• Brett Schafer

Deep Dive: Leandro From Best Anchor Stocks Discusses Constellation Software



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Show Notes


This week we have a first-time guest on the show: Leandro from Best Anchor Stocks. Best Anchor Stocks is a service on Seeking Alpha that offers investors research reports on stable, blue-chip stocks for your portfolio. With Leandro, we discussed Constellation Software, one of the most successful roll-up businesses of all time. Here are some questions we asked him:


  1. Can you explain Constellation’s business model? Can you go through some examples of businesses they own?

  2. Can you explain the unique decentralized operating structure they’ve set up?

  3. Who is Mark Leonard? Why do you think he has been so successful running Constellation Software? How important is he to the thesis? (compensation and stuff)

  4. A year ago Constellation outlined two ways to continue growing at its size: moving to large VMS and developing a new circle of competence. What progress has been made on that front? What are your thoughts on that strategy? (We can discuss the recent $670 mil acquisition)

  5. Constellation trades at around 40x trailing FCF. What do you think has to happen for acceptable returns from here? Is cash flow the right metric to value this business?

  6. Is there a ceiling to how much capital they can invest annually?

  7. What important metrics are you tracking to identify whether Constellation is increasing shareholder value?

  8. What could go wrong with an investment in CSU?



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Disclosure: The author and podcast guests are not your financial advisors. Ryan Henderson and Brett Schafer are general partners and portfolio managers at Arch Capital. Clients of Arch Capital may hold securities discussed on this show.


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