Mark Leonard is the founder and CEO of Constellation Software. And there’s magic to that name. (Leonard also happens to look a bit like Gandalf.)

He’s bought more than 500 software companies, but never sold any of them—with one exception, which Leonard regrets until this day. Constellation Software buys software businesses to keep and grow them.

Where Mark Leonard comes from is unknown. His past is wild: intern at Barclays, mason, dog handler, gravedigger, valuator, intern at Barclays, wind energy researcher.

He then spent a few years in venture capital, but what caught his interest was the kind of business that VCs weren’t interested in. Companies with a smaller addressable market. Software companies building tools for golf course owners, marina operators, these kinds of companies. Vertical market software (VMS).

Leonard started the company with $25 million in 1995, went public in 2006 (CSU) with a $70 million valuation. Their current market cap is almost $50 billion. As of 2021, they had 32,000 employees and made $5.1 billion in revenue.

The kinds of businesses Constellation buys

They acquire VMS companies for around two to five million USD that earn at least $1 million before interest and tax, and can show consistent earnings and growth — generally EBITDA/revenue + revenue growth of 20 percent or more per year.


Just like Leonard’s approach to buying companies (buy them to keep them forever), so is his approach to hiring: he wants his employees to stay at Constellation. He incentivizes this through the following means:

  • they get a lot of autonomy
  • he pays them well
  • bonuses get redirected into stock
  • there are clear paths for advancement

In 2015, Constellation had 100 employees who were millionaires, and Leonard said his aim was to 5x that number over the following decade. (I don’t know whether they now have more than 500 employees who are millionaires, but looking how the stock developed, it seems likely.)

Leonard’s writings

Leonard’s letters are a joy to read. In a 2018 letter to his shareholders, within a section where he outlines how employees can advance within Constellation he spits out this sentence: “Become a master Craftsman in the art of managing your VMS business.”

The problem? Too much money

Right now, Constellation has an interesting problem: too much money. They’re really good at doing what they do: acquiring VMS companies for around two to five million. And you can play that game when you have $100 million by buying 20 five million dollar VMS companies. But what if you have a billion? There’s just not that many VMS companies to buy that would be a good fit for Constellation, and are willing to sell.

So now they’re buying both smaller and larger companies, and expanding beyond VMS companies. This last part seems to be the most high-risk/high-reward play:

We are seeking attractive returns, a sustainable advantage, and the ability to deploy large amounts of capital outside of VMS. That will require highly contrarian thinking and is likely to be uncomfortable in the early going.

— Mark Leonard, February 2021

How this will play out remains to be seen.

Further reading:






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