This is Zack Fuss, an investor at Irenic Capital, and today we’re breaking down Constellation Software. Constellation is a conglomerate which owns more than five hundred vertical market software businesses. It was founded by Mark Leonard in 1995 and has delivered remarkable returns to shareholders since going public on the Toronto stock exchange in 2006.To break down Constellation, I’m joined by Chris Cerrone, a Partner and Portfolio Manager at Akre Capital Management. We discuss Mark Leonard’s genius, why Constellation is the gold standard for employee compensation plans, and how the business has perfected its acquisition engine, which allows it to buy dozens of software businesses each year. Please enjoy this breakdown of Constellation Software. For the full show notes, transcript, and links to the best content to learn more, check out the episode page here. ----- Business Breakdowns is a property of Colossus, LLC. For more episodes of Business Breakdowns, visit joincolossus.com/episodes. Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here. Follow us on Twitter: @JoinColossus | @patrick_oshag | @jspujji | @zbfuss | @ReustleMatt | @domcooke Show Notes[00:02:37] - [First question] - How Chris and Akre came across Constellation Software [00:05:21] - An overview of Constellation[00:08:40] - The origins of Constellations’ 30-year legacy of extraordinary returns[00:11:57] - A deeper explanation of vertical market software as it relates to Constellation[00:15:30] - The impressive scale of Constellation despite its niche-targeted portfolio[00:18:04] - Their incentive structures and their avoidance of stock-based compensation[00:21:05] - Additional ways in which Constellation stands out, relating to the Rule of 40 [00:23:20] - The barriers that keep competitors and copycats from overtaking them[00:28:00] - The three legs of Constellation’s acquisition engine[00:32:57] - Recent spin-offs of assets as opposed to straight acquisitions[00:35:45] - How Constellation is planning for the future[00:38:13] - Why they’re considering expansion towards non-VMS acquisitions[00:40:30] - Capital allocation and Mark Leonard’s outlook more broadly[00:43:46] - How the business reflects Mark’s nature and values[00:47:31] - How much technology risk does the business face?[00:50:56] - Is organic growth a concern? [00:57:40] - Lessons for operators when studying Constellation’s story

Chris Cerrone, a Partner at Akre Capital Management, stops by The Business Brew for a discussion about his investment philosophy, simplicity, the definition of quality, and much more.  Chris’ paper, The Art of (Not) Selling, really made an impression on Bill.  This discussion follows up on that paper, among other topics.   Prior to joining Akre Capital Management in 2012, Chris served as an equity research analyst for Goldman Sachs & Co. in New York from 2010 to 2012. In that position, he covered restaurant and retail companies. He began his investment management career in 2007 as a junior equity research analyst with Century Capital Management in Boston. Chris graduated summa cum laude with a B.A. in economics from Tufts University.   Bill really enjoyed listening to Chris talk about how Mr. Akre would push Chris to find the essence of a business.  That enables an analyst to then focus on THE most important question.   Books mentioned include: https://www.amazon.com/Zen-Art-Motorcycle-Maintenance-Inquiry/dp/0060589469 https://www.amazon.com/Lila-Inquiry-Robert-M-Pirsig/dp/0553299611/ref=pd_lpo_2?pd_rd_i=0553299611&psc=1 https://www.amazon.com/The-Art-of-Learning-Josh-Waitzkin-audiobook/dp/B00JE2WEEK/ref=sr_1_1?crid=3DQ5DXHBNOWB7&keywords=the+art+of+learning&qid=1643803876&s=books&sprefix=the+art+of+learning%2Cstripbooks%2C83&sr=1-1   Detailed show notes below the Stream by Mosiac sponsor copy and thank yous.   Please leave us a rating in your favorite podcast player!   This episode is brought to you by Stream by Mosaic, a product that is integral to any fundamental research process.  Stream has developed an extensive library of expert interviews that cover a variety of industries.  https://streamrg.co/BB features over 300 expert interviews per week.  70% of Stream's experts are found exclusively on https://streamrg.co/BB.  Visit

Chris Cerrone is a Partner at Akre Capital Management. Prior to joining Akre Capital Management in 2012, Chris served as an equity research analyst for Goldman Sachs & Co. in New York from 2010 to 2012. In that position, he covered restaurant and retail companies. He began his investment management career in 2007 as a junior equity research analyst with Century Capital Management in Boston. Chris graduated summa cum laude with a B.A. in economics from Tufts University.In this episode, I welcome Chris back on the podcast and talk about the meaning and the importance of quality in your investments. He shares with us the 3-legged stool analogy that perfectly symbolizes the “Nirvana” of business, the importance of finding happiness in small improvements, and how being disciplined and discerning can help businesses handle inflation better. All this and more in this episode so make sure to stay tuned until the end! Let’s Talk About Quality The importance of defining quality in the business Defining the “Nirvana” in businessIt's a superior businessIt’s exceptionally well-managedManagers can reinvest the naturally occurring excess capital, as well as they run the business enterprise The 3-legged stool - symbol for the Nirvana Simple, boring, and “un-sexy” approach The power of compoundingThe results are not boring Happiness Come from Small ImprovementsSifting Through the Wheat and the ChaffEnsuring quality Having discipline Importance of being discerning1st leg of the 3-legged stool analogy: Superior BusinessesDoes the business have competitive advantage?Does it have superior growth? Is there an element of anti fragility?How Inflation Impacts BusinessesLooking at history and using this to help build frameworks Inflation has always been part of the equation Importance of businesses to have pricing power Low levels of capital intensity Resources Mentioned:Warren Buffett's shareholder letters in 1980 and 1981The Money Masters by John Train Key Quotes: “The setting suits the strategy and with all the activity and frenetic innovation going on in some of the finance capitals, we're really happy to be where we are here.” - Chris Cerrone “It really is important to stay disciplined. be discerning, remember that you only have to do a few things well over an entire investing career to really get where you want to go. So you don't have to participate in the vast majority of what's going on out there.” - Chris Cerrone ------------------------------------------------------------------------------------------Connect with Chris:LinkedIn: https://www.linkedin.com/in/chris-c-40aba9140/Website: www.akrecapital.comListen to Chris’s previous Colloquium episode! Connect with me:LinkedInLIKE, SUBSCRIBE, AND LEAVE US  A REVIEW on Apple Podcasts, Spotify, Google Podcasts, or whatever platform you listen on. Thank you for tuning in and Stay Tuned for the Next Episode COMING SOON! Hosted on Acast. See acast.com/privacy for more information.