Hello, and welcome to the Annual Meeting of Stockholders of Constellation Software Inc. Annual General Meeting 20 21. Please note that today's meeting is being recorded. During the meeting, we will have a question and answer session. 20.
Please note that your registered name will be announced 20 20. Please also note that all participants are in a listen only mode. If you experience technical difficulties during the meeting, 20. It is now my pleasure to turn today's meeting over to Mark Dennison. The floor is yours.
20. Thank you and good morning. I'm Mark Dennison. I'm the General Counsel and the Corporate Secretary for Constellation Software. 2.
Mark Leonard, Constellation's President, has asked me to act as the Chairman of this Annual Meeting. Jamal Baksh will act as Secretary of the meeting. 20. I ask Shirley Tom and Amanda Castellano of Computershare to act as scrutineers and to compute the votes of any polls taken at the meeting. 22.
Due to the COVID-nineteen pandemic, we are conducting today's meeting virtually via live webcast. Since the meeting is being held virtually, 20. We want to outline a few logistical items regarding the conduct of the meeting. Questions can be submitted by any meeting attendee using the instant messaging service 2 of the virtual interface. When asking a question, please indicate your name, which entity you represent, if any and if applicable, confirm if you are a registered 20 20, and if applicable, the entity such a person represents.
Questions will be addressed during the question period at the end of this meeting, provided that some questions 2 may be addressed during the formal part of the meeting, including questions regarding procedural matters or directly related to the motions before the meeting. As indicated in our press release dated March 29, 2021, shareholders also had the opportunity to submit questions to the company in advance of today's meeting. 20. We will pose those questions to certain members of senior management following the formal part of the meeting and we'll also take questions from the audience. 20.
Questions which are already addressed in the questions submitted in advance of the meeting or that are redundant or repetitive may not be answered. 20. For the purposes of the meeting today, voting on all matters will be conducted by electronic ballot. Registered shareholders and duly appointed proxy holders will be asked to vote on 20. When you're asked to vote, you will receive a message on the virtual interface requesting you to register 2.
When voting commences, the polls will be open for 3 minutes. We will now proceed with the formal portion of today's meeting. To expedite the formal part of the meeting, 20. I will move and second all motions. The secretary of the meeting has filed with me proof of mailing of the meeting materials, 2, including the notice of availability of proxy materials and pharma proxy and where applicable the notice of meeting and management information circular.
20. The consolidated financial statements of the company for the year ended December 31, 2020 and the auditors' report thereon have also been mailed to all shareholders of the company who have requested them. Copies of these materials are 2. Copies of these materials are also available on the company's SEDAR profile and on the company's website. 20.
We would be pleased to deal with any questions concerning the financial statements subsequent to the completion of the formal business of this meeting. 20. The scrutineers have reported to me that we have at least 2 shareholders present by electronic means and holding or representing by proxy at least 15% of the votes 20 entitled to be cast at the meeting. As such, I declare that a quorum is present for the conduct of business and this meeting is properly constituted for the transaction of business. Voting today will be conducted by electronic ballot.
The balloting will be open to registered holders and appoint 2 proxy holders who have properly logged in with their control numbers and username after the presentation of all business items. 20. The first item of business is the election of directors. There are 15 directors to be elected at this meeting. The management information circular mailed shareholders contains information about the 15 nominees.
Those nominees are Jeff Bender, John Bilowitz, 20. Lawrence Cunningham, Susan Gaynor, Robert Kittle, Mark Leonard, Paul McPheeers, Mark Miller, 20. Laurie O'Neill, Donna Parr, Andrew Pastor, Dexter Saldner, Steve Skoczmer, Barry Simmons, Robin Van Poelho. 20. The meeting is open for nominations for the election of directors for the ensuing year or until their successors are elected or appointed.
20. I will now nominate the directors and second the nominations. I hereby nominate each of the persons whose name appears in the management information circular under the heading Election of Directors 20. To be a Director of the company until the close of the next Annual Meeting of Shareholders or until their successors are appointed and I also second those nominations. 20.
If there are no further nominations, I declare the nominations closed. I note that as described more fully in the management information secular, 20. The company adopted a majority director election policy in May 2009. This policy enables shareholders to vote separately for each director nominee at meetings of shareholders 2, where directors are to be elected. If a director nominee does not receive the support of a majority of the votes cast at a meeting of shareholders, 20.
That director will be expected to tender his or her resignation from the Board following such meeting. The resignation will be effective upon acceptance by the Board and will be disclosed via press release. 20. For more information about our majority director election policy, please see Page 20 of the management information circular. 20.
I will now move and second a resolution appointing the auditors for the current year and authorizing the directors to fix their remuneration. I move that KPMG LLP chartered accountants are appointed auditors of the company to hold office until the close of the next annual meeting of shareholders 20 20. The next item of business is an advisory resolution to endorse the company's approach to executive 20. Compensation is further set out in the management information circular. As the vote is advisory only, it will not be binding on the company.
However, the compensation 20. The Human Resources Committee of the Board will take into account the results when considering future executive compensation arrangements. 20. I will now move and second the approval of the advisory resolution. I move that it be resolved on an advisory basis and not to diminish 2.
The role and responsibility of the Board of Directors of the company that the approach to executive compensation disclosed in the management information circular 20 is accepted, and I also second the motion. Unless there are any questions, I will move on to the voting process. As 20. As I mentioned earlier, voting today will be conducted by electronic ballot. I will now take a moment to ask that the balloting be opened to registered holders and appointed proxy holders.
20. And at this point, all registered holders and appointed proxy holders who have properly logged in with their control numbers and username
and wish to vote 20.
We'll be able to see on the screen the election of directors, the appointment of the auditors and advisory resolution on executive compensation motions brought forth at this meeting. 20. Please register your votes by accessing the voting page and selecting the For or Withhold buttons next to the name of each proposed director and next to the resolution with 20. The 20. The voting will remain open for 3 minutes.
And while you are submitting your votes, we will begin introducing the speakers for the question and answer period. Once the electronic ballot closes, the voting page will disappear and your votes will automatically be submitted. 20. The full voting results will be published on SEDAR following the meeting, but I can report that based on the proxies which we've received in advance of the meeting, 20. All matters that were put to a vote today have passed.
The formal items of business to set out in the notice of meeting have now been dealt with. 20. I hereby move that the meeting be terminated and I second that motion. I declare the resolution carried and the meeting is now terminated. The formal agenda for this meeting is now completed.
20. I will now be turning the meeting over to Mark Leonard for introductions, after which we will proceed with the question and answer period. 2. I ask that all attendees who would like to ask a question use the instant messaging interface feature of the virtual interface to do so. When asking your questions, please include your name, the entity you represent, and if any and if applicable, confirm if you are a registered shareholder or a duly appointed proxy holder.
20. Mark, over to you.
Thank you, Mr. Dennison. 20. So thank you all for joining us. We won't go through our normal 20.
Introductions at length, but there are a couple of new faces at the table this year for those shareholders who've 20. If you want to pose questions to the directors who don't introduce themselves, 20. Feel free to send a message to the panel and to Larry, and they'll try and get it in, and we can get some backgrounds on those people if you would like 20. But by way of introduction, why don't we have Damien Dunn, the 2 new faces at the table, take a minute 20. And introduce themselves.
Damian, do you want to start?
Yes. Thanks, Mark. My name is Damian Mackay. I'll lead the Vela Operating Group, which I inherited from John Bilowitz. I joined Constellation and Veolia through an acquisition of the Data Mine business in 2015.
It's been a great result 2 for that business and for that team as we've been able to grow and it's a real honor to take over from John in this portfolio. Vela, for those who aren't 20. It's a global very global set of businesses diversified across 7 portfolio groups. We cover areas like mining, oil and gas, manufacturing, retail and travel.
20. Thank you, Damian. Good morning, everybody. This is Dan Dijkhauser. I'm manager of the topicus.com operating group.
I have been the CEO of 20. Topicus BV, the acquired Topicus since 2017. 4 years earlier, I joined And that was after a decade of serving as a technology executive at ING Group. So I joined the CSI Ecosystem on January 5 this year, while CSI acquired Topicus BV and executed the spin out of the merged 2. Chairman of the Board, Robin van Poule, and very glad to have become part of this family.
Thank you.
Thanks, Dan. Thanks, Damian. So rather than asking others to do introductions, what I'm going to do is, 20. In the following order, ask them to identify themselves and then talk about a professional frustration that they've experienced over the course of last year That was not COVID related. I think we've all heard enough about pandemic related items.
And the order in which I'll ask the people to introduce themselves is Barry, Bernie, Dexter, 20 20. You'll probably be hearing them throughout the course of the day and we often forget to say who's talking. So off you go Barry.
20. Sure.
Thanks, Mark. It's Barry Simmons here. I'm the CEO of the Jonas Operating Group. And I guess my frustration would be, I've always said the toughest part of management is having to part ways with an employee when they're a great employee and have done nothing wrong, but we just don't have enough work for that employee and we've had to do that a decent amount in the last year, quasi pandemic related, But it's just my biggest frustration always in management. So I'll go with that one.
Bernie? Yes.
Hi, it's Bernie Anzruth. I'm the Chief Investment Officer for the business. And my biggest frustration, I guess, in the past year would be seeing interest 20. Rates remain incredibly low and asset prices going up incredibly high, multiples are just at stratospheric levels.
Hello, I'm Dexter. I run the Perseus operating group. 20. And my biggest frustration
aside of COVID, I don't know
if it's professional, but there's no more pools to go to. I've 2. And there's no middle pole that I can go to. But otherwise, it's just 20. Keeping the team in touch and keeping in touch with your team and communicating Best practices, goals and in general just keeping in touch with your team.
20. Thanks, Pascal. Jamal?
Yes, Jamal Baksh. Yes, luckily, I'm blessed to have an amazing team and Able to work anywhere from head office, cottage, etcetera.
So really, I had no frustrations.
You've got to say Investor Relations, Jamal. Come on.
Good morning, Jeff Bender, responsible for the Harris Operating Group. I wish I was Jamal apparently because he has no frustrations. 20. So I reflected on Mark's question. I think we had one of our senior and very tenured leaders decide to leave us 20.
Partway through the year. I think reflecting back on it, we didn't really see it coming. I really wish we would have had the opportunity to have 20. A meaningful conversation with the individual. I'm not sure it would have changed the outcome, but I think it would have been, I just think it would have been a better part of the process.
20. And then I think as that was unfolding, I think it also highlighted to us that we still need to continue to evolve Our succession planning. So that's still a work in progress for us. That's it, Mark.
No, that's a really good one and thought provoking. It 20. It's attributed me the realization that people who have built fairly significant network May we call for a lottery ticket. And I think there is a lottery ticket type opportunity in some private equity And people see that chance to make absurd amounts of money Even after they build Sirius Wealth, the Constellation sometimes as attractive. And 20?
That's something we have to think through in our own compensation policies. So yes, I definitely empathize with you on that one. Mark Miller?
Hello. Yes, I'm Mark Miller and oversee the Volaris 2. And one of the big, big parts of our job is sort of communicating the CSI ways across our 20. Which are all over the world at Constellation. And one of the harder things I found is, I try to involve myself as much as 20.
Ken, personally in that is sometimes communicating with people who don't speak English, obviously, as
a first
language 20. And sometimes aren't really getting the message and continuing to develop our leaders who are from those areas of the world to do that better. And I think the whole situation We're doing everything by video conferencing these days to sort of underline that issue for me in the last year more than ever and trying to respond to that as best possible.
And Robin?
Yes. English is also not my first language. But My biggest frustration last year was we worked terribly hard on our spin out and I've been working for To realize it already for a couple of years. We signed it in May, and then we want to do our listing, and we had a 6 months window. We hope to Get the release in October, and then we had some delays, and then we crossed the deadline in November.
In theory, 20. Sellers could walk away, but we managed it all and we were celebrating then in December, but sometimes it was frustrating as well. So we pulled it through, but it was 2.
So my own personal frustration, it's 20. Last year, but it's also for a few years. It's much along the same lines as Mark Miller talked about. Because we're operating globally, Our ability, particularly those of us who are unilingual or maybe 1.5 lingual, whatever that is, 20. Almost bilingual.
I find it tough going into a 3rd or 4th or 3rd culture and language 20. And trying to have an impact and realize how difficult it is to communicate across 20. Cultures and languages, our beliefs and our approaches and things of that nature. And it's been particularly tough 20? As I've been working on Japan as a sort of personal pet project, and 20.
I've got some great people over there who are capable in English and studying what we do, But the cultural Gulf is so large that I'm having real struggles crossing it and 20. Okay. We're going to move on to the Q and A session now. Larry is going to lead that process. He has a panel of people who have helped him.
20. So Larry, would you like to introduce yourself and those helping you?
Yes. Thank you very much. Larry Cunningham here. 20. Been a member of the Constellation Board of Directors for 6 years almost.
I've been Vice Chairman for a few of those. 20. And when Mark issued the press release announcing that I was going to be Vice Chairman, he said the job description was to help the Chairman. 20. And so one of the things I get to do is host the Q and A portion of the meeting.
20. It's a little bit about who's in the audience. We have 400 people on the line. That's a pretty good group, pretty large considering the 20. Thank you so much for most of you filled out the poll A little bit of the results of the poll in terms of who is among that 400.
3 quarters of those 2. Only 2% of the those taking the polar index investors. 20. Most people in this meeting have picked Constellation as an investment. Also 20.
Very long term. The second question shows that 70% of the people at least have held Constellation shares 20. About half of the total filling out the poll have held Constellation for at least 5 years and a 5th have held it for 10 or more. I appreciate the introductions from all the managers to whom the questions will be directed, but also just want 20. Other independent directors, usually in the in person meeting at this point, Mark would ask them all to stand.
20. Obviously, they can stand if they want, but it won't do any good. But I still at least I want to mention their names, Andrew Pastor, Susan Gaynor, Rob 20. Lorie O'Neill, Paul McPheeers, Donna Parr, Steve Skocchmer and John Bilowitz, 20. I'm actually a manager, now an independent director.
It's a real treat to serve with this group and it's an outstanding board, both The independence and the management group. It's a real treat. It's also a real treat to have worked with the 2 2. Howard Loom and Will Pan. These are both 2 of the most Experienced analysts in the field and focused on Constellation for A long time.
Howard is an equity research analyst at Veritas. He's been covering Constellation since 2016, 20. And he's been with that firm for 6 years. Will is at Ruane Kniff where he's been for 11 years and he's been 12. He's also a shareholder of Constellation.
He's been a shareholder since 2014. We received a very large number of 2 questions. By our count, we received 134 questions. We received them from a diverse group of shareholders, Numbering about 25. And it will be impossible obviously to ask 20.
Every single one of those questions. We're going to be here together 3.5 hours. That's about what, 2 10 minutes or less. If we asked every question, we'd have about a minute and a bit for each one. Obviously, that would be silly.
So we've had to make some choices And to condense some of the questions as posed, the good news is that there were many that duplicated each other. There are some hot topics this year. And so, The 134 may be a little bit misleading. So we don't think we're going to be able to ask all the questions, but we've tried to condense and select So that you receive the greatest amount of valuable information. So if you hear a topic Being asked, being discussed, and it isn't exactly the way you worded your question.
Please understand we're probably going to generate Same information even if we didn't ask the questions as they were submitted, verbatim. 20. Last year, we did the same format with the same group, Will and Howard and I. There was a smaller number of questions, but we did we were able to get through almost all of them. So 20.
We'll do our best to cover the waterfront. And as with last year, as Mark Dennison has said, if you have a 20. During the meeting, you'd like to submit it in the AGM Lumi function. We'll receive that 20. And at periodic intervals, we'll pause and post questions submitted today through that function.
We have not shared the questions ahead of time with anybody on the panel with one exception of one question, which could have required some computational So I ask that question to Jamal, but otherwise, the questions will be a surprise. Well, a surprise in some sense. 20. And so in some sense, there's I don't expect any big surprises. We divided the 20.
And each of us will take a turn as moderators for One of those categories, the 6 and we'll run them roughly at about the same length, somewhere around 20, 26 minutes, something like that. So you can keep track of the topics As we unfold, those 6 categories, the first category will be on M and A and investments. That's a very familiar one. I think we have that category just about every year and most of those questions will be posed brought to the panel as a whole. And so 2.
Operating group managers and others will simply volunteer to speak to the various questions. The second category is going to A little bit of a world tour with questions about different geographies and a couple of questions on particular verticals. The 3rd category is larger investments and investments beyond vertical market software. This has its own category this year, Mainly because the President's letter issued on February 15 explained a somewhat broader 2, ambition or investment in competencies. And so that letter elicited quite a few questions Enough that we'll devote a whole segment.
That'll be the 3rd segment this morning. The 4th one on Topicus, PSS, also 20. The new event, the merger of Topicus and PSS and then the subsequent spin and the ensuing we've got a whole quarter of performance now. I 20. I know you had a conference call on the quarter yesterday and got some questions answered, but it's a topic of some significant interest 20.
So that'll be our 4th segment. And then the 5th one, we'll return to some more familiar terrain 20. And the final segment, the last segment turns a little bit towards you About our shareholder base, what we like about shareholders, public perceptions of Constellation and then The topic of ESG, Environmental, Social and Governance. So that's the order of the day. Thanks 20.
Thanks again everyone for coming. So we'll
turn kick things off with our first segment, the familiar M and A and Investment 20. And this segment will be led by Will. Will, thank you very much.
Hi, it's Will Penn here. Thanks, Larry. Thanks for the privilege to be here interacting with the team. I appreciate it. 2.
And it's also a privilege to be asking some questions on behalf of fellow shareholders. So another year, 20. Another virtual AGM, no surprise. There's some questions about how M and A went during the pandemic
and that
20. So broad question for the group. During the pandemic, did you find that you adjusted your approach with respect to the types of assets that 2. You were willing to acquire, for instance, were you more reluctant to buy troubled companies since the troubled company might be harder to fix with travel restrictions in place?
Anyone have any particularly Relevant cases come to mind?
20 Mark, I'll take it. It's Jeff from Harris. Yes, I don't think, Will, when I reflect back, I think, obviously, the first 2. I think when the pandemic sort of was upon us, I think that was a very slow period of time. So I think other than that, 20.
A period of adjustment to really just sort of understand and what we were doing and what potential sellers were doing. But I think once we sort of got back 20. I think because we look at owning our businesses forever, I don't recall any conversations 2. Internally where we were concerned about what we were buying, I think we went back to looking at the types of businesses that we always look at. We were spending, I think, a little bit more time 20.
On integration, so again thinking through what our integration strategies would be to make sure we were setting these businesses up for Given we were not going to be able to physically be with them, which would obviously be a center part of how we did things. But I don't think other than that it really changed
how we looked at what
we looked at. And I think if you look at the market in general, I think other than maybe a quarter of a hiccup, 20. People kind of went right back to what they were doing before and things continue to move forward. I think with technology, I think 20. A lot of our meetings were virtual anyway.
So again, other than there were definitely in person meetings, a lot of what we were doing was 2. Actually in the format we were doing it. And I think again, a lot of the transactions that we were working on, we had already met 20. A lot of these owners in person, again, because these processes don't sort of start and stop within a 1 week period. They can last over a period of years.
So again, I don't think that had a major impact. I think now as we're continuing to deploy, you're seeing more, I think, opportunities where we perhaps 20. Have not actually met face to face with certain individuals, but I think there we're now more comfortable with our remote integration because we've had More practice and more experience. So that would be the Harris perspective anyway.
20. Mark, you did one that was levered to the gills before we bought it. And so it must You must have felt a certain trepidation going into that one. Do you want to talk about it without necessarily identifying 20.
Yes, I mean, well, I think
I just expanding generally on what Jeff is saying. I mean, there's sort of the side of it where What was even going to happen with some of our own businesses, right? And there was a high level of paranoia on what we're doing with our own businesses. So The lens you'd look through at a business that you're considering acquiring was obviously with that in mind, right? So, And as time passed and as we sort of got a better feel for how our businesses were performing, I think it Helped us continue to look at the businesses we are trying to acquire more rationally through those lenses and A little less paranoid of how bad could it get kind of thing.
And it was it's kind of easy to forget that because it seems it's a long COVID, it really wasn't that. 20. And I think the business you're mentioning, Mark, I mean, I think again, I think we look at it just Looked at that sector in general and looked at how we currently were doing in that sector and what was happening in it and took that into account in deciding Whether or not we thought this was an investment we should proceed with.
Did you find that you did a different level of diligence 20. Any of the issues with that particular one or because you do No. I think the good news is
we had good knowledge in the sector 20. And a good group of people who had a lot of confidence a balanced set of confidence around What they thought was possible and what we thought would happen. So, I have to say all investments, I'd say, in the first Post pandemic for the 1st 6 months, I did spend a lot of time thinking about the worst case, more than I would have before that. In fact, I usually would start by thinking through that before I move to what could happen if things were stayed got back to the pre pandemic levels 12. And try to get more comfortable with that.
I'd say I'm less in that mode now. I don't know if that's helpful, but I'm saying we're looking at it like we did pre pandemic now, 20. It's healthy in one way, but it also influences somehow how you're thinking about the whole investment considerably, right? 20.
But Will, you asked if it made us look at different types of assets. So one of the first things I did on the heels of the Early lockdown was reach out to some of our best competitors and offer them 20. Investment, minority investments in great companies, because I thought it was a unique opportunity to help and participate 2. The sectors that we knew were people that we knew and admired. As it turns out, things weren't as bad as 2?
We thought they were at the time and no one took me up on it, but it's something I would have thoroughly enjoyed and It didn't come to pass.
Yes. I think like I was thinking, is this going to be 2008 with a different flavor to it being that it's pandemic again, right? And what's going to happen? I was sort of That was going through my mind as we were talking to people. But the businesses themselves like us, I think, felt the businesses that we 2.
We're talking to felt more comfortable as time passed. So, yes, it was yes, it's Again, surprising for me how this has panned out over the past several months. I would have assumed 20. Things maybe took a path, but they slowly improved. So I didn't we didn't really change our attack.
Plus, of course, we're always having a lot of conversations with a lot of people. And 20. Many of those conversations happened over multiple years and that just continued anyways, right? There's a lot to do anyway. So 20.
I don't think we changed our focus at all, to be honest. We just kept on going and just had a bit more of a skeptical eye on what the future might look like because of the pandemic.
Go ahead, Mark.
Yes. One thing that did happen was that our directors got Very uncomfortable about our wipeout scenarios when we were looking at investments and started asking us to think through Extreme outcomes. And that sent us back to look at the weightings that we had on the wipeout scenarios in our models. 20. And we found that they were fairly robust because we already used multiple scenario models.
20. Even when we threw in extreme scenarios with low probabilities, it didn't change the expected outcomes a lot. So I was really pleased By that sort of stress test of our M and A process, if you will.
20. Yes, I'd agree. I'd agree. And one thing we were looking at internally during it was attrition, right? We're heavily looking at internally in our own businesses.
I think we're checking it weekly, monthly, like at a much more high cadence than we normally would. 20. And that's how we grew comfortable too with how we thought about that particular scenario, Mark, That wipeout scenario as well. So that provided us some comfort as we remain more paranoid about what might happen, what could happen.
20. Great.
Thanks everybody. Next question. At this point, what do you think is your biggest bottleneck for making even more small VMS 2 Investments, the sort of bread and butter ones that you've scaled up significantly already. Would you characterize it as more external such as what's available at attractive returns 20. Or internal such as M and A staffing or integration needs.
And could we maybe get a comment on the coverage
20. Yes. So we're always nervous about Sharing trade secrets. But with that preamble, I'll pass it on to who's our most close lipped,
20 Yes, I would definitely say it's more on the external side of things. 20? We've been all of us have been ramping our M and A coverage. Do we think we have perfect coverage? Absolutely not.
But has it been getting better? 20? Absolutely. And I would say we're talking to lots of companies. We're still getting lots of transactions done.
So it's not like we're not getting things done. But 20. I would say our bottleneck probably would be more finding companies that sort of fit our sweet spot And being able to get them executed. Obviously, if we ramp it up too quick, we'll start to have the challenge of the internal challenges not having I can speak within the Jonas Group. We're fairly stretched right now, but I think we can definitely keep doing what we're doing.
But if we doubled what we're doing without 2. Investing a lot more internally in our people, things would start to break. And so we've got to manage that balance pretty closely. But I So I'd say it's more external, but the internal will hurt if we double where we are today.
Robin, how about you?
20? Yes, I think it's both a little bit external and internal, but I think the big challenge at our side was internal. 20. So we're trying to cover more geographies within Europe. You have cultural difference, you have language difference, and we had a lot of new people within our team.
20. So they have to learn the ropes, steepening the learning curve. And we did something like 17 transactions last year.
20. So that means we
do more than 1 per month. So getting that all done with a new team and having 20. That all properly managed on top of the merger we did with Topicus. I 20.
I think it
was a big challenge, but we managed it. So I would say and on top of like Mark and Jeff said, the pandemic has pent up well, but you spent more time on each 2. Where can it hurt us? What will happen? So it was a very intense period.
So I would say the internal side, I I think we did a great job, but it was a lot of work.
And, Will, the mental model of bottlenecks Is a useful one in a lot of systems, but when you're on a steady ramp the way we are, It isn't so much bottlenecks as ramping everything at every stage simultaneously that's the challenge.
20. Right. Sort of piggybacking on this, people can expand on the same thought. What are your views or 20. What are the team's views on the remaining opportunity set to acquire small VMS companies?
By redoubling the effort to make large VMS acquisitions and 2. Consider investments outside of BMS, which is another topic. It seems like the implication is that small BMS investments will no longer absorb the growing cash flow. So what are your thoughts on the opportunity in small BMS acquisitions going forward? Does it plateau?
Does it tail
12? It's so hard to understand The size of markets, it's the thing that fools most venture capitalists. When you look at truly wonderful businesses, to my mind, They are those that define their markets very tightly and then do a spectacular job for that 20. Those are the ones that end up with moats that are the kind that we like. We're not the low cost provider in an economy of scales driven business model.
20. And so I'm sure we could define our available market of potential acquisitions to include 20. Little e commerce companies and Internet companies of various kinds of media companies and God knows what all else and make it absolutely enormous. It doesn't mean, however, that our best practices and our M and A processes will be useful as we extend it into that 20. So I really think it's a process of evolutionary exploration that we're embarked on as opposed 20 Running Hard Into A Big Market kind of thing.
We'll figure out where the economics of Buying Little Businesses Break and where they're good. And hopefully, we're way up that 20. And learning every day things that people who are following won't even have the chance
20. Does anybody else have any thoughts on sort of the remaining opportunities that they're seeing in small investments? Barry was already 2. Maybe it's more of an external constraint. There's not that much to find.
Robin seemed to be a little bit more equal, but tilting towards the internal side. 20. Anybody else want to opine on whether they what sort of supply they see or market they see for the same 20. Bread and butter BMS acquisitions that they've been embarked on.
20. Yes. Robin here. Yes. I think even during the pandemic 20.
And opening up new countries, but even in existing countries, I'm still surprised that we still are able to find new companies. 20. So I think we do a good job on trying to find new companies and introduce ourselves. Of course, there is competition and competition is emerging. I think you see that everywhere, but we're still able to find our deals and even in 1 on 1 processes.
So I don't think 20? It's a limit there. I still think the availability is there. We just have to be smarter, more creative and work harder, 20. But then we still do our deals.
And Damien from Thiele here. I would say that As we make the network effect of continuing to make these acquisitions, the positive References we get from our existing businesses and the employees in those, we're not seeing a diminishing market for those smaller Acquisitions in our world.
Great. Abin mentioned Competitors, we do have a question about competitors. We've heard of more high
profile CSI copycats launching
sometimes with former 12. CSI copycats launching sometimes with former CSI employees and then more PE firms entering the space. Folks talk about whether they've seen an impact from these competitors, particularly in Respect of attracting and retaining talented employees and how do you stay ahead of them?
I'll take that one, Will. It's Jeff from Harris. 20. I don't think it's really any different than it's always been. We have to create the right environment for all of our employees, including our capital deployers, which is a combination 20.
The short term compensation, the long term equity appreciation and really the collegiality and 20. Challenge in the learning experience that they're looking for. So I don't think anything's really changed from that perspective. I think there's no question when Bernie 20. Gave his frustration about low interest rates and crazy amounts of capital and valuations.
I think There are a lot more people I think willing to pay amounts that we typically have not paid in the past. But I still think 20. When you really sit down and talk with the people who are investing in what we do, it's not just about the money, right? Like the experience that we offer here is very different 20. From most and I think for those that are looking for that experience, it's still quite rewarding.
And I think we're always challenging ourselves 20. I think stay on top of that and make sure that we are competitive and that we understand what the options are. So a number of us 20. Make sure we spend time making sure we understand what private equity is doing and what how they're paying and how they're compensating their people. And so I think we're always incorporating 20.
Is it perfect? Absolutely not. But I think we're it is definitely top of mind and we're always I think Sort of focused on paying attention to that.
So Will, I saw a headline the other day that said IPOs have raised $250,000,000,000 so far this year. $250,000,000,000 that's About 3 times more than it was at the peak back in 2000 when everyone was Internet.com, this and that. 20. So the amount of money, a flood of cash that's out there is astonishing. And You've got to stay away from that wave.
You've got to find places that are protected and that 12. You're not going to be overwhelmed. And attracting people who Don't want to go ride the wave and do want to have a career and do want to develop mastery as opposed to being part of the most recent pump and dump Whatever it is, you're looking for a certain character within the people that you hire 20 And a willingness to go on a journey of mastery. And it's hard to know when you hire those people whether they're the right folks, but you figure it out 20. Pretty quickly.
And so we do have a certain amount of churn in the people that join us who decide it's not the right place for them and that there are faster ways 20. But it's all a question of what your objectives are. And so we've, of course, lots of long term employees too who have become Wealthy and I think fulfilled in the jobs that they have. Mark, do you mind just?
Yes. Just add to that,
I think there's a bunch of our employee shareholders on the phone. And many of our leaders, in fact, I think 3 quarters of our leaders Have come up from among within the companies that we've acquired and brought on to the team. So That's pretty special. And those are those people, as well as having an affinity to the business that they came with, 20.
Some of them like to move on and
do more things with their careers. And that's a unique opportunity that I think People forget about. So there clearly are the people that you bring in and you hire and we have fabulous leaders that we brought in that way too. 20. But the bulk of our leaders come from within and that's pretty special.
They're in the regions of the businesses that we've acquired In the language of the businesses we acquired, which is even better. And I think that provides a slight moat around that, Will, if you want to call it, not a perfect one, but I do that. Because we're decentralized, it reduces the number of single points of failure as well. 20. And so, it's what the whole team does versus Handful of individuals in the long run.
And if they yes, if they're from the business, I think there's more of an affinity with us and provides us an opportunity to continue to grow Through acquisition that way.
Great. Thank you all. So 20. And Bernie mentioned valuations and mark the wall of 20. So there's a question that is addressed to Mark and I think to the team, starts by firing you up.
20. Great job creating shareholder value over the years through discipline, benchmarking and best practices, but many software companies 20. Higher prices than CSI would generally stomach given its hurdle rates. Do you worry that by not focusing on or owning these companies, 20. You may be missing an opportunity to observe different but still sustainable value creating practices being realized there.
Any efforts to try to learn systematically from best in class VMS more broadly even outside of the walls of CSI? 20.
I think we definitely study best in class vertical market software businesses. Sometimes we study them because they're public and sometimes we study them because they're for sale. And that's one of the Joys of being a participant in these marketplaces. Certainly, we get to see 20. Some of them directly, but we also get to see some through brokers.
And we don't always come up with a price that is the winning price. 20. In fact, that would be single digit percentage of the time. But what we're particularly good at is looking at things that are either 20. Slightly tougher to understand than a simple LBO type model assuming That you can sell it to someone else for a higher price than you bought it for.
And so it's those situations where I think we can 20. Add value and with the brokers themselves, we try to respond very promptly, deal with them and their clients with respect. And if we're not going to be a contender, let them know fairly early in the process. But we get to learn a lot in that process as well because we get to see these best practices.
Yes. I think Will, it's Jeff from Harris. I think from my perspective, maybe it was about 5 years ago, we were talking a lot about private equity and trying to understand Maybe more closely how the strategies that they were deploying, what it was doing to the business. So how The levers they were pulling were adding value to the businesses they were buying. So Mark agreed that I could spend some of my, at Harris, we call 20.
Spending more time hands on with some private equity firms. So again, I devote a portion of my time So working with 1 private equity firm specifically, but sitting as an independent board member on other vertical market software companies. 20. And this again, I really enjoy for a number of reasons. But not only do I get to better understand some of the tools The private equity uses, I also get to see how some other great operators run vertical market software companies.
In terms of when they're acquiring, how 2. How do they think about organic growth? How do they think about pricing? How do they think about again the other business strategies that they have? 20.
And then I bring that knowledge back into Harris and share it with our leaders and obviously share it with my peers across Constellation. So I think we're always 20. Mark says, we do study a lot of public companies. We obviously see tremendous numbers of companies, but we also I think are very interested 20. And always understanding what we could be doing better and what other things are out there that we should be thinking about.
It's just part of our DNA.
20. Great. That's the end of that section. Thanks all for your responses.
20. Thanks, Will. We'll move into segment 2 here momentarily, but why not first take 2. This is from Louie Hernandez.
Yes. I certainly don't do it. But what I find is 20. We discussed things intensely as a group, whether it's verbally or through email. And we question without taking personally what we see and what we hear.
And so I think it's constructive criticism, I guess, is part of the culture, A willingness to ask dumb questions or smart ones. We don't tend to accept fast move on type answers 20. And then we go back afterwards and do postmortems, both book ones, which we do 20. After every investment, roughly a year after. And increasingly with the Board, we've been doing what we call mature Post acquisition reviews where things that are more than 5 years old, we're going back and studying.
The first group that we studied, we randomly picked. 2. And I did that deliberately rather than focusing on large ones and good ones and bad ones because I felt a random pick 2. It isn't just the successes and it isn't just the failures, it's an awful lot of the in between stuff too, some of which is small, some is product buys, 20. Some of which is shrinking businesses, some of which are businesses that turn into massive compounders that Generate high rates of return for decades and understanding that that dynamic happens that it's 20.
And although our returns from a portfolio point of view are more or less what we expect, 20. There is wide variance around outcomes. That was, I think, at least from my perspective, A desired learning that we managed to drive into the Board through that process of reflection on prior performance and Hopefully, very candid reflection as opposed to defensive.
20. Thanks, Mark. My own observation, Louis, is I think humility among this group at least is one of the reasons For their success. So it's almost self sustaining. Let's just flip into segment 2.
This is A brief tour around the world. Constellation has a unique or distinctive approach and yet it operates in more than 100 20. And that has led to a lot of people to wonder about what are the similarities and differences around the world. So we've got a half dozen questions 20. On that subject, the first is not for anybody in particular anybody who wants to speak to
this, but some people who
have operated in Europe more 20 than others. The question is what are the most noteworthy differences between applying the CSI playbook in the U. S. Compared to Europe? And they suggest examples that they'd be interested in hearing about in terms of investment strategy, valuations, 20.
So, Damian, Dan, Robin, any of you would like to take
a 20. Well, just to have a preamble to before that question gets answered, I'm still sensitive around sort of the trade secret 20. So try and keep it general. Gentlemen, maybe Robin first.
20? Yes. For me, I think it's hard to judge the difference between North America and Europe because I'm predominantly active in Europe. Robin speaking here, yes. But of course, I've followed the North American market as well through the group here.
20. I think you hear a lot of stories about difference in valuations, that kind of stuff. 20. And then the way from North America comes to Europe. There might be a difference, but I think competition has been heated in Europe as well.
20. So I don't think it's a huge difference. And I think the big thing I mentioned before is 20. Europe has a lot of different countries with different culture, with different languages. So yes, we do see differences between the northern part of Europe and the southern part of Europe, 20.
Definitely. We see also difference in the way these companies are run. Sometimes family enterprises having 20. Lots of things intermingled between how they run their business and how they have their own expenses And the difference per country. So we try to get our head around that.
I think what just has been said, we try to learn. So 20. Like studying competitors doing our part. We do have our country well. And So again, I don't know the huge difference between North America and Europe, but I can see it within Europe.
And yes, those countries are really different. And in certain countries, 20. As mentioned before, just language, trying to have a conversation in Spanish with a Spanish entrepreneur might make a difference than just 2. Trying to approach it in a Dutch way or just by speaking English, that are very simple steps, but it's really a difference. Being part of Networks and so yes, that's the reason why talkative.com focuses on Europe.
It's complex enough.
20. Well, one follow-up question for Robin or the others is, do you see differences in the software markets In the regions in terms of fragmentation or pace of disruption, that sort of thing.
20. Let me just talk to my experience in Japan. I found it to be a much smaller market than I would have expected from the point of view of the number of vertical market software businesses that we've That was a real surprise to me. And I think we've found the same thing in a few other countries as well. 20.
North America is a particularly burden place, a single homogenous market with very similar Culture and regulations and taxes and all those other good things. Whereas the smaller the market you're dealing in, The it will be a very different sort of structure.
So this feeds into the next question really about the relative attractiveness of capital allocation 20. I think it's a red
I think it's a red herring because you start thinking about individual verticals and 20. Competitive intensity within each vertical and that frequently determines whether there's any money to be made So if you end up with a market with 3 players And they're rational and they're not totally driven by market share, you can make really good money. But if you end up in a market with relatively low barriers to entry and venture financing And they can exit 10x revenues. Well, you can actually pay people $9 to give you a dollar's worth of revenue, right? 20.
So the economics of some of these markets just become so rational, so fast. And the trick is to get out of the way of the wave. Focus on your clients, do a great job for them, drive down attrition And service their every need, but make sure it's economic for you within that small base. So 20? I don't think there's a geographic answer.
I think it's very much a market specific answer And depends upon competitive rivalry within these tiny little sub segments.
It's fascinating. So you think that the kind of the rationality of rivals doesn't really 20. With geography so that there's no reason to expect more rational rivals in North America, say, than Europe or Japan.
Well, I think you can be perfectly rational in paying a client to give you a dollar's worth of orders, A massive amount of services and help and assistance if the public markets then value that company at an astonishing multiple on the exit. And so it isn't that the pleasures of being irrational, It's that the public markets are probably not valuing the businesses that they're getting correctly. 20. And whether that will correct or not will depend upon what economics these businesses deliver as they mature 20. And how people are valuing them at that point in time.
And we just haven't seen many of these businesses 20. Show what their final economics are going to look like. Everyone's thinking all of these businesses made 50% 20. Free cash flow on revenues and continue to grow. And obviously, 20.
The economy of the world will soon be consumed by one of these businesses if that keeps up. So it can't. 20. Life has to change and it's just a question of when the penny drops.
Excellent. Thanks. Related variation on this question is how does in your models, how do you 20.
Yes, it's a good one. 20. So Damian, you have some far flung assets in Some places that occasionally have all kinds of things going on that we don't 20. Encountering North America, do you want to reflect on the question?
I think thanks, Martha. I think There's definitely differences and we do model differences for those markets based on our experience In those markets. So you can't do a model for a similar business in In Canada as
you could in maybe in Latin America
or Africa, etcetera. So it has there are some certain things we do that we that we've learned from experience of having businesses on the ground, A range of inputs where we do modify the model for those given markets. Probably wouldn't go into details here, but You definitely need to adjust some of the assumptions and also some of the hurdles to make sure you capture these So the inherent differences in be it regulation market or just the local economic dynamics?
And one of the big things that's going to change, I think, over the next little while is governments have provided Fabulous amounts of liquidity and stimulus to economies. And at some stage, they may decide that they 12. They're probably going to come looking and that's going to turn up in the form of tax rates. 20. And so how do you model tax rates?
We've seen tax rates well above 50% in historical times. I could definitely see them going back there. And the real issue becomes what returns on capital will be acceptable? Would you be able 12. Pass those through to clients, how do you model all of that given an onslaught of taxes?
It's got to be something that all corporations are thinking about.
20. Well, thanks, Damian. Thanks, Mark. Political risk and also political opportunity, right? 2.
It might take us to Africa. And a question for Mark Miller. Assuming it's not too soon to talk too much about Adapt
Yes, I'd really I'd prefer really not to chat about Adapt IT, unfortunately, Larry. So yes, we'll have to save that for later. So thank you for the question though.
Okay. 2. We understand it's a work in progress, let's say. Let's go closer to home. Jeff Bender, Question on Quebec, in particular.
The questioner says Harris may be unusual within CSI in making investments in Quebec. Is there a certain expertise that's necessary to win in that province?
I'm not sure I've ever thought about it that way. Yes, I don't think there's I don't think there's we don't really do anything I think in Quebec that we don't do in other Geographies or areas, which is I think make sure that we understand the culture and we speak The language of the sellers. So I think, well, certainly Quebec within Canada, again, has Some cultural differences and certainly prefers in most cases to speak in the language of in the French language. 20. So obviously all of our businesses that are there meet those two criteria.
I think there's no question when we're I think if we're at a prospect that is not from Quebec and is not choosing to speak 20 to the sellers in French not willing to again maybe even business transact like the legal agreements in French. 20. And I think there's no question I think that we would be at an advantage, but it's no different than I think Robin in the Netherlands or 20. Damian and his group in Spain, I think it's really no we're not doing anything different in Quebec that we wouldn't do in those other 20. Geographies, I think when you're in the vertical, when you're in the geography, that is a strength and we have that strength In Quebec and we try and use it as sort of as much as possible.
Thanks, Jeff.
I'm actually
into a related question on Assio. 20. The question wants to know if you could provide an update on AssiO and particularly, how during your ownership you have integrated
20. Yes.
So I think we're extremely pleased With the Exeo business, I think we inherited, as Mark Miller was speaking before, like a lot of our leaders come from the businesses that we acquire. Was another great example of for us a reasonably large business that brought a just a superb amount of talent that Again, continues to work within the Exaio business and even sort of broader, I think, within our Quebec and overall Harris businesses. 20. Again, it's growing, it's profitable. I'd say it's outperforming our expectations.
So I think that's always it's always good when 2. We're outperforming, especially on something of that size. So again, I think if we had the opportunity to invest In another exayo type company, I think we would cherish the opportunity to do that. But again, I think 20. Back to your maybe your Quebec question, I think our XIO business I think really probably moved us 2.
Very quickly in being a dominant player in the province of Quebec. So I think from that perspective, our just our overall presence 20. In the province was significantly enhanced with Exseo. We are everywhere in that province and most people Who we are and what we do, which I think is definitely beneficial.
20. Is that something you consciously tried to cultivate, Jeff, that provincial recognition, that sort of brand strength or it just It happened as a matter of running your business. Yes, I think,
my background is not in marketing, Much to the frustration of many Harris marketing people and leaders. I think 20. As I've aged and I would like to think matured, I do gain more of an appreciation for it. So I think I don't know that we have 20. Sort of consciously driven the creation of a brand, but I think by default we have created 1.
And I think now we Understand that it is of a benefit and I think we are trying to use it to our advantage to continue the success that we have seen in Quebec. And 20. When I talk to Sylvain Gauthier is the senior Harris leader responsible for our businesses in Quebec. And 20. When we talk about what is our Quebec M and A strategy, we want to own and identify every single vertical market software company in 20.
And from our perspective, there's no excuse that we don't know every single company and they don't know us. So I think brand definitely helps us 20. There, obviously, we're very connected into the financial community in Quebec because again, all of our business leaders are in Quebec and they interact in 20. The business community, so I think I'm not sure again it's conscious, but I think by default it's there and I do believe we are starting to leverage it or benefit 20. More as we continue to grow and expand.
We'll have a question later on Constellation's brand in the world or in its relevant markets. So we'll cross reference 20. That particular point on Harris in Quebec. The final question in this segment though, I'm going to go back to Mark Miller. We let you off easy on Adapt in Africa, but here's a question on SSP, 20.
A recent investment. Can you tell us a little bit about that and the markets it serves And how it fits into the insurance ecosystem?
Yes. Again, I think I prefer not to get into the details
2. I'm not going to flush you, Mark. 20. And just so the audience knows, we do have to be careful under in 2 parameters. 1 is 20.
Securities laws, which restrict what we can say without having released it in inappropriate forms And proprietary matters. So I appreciate your care around those two points. 20. That will wrap up that segment. And so we'll move into segment 3.
This segment is on large investments and investments beyond Vertical Market Software. I'm sure you all know, but just to catch you up, on February 15, the President issued a letter 20. Starting out extolling the virtues of the traditional approach at Constellation toward smaller and midsized acquisitions with High hurdle rates, low overhead, he bragged about the culture of autonomy and collegiality, where people are thriving. And then, But we're working on 2 other initiatives. 1 is to increase the number of very large vertical market software businesses In the multi $100,000,000 equity range and expanding the circle of confidence 20.
So that letter, obviously, an important statement and has 20. Produced a lot of interest among the shareholders and so many questions this year that we've allocated the full segment to it. 20. And to lead the questions in this segment, we'll turn to Howard. Howard Loom, thank you very much.
20. Thanks, Larry, and thanks again for having me here. It's definitely a pleasure to ask you all questions. 20. So as Larry said, lots of interest in large investments and looking beyond BMS.
A lot of these will be seem to be directed at 2. Mark Leonard and maybe Bernie as well. I guess we'll start with questions about the team, assembling the team for larger investments. 20. How large of an M and A team are you building at headquarters?
What's the G and A associated with this? And how are you thinking
20. Can't say that I thought a lot about compensation, but how large of a team is a good question. Basically, from head office, all we're going to try and do is 12. And have started developing relationships with them. But then these large prospects will go into a process and will 20 Disappear from sight of our operating groups.
And our objective from head office is just to have The pulse of the investment bankers and brokers who are handling these transactions and to be able to phone them up 20. In a friendly fashion and say, hey, I understand there's a process. What are you looking to do? What are you hoping to achieve, etcetera, etcetera. 20.
And so we're going to try and constantly stay in touch with those brokers. We're going to leverage the operating group Skills and resources to the extent possible where it isn't possible or we want to do some work 20. Before we engage one of the operating groups, we will have a small team at head office that can do some of that work. 20. And certainly, I and to some extent, Robin, who has volunteered to And it takes some of his time and allocate it to large prospects.
And obviously, Bernie and a couple of the folks that we've hired will be working on this as well.
Right. So it sounds like it's really to get the banking community and the broker community involved at the head office
20. And for them to feel that they're getting prompt and high level attention to the prospects of the spring and that they're getting a fair hearing and that 20. We are getting back to them so that they can decide whether to include it in shortlist and things of that nature. 20.
Right. And in terms of the team that you're looking for, these people head office, what capabilities are you the most confident in 20. And where might you want to supplement to make a successful part of the strategy so that you're able to bring in all people you need?
20. I'm not worried about attracting people. That isn't What we're looking for is character and willingness to work hard. So when I talk about character, That willingness to tell the truth, to speak frankly with the Broke us about what we see and what we're concerned about and what we like and what we think we can do. It takes a maturity because you always want to Sort of hang around the process and you're wasting your time and other people's time 12.
Often when you do that. And there's lots of prospects. As we said, there's 40 to Maybe 100 big prospects a year that we'd love to see. And obviously, we don't want to queue up The time of people who are working on other transactions that have a higher probability of closing 20 If we don't think we can be competitive. So it's starting amongst those few transactions, those where we have 20.
Competitive advantage. Right. That's what we're looking for.
Right. 20. And I guess since you've released the letter, have you how those conversations with brokers been have they suddenly come flocking back? Have you
20. No, I think we need to build relationships 20. And at very senior levels and convince them that we can be a helpful part of their process. 20. So we're certainly working on more than we have at head office for a long time.
That's because we haven't been doing much at head office. You know, that's where you both had head office.
Right. 20. And once you do actually buy a large investment, how do you decide which operating group might absorb it? I I guess from your earlier response, it sounds like the operating groups actually lead the process and the head office just
Let's take TSS as an example. It became a new operating group in and of itself. But I I had assistance from the other operating solely ahead of its 12. Nearly all of the group was closing to advise and help and spend time With Robin and his team. So it was a group effort.
Right, 20. And I don't
know if
you can say this, but the FICO acquisition yesterday That Jonas closed is that was that Jonas led and head office supported or
Yes. If you ask Barry, he'll say that Jonas led it and head office didn't support it, but he managed to get it over the
20. Fair enough. And then for Mark specifically, I know you mentioned that you're looking at Japan, but this 20. Person wants to know what are you spending a lot of your time lately? What results or discoveries have you found so far?
And they're assuming you spent a lot of time on this large M and A
2. Sorry, Howard, I didn't really get the question. Were they asking me how I spent my time on the Japanese 20. Affinity in particular or things in general?
Just what are you spending a lot of your time on?
20. Interesting. Well, the large stuff has obviously been time consuming over the last little while. 20. I also looked at a couple of opportunities outside of vertical market software, one of which has gone away, but was a Big dollar potential deployment outside of vertical market software and the other one of which is a sort of nascent Industry opportunity that I think we have a unique 20.
Favorable to us, unfavorable to much of the rest of the world. I'm excited about it, but it's a very long term prospect 20. Very contrarian and but it has this it has a huge embedded option. So that's what I've been spending time on. 20.
All
right. Can't wait to hear more about it when it's official. On still on the large investment train, 20. What have you tied any of those lessons you've studied from high performance conglomerates into how you approach large investments? 20.
This person brought up an example of TransDigm's recent acquisition of Esterline, which required 2. Putting in an entire management team to share best practices. So, do you think you'll have to pay higher purchase multiples as well as
I'm sorry, Howard, I didn't quite get the question there. You were saying 20. We studied high performance conglomerates and then I lost the thread.
It appears Howard has disconnected. Let me see if I can dial back out to him.
Okay. I'll pick up where he left off. He was just asking, Mark, 20. For large investments, what lessons are you applying from your study of high performance conglomerates? The author gives the example of TransDigm.
20. Apparently, in a recent acquisition, it ended up putting a whole management team down there in order to proliferate their best practices.
Most lessons I got from the high performance conglomerates were depressing that over time they generated 20. Ever lower rates of return on incremental capital deployments and although they continue to be operationally efficient, The way they continue to generate acceptable and reasonable returns Was through the use of gobs of financial leverage and TransDigm was probably the most extreme example in terms of financial leverage. 20 And it's just a personal comfort thing that we haven't gone that route. So what we're trying to do, what we where we think 20. We have the greatest chance of success is not large investments or investments outside of vertical market software, But it's been continuing to do lots of small and medium sized vertical market software investments using the 20.
Processes and approach that we've historically used. So obviously, we're trying to scale that. And that's 20? Absolutely our focus. Everything else is aside activity and probably doesn't generate anywhere near as good 20.
Rates of return is that core activity and I don't particularly want to distract people from the core. 20. So lessons from the high performance conglomerate. I'll tell you one lesson I've learned and that's Roy Thompson Wrote a book, which I love, called After I Was 60. 20.
I'm turning 65 today, so maybe I'll write a book after I was 65. And if I can have the success that Roy had after he was 20. He basically left North America, moved to the UK, took a small amount of money and started up again 2. And did a phenomenal job. He obviously knew the newspaper business very, very well 20.
And did quite well in the newspaper business, but where he scored and did dramatically well was the early days of television And then the early days of North Sea Oil. So he did 2 things that were totally outside of his core competence 20. And did so remarkably well. And so, if there's an example out there that I'd love to follow, it would be them. And so, 20.
As I look at things that are outside of Virgo Market Software, hopefully, I can be as adroit as Roy was in Looking for things that are unusual and unexpected. ITV, it was the first time I think 20. Licenses have been handed out for television in the UK that weren't government licenses. And North Sea Oil obviously was a bonanza, but the very early days of the bonanza. It was an opportunity spotter and we probably need to do that if we can't get our core business to consume our capital employed.
But I'm still very hopeful that we will do a better job on the call.
20. That's a good that's a really good lesson shared, and we will turn to that and a few questions about investments beyond BMS.
You can see now I'm trying to shut down this particular line of questioning, Howard.
Yes. It's too bad. There's a lot of
20. I'm not sure it's an opportunity. It's an opportunity to fail here. 20. We got good at something and we should probably keep doing a lot of it.
That actually relates to my Next question, but before that, happy birthday. I'm sure most people would be getting their CPP by now, but I don't see that for you. It's in the next at least in the next few years. Will large BMS 20. Would you pay a higher now this is interesting, would you pay a higher 20.
Would you pay a higher now this is interesting, would you pay a higher multiple for faster growing software businesses, whether BMS or not than
20? Well, obviously, if you think growth is going to continue, you will pay a high multiple. So 20. Let's chuck that question because it's sort of obvious and not particularly useful and relevant. What you're asking about with the synergies question is whether, given the circumstances of the particular situation, 2.
We would behave intelligently. And I got to answer you, I hope so. I mean, we run our businesses differently 2. If they're in different circumstances. Mark Miller probably has the widest range of size of businesses 20.
From incredibly tiny to quite large global businesses. So Mark, why don't you just sort of try and contrast How those businesses might be run differently?
It's a really interesting question
20. And what's interesting about it is, we spend a lot of time trying to learn from each other Constellation and we try to get our business leaders together to learn from each other as much as possible. But one of the challenges is, if you're running, let's just we'll pick a number. Let's say you're running a $100,000,000 business 2. And you're sitting that person down with the person running, let's say, a $5,000,000 or $6,000,000 business.
Can they really learn from each other, 20. Right. They're very different businesses. If you're the head of sales from let's say $100,000,000 business and you have marketing under, you might have 50, 20. 70 people in your department.
And so you've got to be a coach of a coach of a coach plus you've got to think 2. Cross borders, there's a whole bunch of things you might want to think about versus a small business where you might only have 2 people or 3 people in sales and marketing, right? 20. So it's different. And the things they worry about, things they think about, the type of people you need As those businesses continue to grow, sometimes change.
So the person who was the head of sales when it was a 2, 3 person Sales department, can they run that fifty-sixty person one? And they might not want to and it might not be the best place for them to 2. So it's a really, really interesting problem. And we it's one of the things I was going to say, but it's really, I think as we continue to grow, I see 20. It's very different businesses with different a lot of different things to think about and with larger addressable market and Processes that our smaller businesses instead of Constellation don't really need to have to make decisions to change products 20.
I don't know, Mark, if that was where you wanted me to dive into on. But that's sort of things that I think about when I think about the differences in size.
Makes a lot of sense and different sites have different needs. I guess one of our hurdle rates here, 20. Since you've lowered the hurdle range, are you seeing more potential investment opportunities? Are you seeing any many CSI like TSS, What does the funnel now look like for a typical for a more typical BMS business? And maybe if 20.
Bernie, I'm sure you've looked at the universe as well, if you're trying to, that would be interesting.
Bernie, do you want to talk to funnels?
Sure.
Since we started up
contacting investment bankers, 2. We've started seeing a little more volume in terms of what's available out in the market. And for the longest time, we've kind of been on the Outside looking in and I think we've been able to generate enough interest amongst the bankers to bring us into 20. Yes, we started to see a lot more, definitely.
That's
good. 20. And aside from lowering the hurdle rates and building out the team of the head office, what other changes do you think Constellation has to do to become more competitive and to hit more elephant per se.
Help me, Howard.
I'm just trying to think of a good answer for you, but I
20. Fair enough. I mean, it's those are pretty big changes, those 2. So and looks like we're seeing some results already. So 20.
Fingers crossed. One last one of the large investments. I know Mark doesn't want to talk about them anymore, but The question is about the correlation between investment size and implied IRR. Is it linear, the relationship 20. Between the 2 or are there certain size categories where you see IRRs be more attractive?
So there are single venture sorry, single private equity funds Now if they're getting higher rates of return on that than we are, then I would be very surprised. 20. Obviously, they are attracting capital, so they must be generating rates of return that investors find attractive. We've had a tremendous track record in the early days when we were capital of generating very high rates of return. And as we've had more and more and more capital, we've definitely seen Our rates of return come down.
And I think it's going to continue. Once you're deploying billions per annum, The likelihood of generating outsized returns, returns that are 15 points above what you can generate in the markets are very low. Competition is going to come. So, yes, I think definitely size drives down IRR and it's at work at Constellation 20. And then we spend all of our time trying to hold back the tide of decreasing IRR.
Yes. That makes sense, our relationships and those PEs just want an exit. 20. So that's why they're doing this. Investments beyond BMS.
So without disclosing specific I'm sure there's a lot there. What are the general characteristics and requirements of non BMS markets or businesses you're looking for? What have you actually turned 20. And in terms of what you turned down, what you regret turning down and what do you wish you didn't turn down or you're happy to turn
20. So it's not like people bring us opportunities. We go Looking for opportunities. And where do we go look? We go look where other people aren't looking.
And so You've got to be contrarian to get superior results. And then you've got to have a process of protecting Whatever advantage you have, once you've discovered, unearthed and shown the world that there are superior results to be had. So what we're looking for is a needle in a haystack. It's the likelihood of success is near 0.
20. Yes. It's definitely a tough one. In terms of the 20. In this end, what people or companies are you seeing that would best help your circle of competence in this area?
And 20. Have you had any progress in building out the team, I guess, or your contact?
So, I mean, the first one I get from the Board 20. And from Robin in particular is that I should have people helping me with this. But What strikes your eye as opportunity is very idiosyncratic. 20. I think it varies an awful lot, but I really believe that successful 20.
Investors who have long track records are rare animals that generally work alone and have lots of authority And the ability to mobilize resources themselves. And hence the Comment I made in the letter about hopefully the Board and the shareholders having the confidence the letters try stuff And maybe we'll find something, but I'm not I'm betting the firm that the general managers will do a great job of Investing capital in vertical market software companies that are small and medium sized. 20. That is going to drive the bulk Constellation's economics for many years to come.
20. And then you touched on this earlier, Mark, a bit, but when you talked about TAM and 20. Kind of narrow TAM, working better, well defined TAM. But there is a question about expanding outside BMS and going into adjacent software businesses such as payment, ACM, HCM, human capital or payroll, which are more horizontal related businesses. Would you 20.
Have you been looking there at all? And in relation to that, would you consider earlier stage investments, venture investments? And the Person asking is wondering because your knowledge of software would make you better investors than the average VC.
So we definitely look at adjacencies and We adore payroll. I think it's a fabulous business. And payments, 20. This is my own personal belief is a race to the bottom and it's a scale play and it's going to be ugly and it isn't something that 20. I mean, obviously, to the extent that we can deliver payment streams to various of the players and they're willing to pay us for it, We're delighted to participate in payments in that regard.
And then figuring out how much of the payments 20. Plumbing to incorporate into our products is the decision that our various managers have to make, And it requires an underlying knowledge about how the payments Value chain is carved up because there are valuable pieces in it. But I fundamentally believe long term, it's going to be a low cost operator, 20. So it's not like we're going to invest Billions in payments, but we'll certainly participate in that particular space. 20.
I was a failed venture capitalist and that means I have a very dangerous Desire to go back and do it well, but I'm not about to go do it with the shareholders' money. I might try it with some of my own. And the thing that appealed to me most about venture capital was something that appeals to me most about Constellation, which is small teams 20. Working really hard, trying to do a great job for their clients and that camaraderie and Sense of purpose and mastery that comes from those small focused teams. And I love the startup world for that 20.
Intensity and energy frequently Coupled with intelligence and to recreate that again Inside of Constellation would be something I thoroughly enjoy. And so I toy with it from time to time and I talk to The various operating group managers about it, but it's a really hard thing to do. It tends to be naturally small and focused. And so doing it at scale is very difficult. So I don't think we'll be doing venture capital in any big way that would move the needle and consume significant amounts of cash.
Fair enough. And it's unicorn hunting is a whole different sport. So I get
20. Thanks, Howard. 20. So based on question volume, there's a lot of fascination. The topic is BV in particular and its superior 20.
Organic growth is highlighted by Mark Leonard. Happy birthday, Mark, in the announcement press release. Also Topic has Interesting as a case study for spin offs. So starting with the first topic, Maybe most appropriate for Don and then maybe Robin as well. We know that you at TopicSpivy will 2.
Take on some of CSI's best practices, but each group retains its own strategic nuances even today. 2. Are there any in particular topic as BV you would highlight such as the types of markets that you're in, the culture, approach to organic initiatives for how you optimize businesses that you will want to retain.
Robin, why don't you provide the context of TSS and Topicus?
Yes. Thanks, Mark. Yes, I will do. Robin here. Yes, I think 20.
Let's start and go back in time. I think Topicus BV, the Topicus operating company and TSS, I think it are 2 different animals, 2 different 2. I think Topicus really started from scratch, started up building software 20. And they also saw in the early days that they want to enter into software products and recurring revenues. And they They did particularly through organic growth, but they also did their types of acquisitions, 20.
But different acquisitions than we do are mainly acquisitions. They bought products. They bought markets, but then they 20. And commercial power behind it, and they really develop those markets. I think PSF is way more like CSI.
I started it in, what is this, 50 years ago, 20. And we mainly acquired companies and we try to make them grow organically and we hope that they one day acquire other companies. 20. So I think the and I tell you this story because so the origins of these two companies are completely different, 20. And I think that's what we want to keep as well.
The original founders of Topgus told their 20. Previous company, we're a large system integrator. They didn't like that. So for them, it was very important when we had our Discussion and negotiations that they wanted to keep their firm at is and they wanted to continue. 20.
But of course, they had a curiosity to find out what they could learn from us, but I think that's then for Dan to answer. And the other way around, 20. CSS wanted to continue as well on the path we were, but also like to learn from doctors. And what we like to learn in particular from them is 20. How did they do their organic growth?
How did they do it? Did it create value? And we're have been studying that over the last few weeks, and we're still studying that. 20. And we take a slow approach there in the sense that we keep it as stand alone companies.
I think that fits the C design model. 20. Our decentralization level where we simply run the companies as they were, but over time, we share best practices. We have learned. 20.
That's how we try to improve our game. I think that's a little bit of context. Is that what you were looking for, Mark?
Yes, I think so because it points out that you can't look at topokisk.com as 20. A single entity, it's really 3 operating groups. And the 20. Top of this operating group, I think is what the BV question was about. So that's really a question for Dan.
20. So Dan, you're the alien in the room. You're the one who didn't acquire your way to Glory. Why don't you talk about your early sense of what it's like to be part of the mothership?
Well, actually directly after the merger or the closing of the Transaction on January 5. Paul Nordeman, the operational CFO of Tapicus B. C. And 2. Myself went directly into the best practices days of total specific solutions.
20. So yes, we were actually received very warmly and started to work system of TSS and CSI as well. And yes, there is a lot to learn for TopicS BZ 20. On the operational side of running a software business and the other way around, we think we can contribute Organic growth at Topicus BV or in software in general. And then you put some tech talent on it together with A master in the domain or the vertical market at hand and then you start to develop a market or enter an adjacent niche To an existing vertical, for example.
So that's we expect that it will work Both ways and actually we don't enforce this best practice sharing, but we encourage And we see it actually happening in several verticals in the Netherlands currently.
20. We were fortunate at both the Topicus Board meeting and the Constellation Board meeting 20. To have a presentation from one of the Topicus founders about what he saw as The fundamental principles that built the company. So sort of a codex that will be a living document and provide us with Their understanding of where they have been and how they got to where they are. And we're going to try and make that as rich a document as we can.
And We'll see we'll hopefully add to the learnings that we can pass back and forth over time. I just was summoned by Dan, who's been kicked out of the call. So he's we'll try and dial him back in. We've lost him, Larry, if you were looking for further questions on topicus, at least for the time being.
Okay. We can come back to that, Will, if that's okay with you. We could Pause on topicus and move we'll come back to that later. There are a few more questions there. Why don't we segue into Section 5, Which is called roughly, it's a pretty broad category, management, operations and rivals.
20. And is Howard still in the call?
Yes.
Howard, do you want to kick that one off? 20.
Sure. Yes. So management operations rival, pretty general category for all the operating managers. 20. So the first set of questions relate to the pandemic and the lessons from the pandemic.
So generally speaking, what business 20. Have you seen emerge or end since March 2020? Are you also currently seeing inflationary pressure in any of the operating units?
Who wants to take a crack?
20. Yes, I'll start. I think one of the things that we learned within the Jonas operating group is 20. The nature of recurring revenue, not that we didn't understand it, but we have a little bit more transactional revenue. 20.
That's me. That was Mark. Thank you. Yes, we have a little bit more transactional recurring revenue in some of the other operating groups, like I'm thinking of our fitness business, our hotel business, 2. Where in the fitness business, we get a clip of the payments running through the system in the hotel business.
We get a clip of the bookings running through our system when someone books a hotel room. So obviously, 20. Those businesses were hit extremely hard through the pandemic. And so that's been a challenge for us 20. It's made us think more, not that we didn't think about it, think even more about sort of the types of recurring, whether they're 2 100 percent recurring or a little bit more transactional recurring.
And we actually looked at a business in the tourism space During the pandemic and ended up not completing the transaction because of that fear. So it's just something that we've sort of digested in the last 12, 13 months, whatever it's been. On the inflation side, I assume you're talking potentially about wage inflation within the business, 20. But maybe it's inflation outside of the business, but I was thinking of it in terms of wage inflation inside the business. 20.
And I think we're seeing a little bit of that now. Obviously, tech has remained relatively hot and in some cases gotten hotter throughout the pandemic. And so there's definitely some inflation from a salary perspective going through our organization right now. 20. External inflation in terms of I think the prices we charge to our competitors or what are not tech, I mean our customers 20 or to what our customers are passing on to their customers, I think that's vertical dependent.
So it's really hard 20. Comment on that. And obviously, in some cases, it's definitely there. In other cases, it's definitely going the other way where
there's deflation going on. 20.
Right. That's good. And if there is inflation, that leads to higher interest rates, which I'm sure Bernie will be happy about. 20. And I guess I'll turn it to you Dexter maybe because you have a homebuilding segment.
And as we've all heard, 20. Building materials are under have gone a lot of inflation. Are you seeing that at all on the software end, or any other inflationary pressures in general?
It's fortunate that the cost
of our software is kind of a fraction of the cost of
12.
And in fact, most of our customers are paying 20. So more for the guy who clocks the windows than they do for our software on a per home basis. 20. So given that, we haven't been impacted by inflation
20. Okay. Does that answer the question?
It does. Do you want me
to elaborate?
It does. And maybe if you have any general Musings about any trends you've seen since last year or anything your group has learned since the pandemic?
Well, we are fortunate to have a meltdown and be the 20. Main recipient of the meltdown back in 2007, 2008 to 2010. 20. So immediately we took the steps to get our business and make Quick changes at the start of pandemic. And we ended up not 20.
We're seeing the same impact that we did in 2,008, but we were ready and prepared. 20. And so what we did immediately was we said, okay, here are our potential first cuts 20. And in 3 months, this is our next set of cuts. And so from our experience in the homebuilding crash in 2008 where we kind of had to reduce our staff by 20.
40% as our business crashed by at least that, if not more. 20. And so we were prepared for the pandemic and it didn't have The same negative impact that we had experienced in 2,000 and 20. We've added a lot of staff to our homebuilding group and it's been one of our strongest organic 20. Growth and following kind of the size in homebuilding as well in 2.
And kind of the move from cities to home private homes where you could actually work from home.
Yes. So that's been a trend that actually could benefit. Good point. Does any maybe
Right now in homebuilding is that they're starting to get a shortage of land, 20. And so we're seeing some sort of Reduction in homebuilding because they don't have the land to build new homes on.
20. Right. And actually, I'm thinking about various response to transactional revenues. I know Dexter, you guys also have a real estate business. And you probably did you see a lot of did you see Significant volatility maybe in the 1st few months of the pandemic where the volumes dropped off, but then now they've come back, they've surged back probably.
And how did that Has that changed how you manage the business?
Well, staying on homebuilding, what's happening to the homebuilders also is their margins being squeezed because They sell these homes, a lot of them on spec. And so they're actually Their margins are kind of going down. Sorry, could you repeat the end of the last 20.
It was on the realtor business, real estate business and How if there were transactional revenues there, how that led to that? No,
2. We don't have transactional revenues. We haven't really seen a lot of difference or growth 20. In our real estate business, it's been a lot of the growth has largely come from acquisitions. 20.
But we haven't seen a big change in the real estate agent market.
20. Okay. That's good to know. Opening it up kind of to all the groups here on organic growth. The question is, in this person's view, organic growth has been a challenge across Constellation ex Topicus.
Do you share that view or not? And how might you increase your organic growth?
20. Is that same question to myself as well?
Sure. Anybody who wants to
take it. Well, organic growth,
it's
I would say 1 in 6 companies that we invest in becomes a strong organic
growth company.
But you don't know which one of those 6 You invest in that will become that organic growth leader. But what's behind the organic growth is The mentality of the management and their conversations with the customers And also having a and this is my opinion, a more 20. Another thing that generates organic growth is also if you get on to the right horse. And so some of our organic growth is driven by Consolidation in certain industries where you have, for instance, a homebuilder buying other homebuilders as they grow. And so that generates organic growth because your customers are growing as well.
And so, it's We have a number of investments that have strong organic growth and other ones that Our challenge was organic growth.
Right. And do the other any other operating managers 20. Want to chime in on this today? Are you finding the same pattern as Dexter?
Yes. Mark Miller has a comment.
20? It's a great question Howard. And I think just sort of the basics are is 20. Pretty much all of our businesses are a low percentage of our customers' sort of operating expenses, right? So I think there's opportunity 20.
Sometimes when we acquire businesses and even some of the businesses we've For a while, they need to sometimes stop doing some of the things they're doing rather than try to do more, Which might involve getting a little smaller before they start thinking about growing. Because you need sort of a good foundation to build off of. 20. And that's easy for me to say and it's hard for people to do because you have to sort of make some tough choices around maybe who should your customers be and what segments the market Should you go international? Should you not go international?
So those are some of the things that our leaders kind of have to wrap their heads around. 20. But I think the real challenge for our leaders is just customer observation is seeking those opportunities 20. And trying to find them inside of our customer bases. And I think Dexter said, 1 in 6 of our businesses, I'm not sure if that's the right number.
20. Head of our businesses on a percentage basis are good at it. And I think it's because the leaders are able to spot That through customer observation what they might do to grow their businesses. And yes, you'd love to see more of that. And I think the opportunity is there.
But I don't think you can expect it across the board. And remember what we're trying to do here is make sure that 20. We're buying holding forever. So we're trying
to make sure
that we our businesses Have built good moats around them to stay in those markets forever 20. And growing and getting either diminishing returns or moving into new areas that maybe in the long term won't have those kind of moats Is maybe not the right thing to do. So it isn't a simple solution of saying, hey, should everybody be organically growing, you sort of got to think Do a case by case and you have to have the right leaders in place to do it. And then you also have this tension between acquiring a lot of businesses as well 20. And some of your great organic growth leaders who are able to spot opportunities and look at moving into new areas of their customers or maybe into new geographies, 20.
Some of them have some great skills for helping us acquire businesses as well. So it's also a question of where do you put their time? Where is it best to be putting and where you're going to get the most capital out, Investing more in organic growth to expand an existing business or using some of that really great mind share to think about how to kind Do more acquisitions in different situations and maybe coach some other leaders on what they might do better. So there's a lot of things there. It's a really 2.
Interesting problem. And it's an intellectually stimulating one to chat about. So I think that's about as much as I can say about it.
20. Yes, there's no right answer, I guess, to this question really. It's just a lot of trade offs. Does anybody else want to comment? 20.
I know that there is a there is the Keep Your Capital program that Mark was alluding to. How and how do you 20. Trade that off with your organic growth initiatives.
20. Well, if you're just asking about the mathematics of Keep Your Capital, 12. Obviously, if you're generating rates of return in the 20s every, I don't know, 3 years, you've doubled your capital base, so you've halved your return on invested capital. There is a tremendous sense of energy to deploy that capital. And obviously, we have hurdle rates.
And so They're under this tremendous pressure to deploy capital, but then we're keeping that all the time. So we're putting them under unbelievable stress, And by the way, grow the business organically and develop your people too and think long term.
20. No, yes, there's a lot of tension there with that. And I guess tying into this question about customer attrition 20. For all the group managers, have you noticed customer attrition increasing over the last 5 years and or changing, I guess? And what do you think explains this?
20. Is there anything from the head office side that you're encouraging the operating companies to do differently on customer attrition?
20 No, not for the office, but let's talk to some of the groups. Damian, have you seen any particular areas of
20. No, I think it's reasonably stable. There is some industry specific Yes. So, yes, I think overall it would be stable unless there's a market shock in a certain segment, be it leisure travel or 20 Some maybe oil and gas, for example.
So Damian had, in his portfolio, Our fastest growing business for I think it was 2 or 3 years in a row, organic growth business, and it was in the travel space. And so 20. Not surprisingly, they have probably suffered a fair amount of attrition over the course of last in a while. A lot of that's been concealed by 20. Transaction related recurring revenues because the transactions have gone down, you don't know if those customers have gone away or if they nascent and will come back.
20. I'm checking that both of those customers went bankrupt along the way.
That's good color on that. 20. And one on maybe to Perseus, but maybe some of the other groups too. On outsourcing, We are offshoring. We know Perseus uses that.
And did the other groups increase their use of R and D offshoring during the pandemic? And in general, for all the groups, what lessons have you learned there, if you did?
I think Robin is probably After Perseus the next best to talk to about that.
Robin? Do you want Perseus to talk a little bit?
No, I think Perseus' story is pretty well known in terms of the outsourcing DEXTA. So I I was thinking Robin is probably the got the next largest near shoring operation.
Yes. No. Yes, like Dexter is doing it, we're doing it and we have an in house near shoring and 2. We do a lot to Eastern Europe, particularly Romania. We do that already for nearly 15 years.
And We leave that up to our business units if they want to do that or not. And 20. I think the lessons learned and also how often it's used, it really depends on the business units. 20. Some are big fans, others are not big fans, has nothing to do with near shoring, might also be due to our own business units, so it takes 2 to tango and to make it work.
Let's be pretty clear about that. And over time, I think we saw a gradual increase, but again, driven from the business units itself. And I think the pandemic has no influence on it. I never heard anybody talking about due to the pandemic we're going to use more outsourcing or whatever. And I also note that the topic is BP is also running some experiments or Running certain activities as well, and they sometimes even go further than we do.
So yes, we have a lot of experience and I think 20. Good and bad. But overall, I think it decreases over time step by step. And we do also, by the way, next to our own business units, 20. Our in house company, it's called Yonder.
They don't just do it for the TSS units. They do it also from some CSI units and they also do it for a lot of external clients, which help them to remain competitive, which helps them to Be really ahead in their game. So I think if you look back when this company joined us 20. What is 2,006, 2007, you see now where they're sitting now. I think they made a tremendous growth.
Great. I think it's the beginning.
If I
could just
Damien from Veelo again.
If I could just add to that. So Within the Topicus Group, Yonder, the business that Robin referred to, we've used them to help solve Problems, but when we think about R and D outsourcing or offshoring, it's not about cost. It's much more about quality and access to 2. Certain talent. So from our perspective, we're not trying to just offshore jobs to achieve the location.
It's all about the talent of the people that we have internally and then getting specific input and skills from specialists Like the team at Yonda have. So we do engage in it, but it isn't a with most of our products, 20. Specialist very special skills are required and it's not something we look to do to actually move those offshore.
And Robin again. And just came to my mind, I was working 2. This week on the project and we had to do technical due diligence and also the people of Yonder assist us there and 20. Very knowledgeable and very detailed knowledge and experience because they happen to see so many different projects. They're also useful in those kind of areas.
So, yes, so far.
20. That's great.
It looks like
it provides benefits outside of R and D too, which is great. One for Jamal here. 20. Person here wants to try to figure out what the margin would be like if you did no acquisition to get a sort of maintenance margin. 20.
What would you estimate these margins to be your maintenance margin versus the annual investment Into your M and A activity. So I guess your acquisition, your acquired margin versus your maintenance ones.
20. Yes, I mean, you really can't answer the question because I mean, for me to answer that question, I'd have to tell you what we're investing in M and A, which we don't disclose that information. I mean, it's pretty obvious if we weren't doing M and A, there's still a lot of headcount reductions, bonuses could be lower. 20. Although those individuals that were focused on M and A, would that be focused on organic growth, do you expect that to go up?
And to give you specific numbers, I mean, I just can't disclose that.
That's fair. And then moving on to culture here. So bigger picture on the organization. This question this person wants to know how far away from the point when operating groups existing operating groups get too large to handle for 1 OGM requiring group split. 20.
So even beyond splitting up an operating group. Also Mark Leonard has said he does not want to want another OGM reporting to him except maybe Japan, 20. Presumably due to bandwidth constraints, so how will the next level of scaling occur from a structure level?
20. Any of you contemplating splitting up your groups?
Well, I Robin here. I did it a few years ago. So we got 2. Inspired by a presentation of Mark Miller about splitting business units. And we took that best practice over.
And at certain time,
2. We also decided to
split TSS and that's why Mark was referring to you have Topicus BV and TSS, but we have 3 operating groups. And the background to that is Because we did split TSS in 2 separate operating groups in 2017. And I think it has been a great experience. They are Run by 2 very motivated and very skillful general managers. And they take care of their business and they drive it forward.
And 20. Yes, they're on KYC. And yes, I think it was fun to do. It was a great learning, and I think it really helped us Europe. 20.
So one part of TSS focused itself on Northern Europe and the other part focused itself on Southern Europe. 20. So it has been a I think a good, yes, it has been a good experience for us.
20. And then
I can add to that.
We have a lot of yes, we have broken up Volaris into really many different operating groups, some 20. Operating groups below operating groups in a way effectively and it seems to be working pretty well and 20. Measure them all against each other. It's it was one of the stories of the early pandemic. I was I mean, the first 10 days of it.
I was really just thinking what to do, what to do, what to do, how can how should we manage through this situation. And It's pretty obvious. It's basically just let our leaders in this decentralized environment sort of tell us what they need to do. 2. And we've got, I think like Robin said, so we've got a lot of talent there and we've given them the accountability and the autonomy to make those decisions.
And one of the ways of doing it is to create sort of sub operating groups, if you like, you call it. We have sub operating groups as well. 20. And I'm a big fan of that because that gives some people something they can call theirs and, they get to where the measurement and how they're doing that, which includes 20. Owning your capital and being judged on your returns and your growth and, yeah, all of those things.
So I definitely think it's a great way to go. 20.
Right. And just digging into that a bit more, Mark, maybe on the Lumine and Modaxo groups and the creation of it. Question here on, is this an attempt to get synergies between similar businesses? What can you just take us through the rationale maybe of that?
20. Yes. I mean, I think
it's synergies where it makes sense because I had I was always in the early days of what Trapeze was, which I was one of the founders of Trapeze. We initially run 20. This is sort of a global business and then I'd move to separating trapeze out more geographically, over time. And then bits and Pieces of trapeze ended up being owned by sort of different sub operating sense to create modaxo and bring it together and Get a group of people with sort of a global perspective on what's happening, but time will tell. That's A long experiment.
There's anything you're going to see in the short term I think with that. And Lumin has just done a nice job acquiring 20. Businesses in Telecom and Media. So, I think they've probably already thought through some of those things and use it when it makes sense. So, I just interested to see how it works out.
I still believe as Mark Leonard suggested that small accountable teams are wonderful things They can get focused on a group of customers and make a big difference for them. And I don't like a Swiss Army knife approach to the world to say we can solve it all with this one wonderful solution. So But there may be some opportunities in some cases to do that, but I really leave that to the Medaxo team and all of the leaders throughout the world to sort of think about that and the same with the Lumin team. So Yes, it's going to be fun to watch. It's going to be something that we see over the years, not over the months,
Maybe over the decade.
Yes, fingers crossed.
Yes, that's fine.
Yes. And I guess, Mark, you can take 20. I'll open to everybody else to answer. In terms of running a decentralized business, is that kind of a learned skill or an 20. And innate behavior that's hard to teach based on maybe your attempts to try to groom other people to run decentralized businesses.
I think to learn how to run a portfolio, it takes I don't want to say decades to do that, 20. A large portfolio, so it isn't something that you learn in a handful of years. It takes time. You've got to see some of the things you've done and what the consequences of those decisions over a longer period of time. So, but yes, I think it's something that people are it's just fits into our philosophy of Initialization, initially it was inside of the businesses and then now we have sort of those groups or sub operating groups We're just continuing to learn how to do that better over time.
And clearly people who run portfolios and 20. Understand how to think about overseeing managers and when to step in and when not to step in are special people. They're coaches 20. As much as they are leaders and I think that's key and not everybody can do that, but we're lucky Constellation will be on this phone call, for example, really understands how to do that. And it's a special skill and we can't take it for granted.
It's really hard to decide when to let someone fail and learn from that versus tell them what to do and tell them it's not going to work and Not to do it versus letting them do it and then saying, maybe what can we learn from this? And let's 20. Maybe we learn not to do that again. And it's really a difficult thing to do. So let's put it that way.
And I think we've got some special people Across the group to do that. So and it helped us work through COVID, I think quite well.
20. Okay. The next question is about kind of the culture and it's asking Mark Leonard. On it and it types of podcasts with Harris. On that podcast, you'd expressed some disappointment in the culture of the organization, Noting that it is different from what it was in the early days, scaling culture is not easy.
But 20. Your specific concerns might concern any senior leader at any large organization. So how is CSU or 2. Working to maintain its high performance culture as the business grows larger. We know, Mark, you're a student of other of high performing businesses.
20. And have you studied Amazon in this regard? The questioner seems to suggest they solve this riddle with their focus on the small two pizza teams.
Yes. I'm not sure how many 2 pizza teams you find working 20. So I think the 2 pizza teams that are writing 1,000,000 of dollars worth of Amazon stock 20. Probably quite different. So culture.
I don't believe we have a culture, and I know that's at 20. With Larry and Steve Stoczema. I believe that The general managers and I and Jamal and Bernie, 20. We all know each other and we all interact and we interact with candor and we tell each other what we think and 20. We know what our values are and you learn that, right, over time as you work together for a serious amount of time.
20. And if you want real input on a thorny issue and you phone up any one of those people, you will get real input. You won't get 20. And that's what you want. I mean, it won't always be comfortable.
It will sometimes be downright painful, but you will get that feedback. That's the culture amongst Now I'm willing to bet that if you go down to one of our divisions, 20. And you go far down in the ranks to, I don't know, a call center where we're handling support calls, you're not going to get the same thing. 20. And I sat in those centers early in the morning where people coming in 20.
And they spend time chatting about the night before and what they did on the weekend and the girlfriend and whatever it is, 20. The intensity that I saw in the early days of some of the companies that were part of Constellation and that 20 Well, part of my venture portfolio, I don't see replicate. I see something that you talked about, Howard, in the very early days which is a reversion to the mean. And large groups of people, when you get 27,000 people, I'm willing to bet that there's an awful lot of those folks who are just working for a living. They're not on a mission.
They're not Looking to change the way Constellation operates, they're just looking to make a paycheck. 20. And there's nothing wrong with that. You can't expect exceptional performance from everyone. And when you do try to put together those high performance teams, you take a toll.
People pay a price in their personal lives, And they're going to be willing to make that trade off. You can't force them to make that trade off. So you volunteer in 20. Now we have it amongst the group that I talked about at the beginning of this particular diatribe. And we try and make sure that the people who work directly with us have it.
The more levels you go down, the weaker that intensity transmits, and it transmits differently because 2. We don't share 100% of the same values. We share 90%. So you multiply 90% times 90% times a bunch of times and you get this sort of Dilution and reversion to the mean. It's a mathematical certainty that you will.
So the culture of our 20. Business that does paratransit in the Nordics is going to be different than the culture of our payroll business In Brazil. I have no doubt that if you went and surveyed it and looked at it, you'd find that. Would they speak some of the same language? Because 20.
We share some ratios and some approaches to doing acquisitions, for sure. And so that's The best that we can hope for. There's a shared language and that we can share experience and there's a level of empathy and collegiality between them so
Yes, it's a tough task and thanks for dissecting the culture for us. I'm going to actually I'm going to pass 20. Back to Larry now to do the general shareholder Q and A that we've received.
20. Thanks very much, Howard. You may have just answered this, Mark, but I'm going to Ask the specific question this fellow asked anyway, just a sharp because it's a sharp question. Christopher Fried, 20. What are the 3 most important elements of Constellation Culture shareholders should know about and keep track of?
Yes, I just said that it doesn't exist. So to then name the top two would be kind of ironic 20. I'm sure that others feel differently about their cultures than I feel about Constellation's 20. And so, Dave, does anyone want to talk about their top three most important cultural elements? And feel free to tell me that my views on culture are wrong as well.
Clearly, I scared them Howard. Thank you, Dave.
Hey Howard, it's Jeff from Harris. I'll take A quick crack, since I'm not usually scared by what Mark says. Although, thank you for bringing up The podcast I did with him got out into the public sphere because that is a sore point of contention with Mr. Leonard and myself. 20.
Yes, I think when I look at culture, I think discipline comes to mind, 20. Accountability and then maybe to use Mark's word collegiality, which I think really the way that I look at that is this willingness 22 to share and to be open and honest with each other. So I thank you. Like Mark says, you see that at our group. Again, Mark Miller is more than happy to 20.
Share with me what's working for him, what he's thinking, what's not working. And I would try and do the same with he or any of my peers. And I think we try and 20. Take that into the organization. To Mark's point, I think it's probably strong at the top and it's probably is different 20.
At different levels that you go. And the 4th one I would add maybe is just this sense of humble curiosity, 20. I think so again, trying to make sure that we're just always willing to challenge each other and think of new ways of doing things. 2. And I think the, if you follow Adam Grant, the new thing is this concept of unlearning.
So 20. Again, we've learned lots of great things, had lots of great experiences, but there can be a benefit in unlearning
some things too if they don't
if they're not suiting Your current purpose are continuing to move you forward. So that's how I think we described some of the major components of the culture. But again, my peers might disagree with me 20. In terms of their specific organizations, I think there's no question that each operating group has, again, a somewhat similar culture, but also a different 12. Right.
If you went to Jonas, there are some similarities to Harris, but it is not the same organization as the Harris Organization.
I think Damian wants in.
Just to add, I agree with both What Jeff and Mark have said, an observation for someone who's only been in the company 6 or so years, Very there is a culture here that with a sort of an Owner operator top mindset, but very careful about how money is spent in terms of operating the businesses as you would have 20. With a small business as opposed to what can happen in other large companies the size of Constellation. So I think the decentralized nature and the culture there is to be Careful with what you spend and then really careful about how you invest to make sure it's like you do feel like you're investing your own money or You're very careful to that extent that we're not playing with other people's money. And I think that is a culture that Runs deep in the company from what I've seen and I think that that's something that shareholders who aren't Employees can probably take comfort in that.
Excellent. Well, thank you all very much. Culture is a fascinating topic. I think the culture is rich at each of the units and at the company as a whole. It may be hard to answer Chris' question with a list 23, but you've done a remarkably good job.
Well, listen, that wraps up that segment. That was segment 4th and 6th. 20. Dan is back on the phone. We did have a brief introduction to the topic, but we have quite a few more questions, to pose.
And so we'll return to that Segment with Will leading the question.
Thanks, Larry. So this question is curious about Now that Topicus is an independent public company, what if anything is the new entity doing differently than 2. What TSS did while it was part of Constellation and not spun out. And I would gather I would guess that the question is not asking so much about conference Like the one that you just did, but maybe more operational and plus the fact that you have your own currency.
20? Shall I take it, Robin? Yes. Well, to be honest, I don't think a lot of things did change. TSS Public and TSS Blue as we call them and we have then talked as operating group, the 3 operating groups, but let's Talk about TSS because that's where you're referring to.
I think in the operations, nothing has changed. Those groups are headed by the same people. 20. They run their business skillfully. They have people reporting up to them.
They still do what they do. They still are part of the CSI ecosystem. 20. So nothing really changed there. And I hope it's not going to change.
And if it's going to change, it's due to an influx of 20. Nice best practice that we can take over from Topicus BV. And for the rest, we continue as is. We're still also part of the All CSI ecosystems related to M and A and all that kind of stuff. So for me, it's we were the 6th operating group we still are and we We have our separate listing now, which brings some other stuff with it, like you just referred to.
But that's For me, mainly it.
Great. What about employee compensation? So how does that compare now 20. What topic is to Constellation? Well, Topic has followed the CSI policies to pay a significant portion of bonuses and shares Escrowed for 3 to 5 years and also not issue shares from treasury for employee compensation.
Yes. Robin here. Yes. So also there are nothing changed except one point. So we still follow that CSI policy.
We have still the same bonus formula. 20. The only difference is that our employees will invest not in CSI, but they will invest their bonus in topicus.com. And that was also one of the reasons to do a separate listing, not the only, but one to have identity, 20 to be close to the business you're involved in. And now that's what we have been doing already over the last year.
So the bonus 2020 has been invested in Talkers.com.
Great. Next question is a little bit broader. Mark Leonard gets a special call out. 20. Mark, how do you feel about the valuation of Topicus and does this influence at all the decision making process in considering further spinouts?
I always feel that Valuations are too high for tech companies, given their underlying 20. But that also relates to the fact that I'm expecting, I'm hoping That eventually yields on So, obviously, I think that the stock price is 20. Higher than I expected it to be. I hope that it would gradually 20? Sort of increasing prices as opposed to increasing the way that it has.
And I think it has lots of expectations built into it and it puts tremendous pressure on the management team to try and generate results that justify the levels at which the Now I think that same concern applies to the markets in general. 20. I wrote about this Jack Henry and its period from 2000 to 2010 where the 20. Stock basically didn't appreciate, but the underlying 20. Economics of the business got better year after year after year.
And I think that was a very bad end result for investors And for shareholders who are employee shareholders, where their wealth basically stagnated for a decade. And so I hope that doesn't happen for Constellation, for Topicus or for the market in general. And my big fear We're going to see an extremely long period of market price stagnation 20. And that people will cease to be believers in the equity markets. 20.
And they will not be the way that people save for retirement and have better lives because of it. So that's a very dim view of our economic future, driven by what I expect to be 20. Inflation and increasing interest rates doesn't relate much to Topagas This one is
2. It's maybe a little bit more starting with Mark Miller and then it would be interesting if any of the other operating group managers has any thoughts about it. It may just be coincidental, but at the same time that 20. Specific verticals, the creations of Medaxo and Lumine happened at Valeris. Now obviously wouldn't comment on 2.
Whether those are potential spin offs and it's also the fact that in the past, Alaris has created these sort of dedicated units like TripSpark. But 20. Maybe talk a little bit about whether these sorts of organizational changes already generate many of the 20. Benefits that a spin off would and how you think about whether to ultimately consummate a spin off?
20? Well, I mean, I definitely didn't do it to set them up for being spin offs. That wasn't the thinking there. I mean, Lumin had in itself was basically was a there's a group of people focused on Telecom area and they've done a nice job acquiring businesses in that sector. So I'd have to say that Just sort of evolved naturally.
And yes, quite enjoyed watching that. And as well as The Modaxo, which is essentially, I was one of the founders of the Trapeze business, which It was the first business acquired by Constellation back in 1995. I've toyed with doing that for many years, Whether I should sort of bring those businesses together kind of under an umbrella again. So I think it was just Sensibly to do a strategic and I think I answered that question earlier in the sense that yes, I'm anxious to see over time How that works out, it does create some of I guess if you looked at it relative to 20. What's happened with Tophagus, it does create some of the advantages of getting a group of people who are all Kind of aren't wearing, let's say, the Volaris brand or the Constellation brand name as much as sort of they have this overarching brand called Medaxo as well as Lumen.
So There's some advantages of that. So if you're going to work inside of Medaxo, one of the companies inside of Medaxo, you can at least say we all share Passion for people transportation and moving people, getting them from home to work and from work to Going out for the night, what have you. So it helps move people. So there's some advantages to that, I think, from just attracting Great people who really care about, for example, people transportation. So I think you get some of the advantages of that by doing it.
20. You don't get as far as we do pay a lot of our senior employees in constellation shares, we buy constellation shares 12. And you're not getting that particular aspect of it for your senior employees where there would be getting, let's say, Exo share of some sort of like that. So there might be some additional advantage to that and time will tell with the topic How important that is for us in the long run. So that's just my comments on it generally.
20. Do any of the other operating group managers maybe have some thoughts on what they've observed with Tapicus and the spin Whether they have candidate businesses or no candidate businesses in their own groups. Maybe not. Returning to Topicus, 2. The question asked in which countries do you feel that Topicus currently has the necessary management and infrastructure to execute on 20.
You've already talked a little bit about being in Northern and Southern Europe. Maybe it's better to talk about areas of Europe you don't yet cover 2? And then, whether you would venture out of Europe and at what point?
Yes. Robin here. I think we're, let's say, from And then I'm reasoning from the Netherlands. So from Amsterdam to Lisbon is a 3 hour flight, from Amsterdam to Helsinki is a 3 hour flight. That's what we cover.
20. We have feet on the ground in all the countries, maybe some smaller countries now. But I think over time, we like to cover all the countries. So I think we have currently, I don't know even by heart, but let's say we have 8 people sitting in Paris and maybe we have 2 people in Stockholm. 20.
So it differs on the size of the geography and it also differs France is our 2nd largest country next to the Netherlands. So that's What we try to do to cover it all. And then I think your next question is, when do we go outside of Europe? Is that where Did I understand it correctly? Well, I think that it's something we have to think about, but it's not on our list yet.
20. Dan is our new CEO. Maybe he wants to change things. And it's up to him and Han and Ramon, the guys who are running the TSS units. But we always used to focus on Europe.
Don, do you have any thoughts, interest in exploring outside of Europe or just starting in Europe outside of the Netherlands for now?
Well, actually, topics.com or TSS actually just 2. Kicked off their internationalization strategy within Europe a couple of years ago, and they make tremendous progress 2. I'd like to refer to the offshoring activities that are taking place And that brings us to Southeastern Asia to a country over there. 20. And what we do notice is that there is some appetite for our solutions in the financial services 20.
And well maybe that could bring us over there from an M and A perspective as well, but we really have to sharpen our minds on 12. I think we will have our hands full on Europe in the next years.
20. Well, one of the things we've seen is that you follow big clients around the world. And so if Dan had a client, one of the Dutch banks who wanted them to open up in Indonesia or somewhere of that nature, Then he would probably end up establishing a presence there, etcetera, etcetera. So that big client Service is a great way to sort of expand your business and teach you new geographies. And then the other thing is you get good in a particular region doing a particular thing.
One of the things that TSS Did well with notaries in the Netherlands, and that's a peculiarity of Napoleonic Law. 20. And isn't hard to then go, where else do they have Napoleonic law? Boy, this is a good business here. Let's go see if it's a good business elsewhere, that kind of thing.
So you get ideas, right? And you move out and you make little experiments. Geography is an initiative just 20. It's like R and D is an initiative. It's something where you invest a few years' worth of effort and you hopefully get some traction.
20. Right. That's it for topic. Back to you, Larry.
Thanks very much, Will. We're running the trains 20 Ask a question about pricing power. Knowing that this varies across the business units, can you nevertheless 20. Identify any sources that tend to be significant across Constellation and the factors that tend to weaken pricing
12. I hate talking about pricing power because it has the implication 20. You sell the same thing for a higher price next year than you sold last year. Nearly always, and 20. This is almost without exception.
The product we sell next year will not be the product we sold last year. We will improve that product. We will add features and function. It will be bigger and better and more tailored and 20. Built into the product than ever existed previously.
So I think what we're really talking about here is, 20. Can you sell more stuff to the same clients year after year? And I think the answer is 20? Absolutely. That is the core fundamental of what we do.
Now sometimes it doesn't show up 20. Because we start with rough diamonds. And like rough diamonds, you have to throw away sometimes half of what you've got 20. And that's what we often do when we buy these businesses. So once you've got your polished stone, 20.
You then start putting it in a setting and adding complementary jewels around it, and that's what we do with clients. Now is that price increases? You may have looked at it that way, but it's certainly not what we're doing.
That's satisfactory to me. Does anyone else want to chime in? It's an interesting Reinterpretation, I guess, in a way, sort of focusing on switching costs and product enhancements rather than 20. No further thoughts, let's take the second question in the chat that's more essentially about operations. It's a general question about organic growth.
20. This Himanshu Bendal wants to know, can you provide a sense of the distribution of organic growth 20. Across the Constellation across the portfolio, the groups, I guess, such as A fraction of the businesses where that's declining, expanding or staying more
20. Yes, I don't have that 20. Number by fingertips. Could I get it? Probably yes.
Would it be different last year than it was 2 years ago? Absolutely. 20. And is it different for acquired businesses, recently acquired businesses versus long term businesses? 20.
And again, it would be very different. So I think it's meaningless to people unless they're focusing on an 20. Individual business in an individual market and we have too many to enter into those discussions. We don't even present it to our Board in that way.
Yes, we don't really think about it in 20. It is interesting that we you could probably get the data if you needed it, but we don't really need it. So
We definitely have the data because we 20. On a business unit by business unit basis, we just don't use it in the sort of analytical way to Predict anything about the portfolio per se. When we look at the businesses, we look at the business unit level to make forecasts and etcetera. We might roll them up What's important is the business unit by business unit level stuff that you do. And the person running that 20.
The business unit gets asked tough questions all the time on whether they're running their business well And they get compared to what their peers are doing and you try and benchmark whether they're a good person in a tough situation or a 20. Lucky person in a great situation in the summer boat. And that's where the judgment comes in.
Excellent. Well, just one more before it's a nice question to segue into Thanks again for the 3 part answer. It's what are the three things that shareholders should most worry about in relation to
Obviously, To my mind, the redeployment of capital and dumb stuff would be right up there. And 20. I guess number 2 would be returning capital because a huge chunk of Constellation's value 20. And then I think if we lost Our senior managers, if they all said, we made a bunch of money, we're out of here because it's no longer fun being here. 20.
That would be pretty scary too.
Well, just one digression off of that. 3rd Worried, what should shareholders expect from senior managers?
Yes, I'm not sure I understand the question, Larry, I guess you'd hope that they would expect what they've seen in the past.
That's all 2. The scope of the question I have too, but I guess it's just it's leadership, building an enterprise, 20. Shaping the next generation, obviously deploying capital in an effective way.
20.
Is there anything distinctive about a Constellation manager that warrants 20. Special expectations compared to managers that run of the mill companies.
2. Could I throw something in, Mark? I'll throw something in. So just make it I'd say, I think our leaders need to make 20. And that is one of the things I spend a lot of time preaching to the leaders across 20.
And if the Slack isn't there, it will impact our ability to deploy capital 20. And it's a big challenge doing that and being ahead of the curve. Now, not everybody might agree with me on that one, but it is 20. Something I worry about greatly and think about and when you're talking about Slack, you need to be not thinking about what we need for the next 26 months, the next quarter, the next year, you got to be thinking out multiple years. So I think our best leaders are able to think and make sure that we have As best as they can, the people ahead of the curve rather than finding out That you've basically run out of capacity.
Well, employee ownership is an interesting distinguishing feature of Constellation 22. I think we've got a pretty high level of employee ownership out there in general and certainly in this call. And one of them is asking, I think it's an employee, it sounds like it's from the tone of the question, from the tenor of the question, Kevin Grig, G r e I g, says, he's talking about trying to promote the sense of employees having a long 2. Ownership stake and a sense of identity, so they don't feel like a small cog in a big machine. He was asking, besides 20.
Spin out. So what other ongoing experiments or working hypothesis does Constellation fiddle with to address that kind of
I get my sense of identity from the people I work directly with, the managers 20. And the Board to some extent. And I have a suspicion that 20. No matter where you are in the organization, it's pretty much the same thing. You don't feel any enormous fealty Constellation per se, if you're in a branch in Spain, you Feel a sense of team with your manager and with your colleagues and with your customers.
And it's very much dependent upon that manager to create that atmosphere That motivates and provides a career path for the people whom they manage. So I'm not a huge fan of Constellation. I wanted to call Constellation Software Co. 20. I wanted it to be as generic as possible, and my partners wouldn't let me because I felt that The team you worked with and the organization that you directly work in was the important thing and the customers you work with and that you form relationships
20. Anybody else want to chime in some of the managers that are,
I guess, quite close to some of the 20. Let me take another crack since I obviously didn't convince you. So going out to the employees and going, you know, our 20. Turn on invested capital went up 0.2% this quarter. The average employee is going to be, yay, Fine.
But going out to the employees at the original Tropeze business 20. And talking about new product developments in, let's say, power transit That have enabled their customers to service their underlying clients to move around on paratransit and And so I'm not looking for anyone to Other than casually proud of being associated with Constellation and the environment it's created, Who are actual employees working in the businesses. I certainly Hope that the general managers here who created the individual operating groups are more proud of Constellation as an overall entity that has Enable them to work the magic that they've done to create the works of art that they have brought into this world. But it's not I don't want constellation on coffee cups and T shirts.
Excellent. Well, let's move that's a perfect segue into segment 6, the last 20. The category is basically about the shareholders, the public perception of the company and then the category of ESG. The First question I'm taking out of order, I'm going to just quote. Will Constellation's parent website ever get a modern paint job?
So I take a perverse joy in keeping it retro I'm thinking of reducing it to maybe monochrome.
At least it's not the simplest in the world the simplest corporate website in the world. That 20. Here's a question. I promised earlier that we'd have a question about Constellation's name recognition and so on. In our conversation 2 with Jeff Bender about the recognition of Harris across Quebec.
This question is about recognition of Constellation in the United States. The 20 providing excellent services and products, yet it is not well known in the United States. Does Constellation wish to change the lack of
2. We were thinking of issuing Now, as I just finished explaining, branding constellation isn't important except to A constituency who cares. And that possible constituency is people looking to sell their businesses. 2. And if they think that selling to Constellation is selling to a company that will look after their businesses that will cherish them and 2.
We'll provide a place for their employees and customers that We'll give them a good home, then that's great. And so we have lots of people out delivering that message To that constituency that we care about, it's not one you can reach intelligently through 20? Advertisements, but it is one that on a direct reach basis, we try to do all the time.
20. Thanks. And just a follow-up, anticipating what that holder might say. Well, that's good. That's great.
Do you think that Constellation has that reputation among potential 12. Tellers of business in the United States as it does in Canada or other locations?
Yes, I think so. I would I'd argue that probably in the U. S, we have done as good a job as we have in Canada at Reaching out and touching the potential candidates, acquisition candidates. And I'm pretty sure we've gotten to those levels recently in the Netherlands and some European countries.
20. It's not the customers or other cohorts. It's not the sellers of business, but the shareholders apparently in the United States. 20. I own the stock through the Toronto Stock Exchange, but some people own it through a U.
S. Traded security apparently called CNSWF, which 20. This person is asking, I just don't know about this, but this person is asking, is there anything Constellation can do to facilitate Smoother trading and more liquidity of the U. S. Traded security, CNSWF.
20. So, Jamal, I thought that was just the
NASDAQ symbol for our shares that were traded between NASDAQ participants.
Yes, my understanding is like, so the overall calendar market, we have no involvement in it at all, how it was established and 20. I don't believe it has anything to do with the NASDAQ. But in terms of yes, we like I get in terms of trying to move it up to another level at center of it. But it was never our intention for this stock to trade in the U. S.
On that exchange, it was done 12 without any involvement from CSM.
Okay. Yes, so we're not actually listed in the U. S, Larry, and It's both expensive and it tends to I don't know if you've ever seen every time there's a press release regarding a U. S. That isn't particularly laudatory.
There are subsequently a half dozen press releases from Law firms who claim that they're about to launch Clash Action Suits. And so that litigious environment isn't one that we Particularly, we'd like to expose ourselves to. And so staying out of U. S. Listings is pretty appealing.
Yes. Thank you very much. Speaking of shareholders, do you have a definition or a conception
2. Clearly someone Who has done their homework and chosen to be a shareholder after having done expensive homework Would be an ideal shareholder because then I feel less concerned about them being a shareholder. For Friends and family and friends and family of employees who become shareholders who do it For the reasons of being friends and family as opposed to because they've chosen this as the best possible security for them Given the circumstances, those people you're always going to feel wildly responsible for. And then for the indexers, I I feel virtually no sense of affiliation for them. They are just playing a numbers game, buying stocks based on the weighting in the index and selling them for the 20.
Same reasons. So they would not be on my Christmas card list.
Got you. In terms of those who have done their homework 20 And invested on its basis. The next question is in effect about how the company evolves over time, the world does 20. You really if you're going to be an intelligent investor, need to do your homework regularly 20 Understanding of your business well over the past 5 years. And if so, what sort of investor, what 2.
Sort of
learnings would that represent? So the most impressive investors 20. But they often get it through non public sources as well. They build relationships with employees. They talk to customers, they go to trade shows, they follow all of the unconventional 20.
So called scuttlebutt type sources and you've got to be impressed that they do what they do and I know of Several who fall into that camp.
And the 2. The author is also curious about the opposite. Are there any shareholders who simply don't get it and frustrate you With not doing their homework and not understanding and nevertheless owning.
20. Yes, I mean, many of the index investors, I have no problems at all with what index investors do. I think it's a service to the world. However, when they start voting their shares without diligence, I get offended. And so I regularly get lectured by index funds that hold Are the major shareholders in coal mining operations, tobacco, things that are clearly not Social Goods, and they're the largest shareholders in the world in these companies and they're lectures on Our ESG practices.
I mean that hypocrisy is sickening. And they don't take the time to understand what we do. So when we get criticized about the diversity And we went into great lengths to explain how our board was built and what we were looking for in our board. I got no useful feedback from these large index investors. I asked them for suggestions, people who would meet the criteria that we were looking for in board members.
When they did make suggestions, they were absurd in that they didn't map on to our requirements or desires in the least. Anyway, so those are the ones who I'm not big fans of.
Understood. And that's not a unique view and I'm very sensitive to it myself. Segue into ESG, which is a category of ideas promulgated by the United Nations in 2 1,005 that wants to encourage long term sustainable thinking around these categories of environmental, social and governance. 20. It has since the UN promoted it taken on a life of its own to many and is certainly one of the hotter topics 20.
And so a few questions in that category. First, a very general one. Could you comment 20. Development and even the role that your software can have in society, such as They give a good example, building sustainable transport systems. So views on the current appetite for disclosure around these ESG
2. If you want me
to say something here, Larry. I mean, we I get we 20. All doing different things, all might be doing certain activities from an ESG perspective. And for me to try to compile it and record it at a constellation level 2. And that being said, we're getting more and more requests and we need to deal with it.
People are voting in certain ways, 20. And so, well, Larry, I'll put it back to you as well. We sort of decided it's okay, well, look, there are things being done throughout 20. And we are now going to try to make an effort to try to compile that information and put together some sort of a document that we can publish website that said, look, we're not ignoring this. It's just that we can't respond to some of these questionnaires that come from CPD or MCSI, whatever it's called, I can't remember now, but things are being done.
And so rather than just saying no or not responding, at least 2. Then we can point to this document to say, look, the Constellation and the businesses within Constellation do definitely from a diversity and include 2. Things are being done at the operating groups, maybe not so much from a carbon emission perspective, but definitely on the social side. 20. And then from a governance, I think we can we're comfortable in the governance of our Board, etcetera.
But Larry, I don't know if
you want to because I know you 2.
We're spearheading this from a Board perspective.
Yes, sure. Thanks, Jamal. And so Jamal is exactly right. 20. Constellation is unique among corporations in the degree of its decentralization and autonomy so that many of the functions happen deep down below
20. You might be able
to generate some of that information and aggregate it. We're going to we take all these matters 2. I mentioned the UN promulgation of these standards in 2,005. Constellation has believed that most of them since 20. It's the beginning and some of them are very basic fundamental ethical principles about how to manage a business, how to treat employees and customers and 20.
How to behave in society. So I think Jamal is right. What we've not done is 20. Collate the philosophy or the views in a single spot, and that's what we're going. We're Jamal and I are leading a group that will try to 20.
Look into that and generate something useful for the shareholder community around this. And then some of it will be explaining what some of the distinctive features, 2, including decentralization, for instance, and the composition of the Board and why we think these are the best Components of the governance structure for Constellation. And so it's reflecting to Mark's point a moment ago that 20. We're going to try to speak intelligently and substantively to the interested shareholders who want to know, want to understand. 2.
Yes, we think we've done these things. Mark's letter had done a good job at communicating a lot of the values and principles, but we 2. It may be useful to try to collate them in a single place. So, Jamal and I are at work on that and we look forward to Sharing it when it's ready. Just going back to the questions, There's a couple here still on this idea around target.
20. Jeff Bender, apparently your podcast is eagerly viewed. One person says he really enjoys the podcast, 2, including a recent one on diversity and inclusion. And the questioner asked if you'd be willing to share some of your observations and
12? Yes, I think We're trying to create an environment where all of our employees can bring their best selves to work 20. Every day, so they can interact with their coworkers and our customers. And I think like any organization, I think 20. We can do better and we need to do better.
So I think we continue to explore it further and we have all kinds of programs and initiatives 20. Where we're trying to sort of make it part of our conversation. That was the point of podcast. I think it was to sort of be willing to talk about things that are uncomfortable. And I think Things that are just not talked about enough to sort of shine a spotlight on.
So that was the again, that was the attempt of the podcast. But again, I was 20. I'll be honest, I was quite nervous actually for a handful of them and I was more nervous for that one I think because again I was uncomfortable. And I think the 20. The 4 people that we had on there, I think did a phenomenal job of just being honest and open and opening the eyes, I think, of others as to how 20.
People who have differences can be perceived and I think more importantly how we can sort of help them I think create an environment that Is more accommodating and more accepting. So again, I actually give the request of the podcast to the 4 speakers more so than myself.
20.
Thanks, John. Here's another one. I guess it's in the category of ESG. I'm not That category can be quite elastic, but it's an I think it's an interesting question. A moment ago, a question referred to how Some software can promote risk profiling that may be biased in some way or another.
20. Do we use any techniques to police against the misuse of software or those kind of problems? Are there 2. Algorithms available to control for these side effects. How do we think about that around product development,
20? I think the underlying 20. Assumption is that there is some kind of central control that sits somewhere inside of our organization What there is, is a host, Let's say 500 and something business units of companies that have management teams clients who presumably think that they are the best providers of those solutions, otherwise they wouldn't be doing business with them. 20. And I certainly hope they don't have bias in their systems built in, but 20.
It's almost going to happen. You're dealing with humans here. And some people are going to get it wrong. And so I don't doubt that if you It's our software and you go down into one of the individual groups and whether it be For our housing software and it's a questionnaire that goes out to people who are applying for Housing, but some people might perceive there to be bias in those questionnaires that are generally developed with our housing clients. It's just in the nature of the beast.
So there's no easy solution to it other than you hope that people are decent human beings with Guys, any views on applying AI to look for inherent bias in our systems?
20 Well, hearing none, I'll intervene again. I thought that was very thoughtful and helpful answer, both in terms of the company and its business. All products can pose adverse effects. But We're nearing the end of the gathering, but there are too many segments left. We left out a couple of questions on the 2.
Topic of competition, we talk a lot about having rational rivals. We also talk about having copycats. But Howard has a couple more at 20. At least one question more on competition before he'll turn it back to me for some final broad questions. Howard, do you want to take up a couple of competition questions?
Sure. Yes. I'll just bundle them kind of into 1 and 20. All the group managers can comment as they see fit. This question really asked about, is there one thing competitors have that you wish 20.
Your groups had or each business unit had and there has been obviously a lot of VC money flowing into certain verticals. 20. Are you seeing more entrance in your markets than usual? And how do you fight back with what you have?
When you're talking about competitors, you're talking about competitors to buy companies, not to compete to sell software.
20? Actually, I think the question I'm not entirely sure because it was just asked like that, but I think it's about the to sell software. I think it's the Operating competitors as opposed to the M and A competitors.
Okay. Yes. So do you find this more new entrants into your businesses? I think is perhaps a good Way to look at it guys. Anyone have a view?
Barry? 20.
Yes, I can start there. I would say in some of our verticals where the TAM, the total addressable market is a little bit bigger, there's definitely been Some new entrants over the last couple of years who have come into it. And I'm thinking in the salon and spa space, for example, also in the fitness space, Because they tend to be larger markets. And I guess, I don't think there's anything they have that we don't 12. I would wish they were maybe a little bit more rational in the way they compete and had a model similar to ours in terms of What they're trying to accomplish for their overall corporation and building an enduring business versus getting it big as big as 2.
Possible and then selling it to someone else in a very short period of time. But it is what it is. And again, that would be my, I guess,
20. Anyone else?
I'd be curious to hear, I guess, I know topic is Dan has, there's a he has quite a few cloud based businesses. 20. And I want to know if it's more competitive in that space, it's on the verticals that you're in.
20. Okay, Howard. Yes. Well, we do encounter because there's so much money in the market also in 20. The early stage companies, you see in 3 verticals in which Topic is BV is operating.
You see a lot of newcomers in the market in the FinTech space and the HealthTech and the EdTech. But the nice thing about it is that a lot of those startups actually If they start making money and they want to move to the next step, they need distribution. And for that, they Sometimes to come to us because then we can tuck them in on our platforms and Give them the opportunity to have this distribution for example, but we see some new competitors, some new players with Very niche specific solutions coming into the market. Yes.
20
20. If no one else wants to comment on that, I'll pass it back to Larry.
20. All right. Thank you, Will. Coming toward the end, a few more open textured sorts of questions, maybe call them fun. 20.
Mark Leonard has done this in the past. We'd love to have a recommendation either from Mark or anybody else.
I think maybe they've all been working too hard to be reading. I am reading the Amazon book. One of the questions earlier Was about studying Amazon and I've never really spent any time doing so. It just sort of felt a long way from our world. I think it's called working backwards and sort of halfway through it.
Anyone else got a book that they like over the last little while?
Yes. I read a book, but it's about it was about family businesses. It was one of the Harvard professors who did the family business practice, but
I don't know. If you're
in the family business, I can highly recommend it. And it was about enduring advantage, That's the title of family business. His name is Professor Davis. If you're interested in family businesses, it might be of interest.
One of the ones that Mark recommended, and I forget whether he recommended just to the Board or to everybody, but it was a biography of Roy Thompson. You referred to him earlier. 20. Mark, I think that was the biography you recommended and I read. I thought it was very interesting, very good, very fascinating character, interesting life, 20.
Built up a huge one of Canada's most important companies, I guess.
Yes. Well, there are a host of biographies on Roy, but the one I mentioned earlier was the after I was 60,
Okay, Mark, here's a tough one. Speaking of authors, this person cites Daniel Kahneman, Famous behavioral psychologist has influenced a lot of us, I think. And, this person attributes to him a technique that She calls a pre mortem that is sitting here now anticipating problems. And here's her question for you, Mark. Assume that it's 5 years from now, it's 2026.
And your estimate of Constellation I'm quoting, your estimate of Constellation's intrinsic 20. Value per share has halved relative to what it is today. What most likely has happened?
We have not been able to deploy the capital and half our value is associated with I can say that with a high degree of certainty.
Right. You said that was the number one thing you need to do is or the number one risk is done deployment of capital.
20 Or us not deploying it, 1 or the other. You can do both.
Right.
And achieve the same goal. You don't
want to take out a crystal ball and identify the sorts of macro and micro forces that might lead to that scenario?
No, I don't think so. 2. All
right. Then we'll flip it around. The final question asked by another shareholder, more affirmatively is what is the 2. And this person says, hey, I like the phrase the person used. It says, I've only been a share I've been a shareholder only since 2013.
I like that phrase. And then it says, what is your intended destination for Constellation 10 or 20 years from now.
It's going to be summer parts, Larry. It's got to be whatever The individual businesses achieve in terms of deploying their own capital and shaping their own futures. And so it comes 20. Down to 500 questions, right?
Yes, I guess it does.
I mean, it reminds me
a few moments ago, you said that you had 20. You wanted to name this company not Constellation, but just Software Co. And I remember reading your business plan. That's the title That you gave it. And I read that within the past few years and when I did it's written 20 plus years ago.
When I did, it was amazing How similar the
vision is
to the result. And yet you've done a lot of experimentation and a lot of evolution throughout that process. So in some ways, there was a master plan or a grand vision at least. Do you have a 20. But it sounds like you're saying now you don't have a master plan or a grand vision.
It's more of a evolutionary opportunistic 20? Kind of growth.
Yes, absolutely. I mean, when I sent you that plan, when we talked about it, I think I told you that we got about 20. 60% of it, right. And so I don't want to give people the sense that vision is ever crystal clear. It was vaguely right.
And some of the policies and philosophies were very right, but the refinement has been The master stroke, it's how it's gotten better and evolved that's made it great.
Well, that's at least from my point of view, a great note to 20. We want to emphasize before we go that if shareholders have further questions, we have A nifty function on the Constellation website where you can submit your questions. 20. Jamal and Mark and others regularly examine that box and give answers 2. And they're published on the website.
It's a wonderful mechanism for engagement with shareholders. So 20 for being here and for providing those questions. I want to thank the panel, and especially my 2 co questioners. 20. So with that, Mark, I'd like to turn things back over to you.
Okay. Thanks, Larry. I really appreciate it. Larry also polls the Board every quarter and gathers up the Board's feedback for me and for the managers. 2.
And I've told him that's probably the most thankless task inside of all the constellation because I on the one hand make fun of the requests 20. And abuse him for delivering the message. And they, on the other hand, say that he's not getting me to do what I'm supposed to do. So 20. Thank you, Larry, for doing this and for doing that Vice Chair at all.
Thank you, panel, Will and Howard, for 20. And obviously, huge thanks to the employees and managers of the company who built 20. Something that I'm incredibly proud of, and I hope that all the shareholders share that sentiment.
20. This concludes today's meeting. You may now disconnect your lines.