Nucleus_AI ( )
The story of Mark Leonard and Constellation Software is one that should be on every entrepreneur’s radar. With its incredible growth and unique business model, Constellation Software is a huge company today. And yet, it’s likely that many people have never heard of it or its founder.
The company was founded by Mark Leonard, a former venture capitalist, in 1996. Mark’s journey to building Constellation Software began with a realization during his 11 years in venture capital: he wanted to build something permanent. So, he created a company that would acquire and hold vertical software businesses forever. This was the birth of Constellation Software. It went public in 2006,and now has 25,000 employees currently.
Since its debut at $70M at the Toronto Stock Exchange, Constellation Software has increased in value by around 70,000%, making it currently valued at around $49B. And Mark Leonard is the driving force behind the company’s continued success.
The company’s goal is simple: to become the best buyer of vertical software businesses in the world. Vertical software companies target specific markets, like hospital management, and have high gross margins. Constellation Software likes to acquire small VMS companies, usually for around $2-5M, and has acquired 500+ vertical software companies across 75 industries since its inception.
So, how does Constellation Software manage 500+ companies? The company splits them into six operating groups, with each group having a director responsible for helping the companies in that group succeed. The company also has three cultural tenets that govern its operations: autonomy, long-term thinking, and meritocracy.
One of the most unique aspects of Constellation Software is its long-term thinking. The company doesn’t want to sell the companies it acquires for a profit. It wants to acquire them and hold them long term. Since inception, Constellation has only sold one business because they were offered a really high price in its early days. Mark Leonard regrets selling that firm to this day.
Mark also believes in taking care of his employees, offering good pay, stock bonuses, and a clear path to move up. By 2015, more than 100 Constellation Software employees were millionaires! And Mark wants to make 500 more in the next 10 years.
Today, Constellation Software generates a free cash flow of around $1B on $6.5B in revenues with free cash flow margins of 20%. The problem for Mark and Constellation now is smart utilization of that money. They are looking at extending the model and buying bigger companies, expanding outside the vertical SaaS market.
Mark Leonard and Constellation Software represent a software behemoth through smart acquisitions and a killer cash flow cycle. With their growth bets now, it will be exciting to see what Constellation Software does next.