intrinsic value for software companies. - **Adjusted net income and return on capital** - Leonard also thinks about capital that shareholders have invested in the business. Here, **Constellation uses a return on invested capital (ROIC) that is more akin to a cash-adjusted return on equity.** It’s important to note that financial leverage can affect this metric. - For software businesses, Leonard believes that growth in maintenance revenues should provide some evidence that the business’ intangible assets have not deteriorated. - **ROIC plus organic growth** - In his earlier letters, **Leonard’s favourite metric for measuring corporate performance was the sum of ROIC and organic net revenue (ROIC + OGr).** - **Limitations of ROIC** - ROIC + OGr may mislead investors if companies: (1) pay high multiples for acquisitions, (2) use a lot of debt for purchases, and (3) buy back shares and pay dividends in large volumes (remember that Leonard’s definition of ROIC is closer to ROE). - Increasingly high ROIC might also distort ROIC-driven compensation schemes. Here, Leonard considered two solutions: (1) change the compensation plan and/or (2) cap bonuses. While the former erodes employee trust, the latter generates incentives to reallocate profits between bad and good years. **Instead, Leonard likes high ROIC businesses to redeploy capital into new opportunities in an attempt to generate similarly high returns on capital**. Here, managers are rewarded further for generating high profits and/or growth. - **Free cash flow growth per share** - While he liked return on incremental capital invested, he was wary of its volatility and sensitivity to non-operating activities such as share repurchases and issuances. Similarly, while net maintenance revenue per share is helpful, it is also sensitive to abuse because we cannot derive it from audited financial statements. - Furthermore, when bonuses depend on financial performance, there is incentive for managers to recognise revenue early or aggressively. - **For the reasons above, Leonard landed on free cash flow growth per share as his preferred measure. It takes dilution, interest expenses and capital expenditures into account**, but doesn’t adjust for minority interest liabilities. - Constellation’s CFO preferred adjusted net income per share instead since it’s less sensitive to swings in net working capital, and adjusts for minority shareholder claims. Once again, Leonard reminds readers not to rely on a single metric to assess company performance. - **Value creation and investment selection** - (1) customer captivity; (2) superior coverage; (3) defensible niches; (4) calm waters; (5) founder’s haven; and (6) value plays. - **Customer captivity** - Here, the company might achieve high market share in core segments through organic growth and/or acquisitions first. - Then the company might build or purchase more add-ons to better serve their customers. This would allow the company to raise prices, switching costs and its return on invested capital. - **Superior coverage** - Alternatively, some companies might build or acquire several business groups that operate independently within the same market. While this might duplicate costs, the focus on product differentiation and customer coverage may enable greater market share. - **Defensible niches** - Where companies are not a dominant market leader or able to grow via acquisitions, they may focus on creating a defensible, differentiated niche. If industry attrition rates are low, such strategies might still offer profitable growth via expansions in service, support and add-on products for existing customers. - **Calm waters** - Leonard likes businesses that can grow at a faster rate than competitors, and at a higher return on capital. This edge allows them to reinvest in customer captivity and organic growth. ‘Slightly’ is the important adverb here. Incremental gains in market share are less likely to elicit “scorched earth competitive” responses that brings pricing, research & develoment, and sales & marketing to unsustainable levels. - **Founders’ haven** - If growing via acquisitions, Leonard prefers to purchase founder-owned businesses. Because founders are relatively more long-term oriented, this tends to have positive effects on employee selection, organisational development and corporate culture. In turn, these advantages are likely to translate into better customer relationships, product development and continuous improvement. - **Value plays** - Finally, Constellation likes to make the occasional value play in high quality but temporarily distressed assets. This tends to occur in periods of recession, previously mismanaged spinoffs and private equity divestitures. However, relative to founder-based acquisitions, value plays may impose greater culture challenges for the acquirer. - Constellation has also taken minority interests in publicly listed software companies on occasions. While these interests are made with “value” in mind, Leonard believes they can carry higher incremental risk because outsiders do not have full access to information that pertain to long term decisions and trade-offs that these companies will make. - **A thought experiment on growth** - In his 2015 letter, Mark Leonard asks readers to compare two businesses that earn very high and identical after-tax internal rate of returns. The first is a high-profit declining business, while the second is a low-profit growing business. He asks readers which business they would prefer to invest in. **His answer: Invest in both, particularly if opportunities are scarce. Constellation cares about the IRR, not whether it comes via high or low growth**. - **Organic v acquisitive** - Strong maintenance revenues and low attrition rates are positive signs of strong customer loyalty and high switching costs. - **The growth bias** - Leonard suggests that balancing the trade-off between profitability and organic growth is one of the toughest challenges for managers in software businesses. Great managers have to maintain profitability during difficult times without compromising long-term research & development. - **Initiatives and sustenance** - For the reasons above, Constellation separates R&D, and sales and marketing expenses (RDSM) into ‘initiatives’ and ‘sustaining’ categories. ‘Initiatives’ focused on long-term organic growth-generating investments with a five to ten-year payback period. This distinction is important because it allows Constellations to understand and monitor each initiative’s internal rate of return. Not many companies take such a rational and data-driven approach to long-term investment decision making. - **MECE modelling** - Constellation uses a mutually exclusive collectively exhaustive (MECE) approach to assess investment opportunities. They assign probability weights to cash flows under different scenarios. They then apply a hurdle rate to compare different investment prospects with different risk profiles. Leonard notes the use of similar hurdle rates for all opportunities, from acquisitions to internal initiatives. - **The Constellation styled investor** - **High hurdle rates** - To select investments that generate a high return on capital, investing with high selection standards, strict discipline and a margin of safety is important. - As Leonard observed in his 2016 letter, lower hurdle rates at Constellation were correlated with lower resulting IRR. There’s a sort of magnetism between low standards and poor performance. - Leonard provides some advice on this front. Firstly, it’s helpful to keep early burn rates low as we test our investment thesis. We should move on when it’s clear that the project cannot meet our strict hurdle rate. And if we cannot find alternatives that meet our hurdle rate, we should be happy with holding cash. - **Constellation’s founder also highlights that there is value in training managers to become effective capital allocators as the company scales.** This was particularly important at Constellation given their trust-based culture, long-investment horizon and large volumes of small business units. - **Value and momentum** - When asked about the reasonableness of high multiples in today’s markets, Leonard suggested it helpful to distinguish between value and momentum. While the latter is a workable strategy, it depends more on emotion than logic, which Leonard prefers to stay away from. - However, sometimes the market will price in multiple years of growth when the company has even greater opportunities to scale. While these companies might look expensive, they might still be trading below their intrinsic value. The challenge for investors is in spotting these opportunities. - **Margin of safety** - Leonard reminds readers that great companies do not always make great investments. High multiples and market manias can eliminate the margin of safety in the best of companies. Leonard suggests it’s time to worry when companies begin trading at prices at 5 to 6 times revenue per share. - **Care with leverage** - While Constellation is averse to leverage, Leonard is not strictly opposed to it. He describes how acquirers and buyers are scarce when economies slow, credit dries, and capital flees. During such occasions, a change in capital structure to pursue more rapid growth may create long-term value. This was the case for Constellation during the GFC when many previously expensive businesses had now become affordable. - **Managing complexity** - Constellation’s biggest worry in the early 2010s was managing the complexity that comes with continued growth. Jeff Bezos expressed a similar concerns in his letters to shareholders with Amazon. - Interestingly, Constellation has considered the trade-offs between a ‘large and concentrated’ strategy and their ‘many verticals’ strategy. In Leonard’s view, while the latter is more complex from a management standpoint, the former may require more isoalted acquisitions at higher multiples and lower ROIC. - As such, **Leonard prefers to operate with smaller business units and leaner central head offices**. This is reminiscent of Warren Buffet’s Owner’s Manual for Berkshire Hathaway. To Leonard, the trade-off between agility, innovativeness and scale is not a general rule. **From an analysis of their own portfolio and business units, Constellation did not observe a correlation between business unit size, growth and profitability.** - **Correct contrarians** - Leonard reminds his readers about ‘correct contrarians’, an important tenet in value investing. That is, investors with unpopular but well-founded beliefs are more likely to outperform the market over time. - **Listening to Wall Street’s noise** - However, this is not a recommendation to be contrarian for the sake of contrarianism. In a 2018 Q&A, Leonard noted that he doesn’t ignore Wall Street, the media and investment analysts. In many cases, they are focusing on the right opportunities and information sets. He only ignores them when he believes they are wrong. - **Fostering organised scepticism** - Similarly, **Leonard recommends we surround ourselves with logical, intelligent and curious people with a culture of experimentation and deliberation**. It can help us to see facts and reason that others have missed; and is a safeguard against a unhelpful biases and heuristics, like unconscious or confirmation bias. - The issue, Leonard says, is that investors are too focused on trading stock certificates. This generates a zero-sum game that creates little value for society (beyond price discovery). - **Making decisions under uncertainty** - The reality is that decision making rests mightily on our beliefs. We can tilt the probabilities in our favour if we invest with discipline and a **margin of safety**. - **Learning from our mistakes** - Leonard reflects on Constellation’s biggest mistakes in a 2018 Q&A. First, he mentions **the mistake of raising too much capital when Constellation did not need** it. It resulted in significant dilution for existing employee shareholders. - The second was **selling one of Constellation’s verticals shortly after an acquisition**. While they liked the company’s economics and team, Constellation was early in its history, less confident in their ability and opted for the quick win. This sale detracted from their philosophy and reputation for long-term orientation. - **Alignment at Constellation (employees, customers and long-term shareholders)** - **Alignment creates value** - One of the owner’s task is to find, incentivise and nurture energetic, intelligent and ethical general managers to generate shareholder value over the long-term. Leonard espoused a culture of trust among managers and employees. He incentivised them with shares (escrowed for 3-5 years) to improve their economic alignment with shareholders. - **When introducing new compensation schemes, Leonard makes it optional for employees to opt-in**. This is to preserve employee trust. - Leonard suggests that if employees believe their compensation is fair, then retention becomes a function of the company’s capacity to offer meaningful work, autonomy, professional development, work-life-balance and other typical factors that employees expect in their careers. - Leonard wants employees to prioritise long-term profits over short-term bonuses. For this reason, Constellation prefers to promote from within because trust and loyalty takes many years to develop. - **M&A can erode trust** - It can generate worry, distrust, uncertainty and short-termism amongst employees, customers, suppliers and shareholders. - **Buybacks transfer value** - He describes how it can transfer value from outside owners to inside owners if purchases are made on the basis of inside information. - **Upholding fair value** - Leonard has expressed his preference to discuss matters pertaining to Constellation as the business and not the stock. He originally believed that if owners and managers focused on company fundamentals, the stock price would reflect underlying value sooner or later. - However, his experience with Constellation’s potential buyout in 2010 made him revise his position. If the stock price remains well below intrinsic value for too long, you may attract ‘barbarians at the gate’. By contrast, if prices remains well above intrinsic value, you may lose loyal and long-term oriented shareholders and employees who prefer to sell out. - For these reasons, Leonard began to take a more active role in ensuring Constellation’s stock price was within a reasonable range of intrinsic value. - **Directorships at Constellation** - Firstly, Constellation seeks directors that will operate as long-term oriented thought partners for senior leadership. They must **be willing to serve for 20 years or more**. - Secondly, they want directors that **share their belief in shareholder alignment and are willing to take large equity stakes in the company**. - Thirdly, they must **understand the drivers of high-quality businesses, and the benefits of business unit autonomy and decentralisation**. - Fourthly, they need to coach and **nurture company talent as well**. - Furthermore, directors must exhibit a **high impact but low ego personality**. They will contribute meaningfully and intervene when needed. But they’re careful as to not dominate discussions or disrupt the autonomy of their managers. These directors should also be experienced capital allocators with a penchant for generating consistently high ROIC. Unsurprisingly, **Leonard is also biased towards CEOs with great shareholder letters**. # Business & Business Units in Constellation Software - [CSU.pdf](https://www.raymondjames.ca/en_ca/equity_capital_markets/equity_research/sample_research/docs/CSU.pdf) - [» Acquisitions Constellation Software, Inc.](http://www.csisoftware.com/category/acquisitions/) - [Jonas Software - Club Management](http://www.jonassoftware.com/Our_Companies/Club_Management) - [Aquila - Our Companies](http://aquilasw.com/companies/) - [» Our Companies Constellation Software, Inc.](http://www.csisoftware.com/our-companies/) - [About us | TSS - In Europe](http://www.totalspecificsolutions.com/about-us) - [Microsoft Word - CSI - Press Release Q4 2017 - V5 - CSI-Press-Release-Q4-2017-Final.pdf](http://www.csisoftware.com/wp-content/uploads/2018/02/CSI-Press-Release-Q4-2017-Final.pdf) - [Industries - Perseus](http://perseusgroup.ca/industry/) - [COMPANIES | Vela Software](http://velasoftwaregroup.com/companies/) - [Our Businesses](http://www.harriscomputer.com/en/businesses/) - [Volaris Group](http://www.volarisgroup.com/)