Constellation Software has been one of the most successful compounders of the last decade. But every business eventually struggles with the law of large numbers, and Constellation is no exception. Mark Leonard himself has acknowledged that, from all-time high prices, future returns would likely settle around 8%. Even after the recent drawdown improves that math, the reality is that a $40 billion company simply can’t deploy capital the way a billion-dollar company can.

That’s what led me down a rabbit hole over the past few weeks. If the Constellation playbook works — and two decades of evidence say it does — the highest-return way to participate might not be through the mothership itself, but through its smaller offspring: spinoffs and subsidiaries running the exact same strategy at a fraction of the scale.

Today, we’re profiling four of them. Two are well-known members of the Constellation family — Topicus and Lumine Group. Two are lesser-known names being reshaped by Constellation’s people and culture — Sygnity and Asseco Poland. Each offers a different risk-reward profile, so I hope there will be at least one company you find interesting today!

Let’s dive in!

— Daniel

We are very excited to announce that on Friday, May 1st, Shawn and I will host The Intrinsic Value Conference in Omaha during the Berkshire Hathaway Shareholder Weekend. We will give a special stock pitch presentation followed by a Q&A session and a private dinner for members of The Intrinsic Value Community on Saturday.

In addition to the VIP Spots for members, a limited number of free spots for the conference will be available on a first-come, first-served basis. Shawn and I look forward to meeting as many of you as possible!

Being in Omaha last year was a fantastic experience, but the best part has been connecting with some of you. With this event and social hour, we hope to meet many more and get to know you better in person!

The conference is at Hotel Indigo in downtown Omaha from 1-4 pm local time.

Hope to see ya there!

For anyone who is not yet familiar with the VMS playbook, let me give you a brief refresher. Vertical Market Software refers to software built for a very specific niche: cemetery management systems (yes, I know this example is used in every second CSU write-up), bus scheduling tools, dental practice software, fishing permit platforms, simulation tools for oil drilling, there’s nothing not covered by a VMS company.

They are basically the opposite of names like Salesforce or Excel — they’re deeply embedded, mission-critical systems that run narrow industries. What makes them special is how sticky these solutions are. Switching costs are enormous because the software is woven into daily workflows, often in regulated environments where data privacy and accuracy are non-negotiable. That same regulatory complexity also insulates these businesses from AI disruption — a point we explored in depth in our Constellation newsletter.

Constellation’s problem, though, is that it now needs increasingly large deals to move the needle. We recently saw them build a 10% stake in the travel company Sabre as part of a new strategy they call “PEMS” — Permanent Engaged Minority Stakes. It’s a clever adaptation, but it comes with a fundamentally different risk profile than the small, bolt-on VMS acquisitions that built the company’s track record.

Constellation is known as a trusted and highly capable partner, so the privately acquired companies wanted to become part of Constellation. As Sabre’s case showed, that’s not necessarily the case for public companies. Sabre initially threatened to activate a so-called poison pill that would dilute shareholders and reduce Constellation's stake to avoid being taken over. While that threat seems to be off the table now, it shows this strategy might face much more resistance.

It’s also significantly more difficult to turn around a business as a minority shareholder.

A company that’s a tenth the size of Constellation, by contrast, has decades of runway before the math of scale becomes a constraint. So the thesis is that you get most of Constellation’s advantages — the playbook, the incentive system, and in many cases the direct oversight — without the drag of deploying billions of dollars.

If any company deserves to be called a mini-Constellation, it’s Topicus. Separated from the parent in February 2021, Topicus is the publicly listed entity that sits on top of TSS — Total Specific Solutions — the operating group that actually goes out and acquires VMS businesses across Europe.

Constellation holds roughly 30% of the economic interest and controls the majority of voting shares. Another 30% sits with the van Poelje family, the original TSS founders, and the rest is owned by public shareholders. So when you buy Topicus, you’re essentially buying into TSS’s acquisition machine with Constellation’s backing, expertise, and oversight.

TSS itself has been around for 20 years, predating the Constellation spinoff by quite some time. Its architect is Ramon Zanders, who expanded the operation into one of the most respected VMS consolidators in Europe. According to insiders, TSS has been the best-performing operating group within the Constellation family for some time.

Zanders shares some of Mark Leonard’s DNA, too — he avoids media, skips investor conferences, and you won’t see him posting on X or any other social media platform. While I like good investor communication, I prefer this way over highly public and outspoken CEOs any day of the week.

Revenue has compounded at over 30% annually for years and currently grows in the 15–25% range, driven almost entirely by acquisitions — roughly 25 to 30 per year across TSS’s European operating units. EBITDA margins are close to 30%, recurring revenue sits in the low-to-mid 80s, and the market cap is approximately C$12 billion. That makes Topicus the largest company in today’s lineup, but still only about a quarter the size of Constellation.

Geographically, TSS operates across the Benelux countries, the DACH region, Central and Eastern Europe, the Nordics, the U.K., and Ireland. The total target universe spans 30,000 to 40,000 potential acquisitions, with the majority sitting in Germany (which is, in part, why we own a little Chapters Group). The DACH region is a high-value market with many potential targets and an aging cohort of founders. The perfect hunting ground.

The European VMS market has historically been extremely difficult to consolidate at scale for three reasons. First, fragmentation across languages, cultures, and regulations limits most software to a single country. Second, few acquirers had both the capital and operational capability to execute truly pan-European deals. And third, European founders have traditionally been skeptical of financial buyers, preferring to sell to organizations that would maintain employment and cultural continuity.

All three dynamics play to TSS’s strengths. It operates in 26 countries with decentralized teams that understand how to play in each region, it has Constellation’s capital behind it, and its permanent-home philosophy resonates with founders in a way that private equity never will.

One of the most important things in every programmatic acquirer’s playbook is the incentive system. Topicus/TSS mirrors Constellation’s. The two key drivers for management compensation are Returns on Invested Capital (ROIC) and net revenue growth. You need both because incentivizing only top-line growth degrades acquisition quality, while incentivizing only returns discourages capital deployment.

On top of that, 75% of after-tax bonuses must be used to purchase Topicus shares on the open market, held in escrow for a minimum of four years. Beyond that, there are no stock options or stock grants.

There’s a subtle but important nuance worth noting. For Daan Dijkhuizen, who runs the legacy Topicus operating group, the growth metric is organic revenue growth only, so acquisitions don’t count in his bonus. For Zanders and Han Knooren at TSS, it’s total revenue growth, including acquisitions. The reason is that Topicus' core business is supposed to grow organically, not through acquisitions.

On valuation, I built a model around the same framework we used for Constellation: FCF2S (Free Cash Flow available to Shareholders) growth equals ROIC multiplied by reinvestment rate, plus organic growth.

I don’t want to make it too boring by going through all the assumptions in great detail. The main balance companies like Topicus, as well as all other companies we look at today, have to strike is between their ROIC hurdle and their reinvestment rate.

Obviously, you want to invest as much money as possible at the highest possible returns. However, those deals are difficult to find, so the higher the reinvestment rate, the more likely it is that ROIC drops. Especially for larger companies that can’t go as niche as some smaller ones.

Given the magnetism effect we discussed during our Constellation episode, I expect all companies to primarily defend their return hurdle rates. Thus, I keep ROICs relatively high and mostly play with the reinvestment rate assumptions.

Bear case: 15% ROIC, 60% reinvestment rate, 2% organic growth. At a 20x exit multiple in year ten, the implied return is about 6–7%. Not bad for a bear case, but it could mean another 20–30% downside in the near term.

Base case: 20% ROIC, 75% reinvestment, 4% organic growth. FCF2S per share compounds at nearly 20%. At 22x exit, that implies a mid-teens annual return over ten years.

Bull case (fairly unlikely): 25% ROIC, 90% reinvestment, 4% organic growth. In this case, the ten-year CAGR approaches 25%. As mentioned above, I consider this scenario to be rather unlikely since the 90% reinvestment rate and a 25% ROIC are somewhat at odds with each other — the more capital you deploy, the harder it is to maintain high returns.

If you assume a 25% ROIC, but only a 75% reinvestment rate, you would get to a CAGR of 20%.

Lumine was spun out of Constellation in 2023 and takes a fundamentally different approach from Topicus. Where Topicus is geographically focused across all of Europe, Lumine is vertically focused on a single sector: media and communications.

The media and communications vertical sounds niche, but it’s not as small as it might seem at first. Telecommunications alone has an estimated TAM of about $50 billion, and when you add telecom cloud services, satellite, broadcast management, and radio automation, you’re looking at a market north of $60 billion.

However, Lumine’s realistic target universe — so small-to-midsize VMS companies priced below $200 million — is considerably smaller. Personally, I would estimate it in the low hundreds.

What distinguishes Lumine is its M&A approach. The company specializes in carve-out deals, purchasing orphaned divisions from larger corporations. These transactions have very little competition because they require specialized technical skills to evaluate and execute, and the parent company is no longer interested in the division, which often means attractive pricing. They also tend to be larger than VMS deals usually done by a company of Lumine’s size, which means they don’t need to acquire as many companies.

The downside is that carve-outs are harder to source, come at higher ticket sizes (this can also be a disadvantage due to concentration risks), and make deal volume unpredictable. Lumine completed 6 acquisitions in 2021, just 2 in 2022, 5 in 2023, and only a single deal in 2024.

That lumpiness shows up in the organic growth figures, too. Lumine’s organic growth is weaker than Constellation’s or Topicus’s, and there are years when it turns negative. The reason for that lies, once again, in the carve-out mechanics.

When Lumine acquires a carved-out division, that business has typically been cross-subsidized by its parent for years — sharing IT systems, back-office staff, and sales teams. Lumine has to rebuild all of that from scratch while simultaneously cleaning house on unprofitable customer relationships and low-margin revenue streams. The WideOrbit acquisition in particular, which was nearly the size of the rest of Lumine’s portfolio, caused significant organic drag in 2024.

On the returns side, Lumine’s ROIC since going public has averaged roughly 30% — materially higher than Constellation or Topicus in recent years. That’s largely because the carve-out model allows Lumine to buy businesses cheaply and then expand margins significantly, since these divisions were typically run inefficiently and undermonetized under their previous corporate parents.

I wouldn’t expect 30% ROIC to hold going forward, but 20-25% feels like a reasonable target for the years ahead, which is exactly where Constellation operated when it was Lumine’s size.

Since Lumine fits right into the Constellation universe with a focus on FCF2S, we use a similar model to Topicus. The assumptions are similar, with the difference of a lower organic growth rate, slightly lower exit multiples due to the lack of a similar track record as Topicus, but higher average reinvestment rates.

Bear case: 15% ROIC, 60% reinvestment, 1% organic growth. At 18x exit, the implied return is approximately 7%.

Base case: 20% ROIC, 80% reinvestment, 2% organic growth. Cash flow compounds at 18%, implying roughly 16% annual returns at a 20x exit.

Bull case: 22% ROIC, 100% reinvestment, 2% organic growth. The cash flow CAGR hits 24%, and at a 22x exit multiple, annual returns approach 23%.

The pipeline question is a bit more pressing here than with Topicus, in my opinion. There are hundreds, possibly thousands, of potential targets, and Lumine’s larger deal sizes mean it doesn’t need dozens of acquisitions to move the needle. But I’m not an expert on the media and communications vertical, and it’s genuinely hard to judge the quality and depth of the target universe several years out.

To some extent, that’s a discomfort you have to accept with any of these businesses — the decentralization that makes them work also means you’ll never get the full picture. You have to trust the processes set in place.

Sygnity has been, and still is, a prime example of a turnaround initiated by Topicus/TSS. Founded in 1991 as Computerland Poland, Sygnity spent its first three decades as a traditional IT integrator. Revenue was project-based, custom-built for individual clients, not scalable, and not particularly profitable. That resulted in sluggish growth, thin margins, and a business that was still far away from the typical VMS approach.

Then, in 2022, TSS stepped in, acquired a 70%+ stake, and restructured the business completely.

TSS brought in its own people immediately. A former TSS portfolio manager was installed as president of the board. The supervisory board was rebuilt with Ramon Zanders himself, TSS’s CFO, the head of TSS Eastern Europe, and the director of TSS’s legal and M&A function.

The next step was to identify a series of unprofitable contracts — particularly public-sector deals where pricing had been locked in before inflation spiked, with no contractual ability to pass through cost increases. They deliberately exited those contracts, even at the cost of short-term revenue, which explains the sluggish growth in 2023.

They also shut down two entire business units that weren’t generating profits. And they systematically renegotiated contract terms across the portfolio, adding inflation-indexing clauses so that future price increases would be automatic rather than requiring a renegotiation with each client.

The results of those changes have been pretty strong. In just two and a half years, gross margins expanded from 28% to 47%. Operating margins more than tripled, from 8% to 26%. The stock became a ten-bagger from the point TSS took control — at least before the recent 30% selloff.

Sygnity operates across four segments. Financial services is the crown jewel: central bank systems, transaction infrastructure, banking automation for Polish institutions. In this segment, Sygnity owns the source code on most of these contracts, making switching close to impossible for clients.

Energy and utilities is similarly defensible. The main products/tools here are billing systems, grid management, and regulatory reporting.

The public sector is a bit more “problematic.” It offers similar advantages in terms of stickiness, but it can’t be turned into a VMS business model because the tools are more customized and the IP is largely owned by customers, making it less scalable than other software.

A part of the business that Sygnity is doubling down on is the Healthcare sector. There have been multiple deals signed recently, and two recent acquisitions have been in this space.

Talking about M&A, Sygnity has completed a total of four acquisitions so far: Edrana Baltic, a Lithuanian public-sector ERP company; Sagra Technology, a Polish SaaS business serving FMCG field sales teams; DocLogix, a document management platform benefiting from EU-mandated e-invoicing requirements; and Comarch HIS, a Polish electronic health records company that closed in December 2025.

The deals have been attractively priced — Edrana at 8–9x earnings, Sagra at around 10x EBITDA, DocLogix below 1x sales. There aren’t many details about the Comarch deal yet, since it closed just recently.

Poland itself is a compelling macro backdrop. The country is receiving €76 billion in EU cohesion funds for 2021–2027, the largest allocation of any member state, with digital transformation of public infrastructure explicitly earmarked as a priority. That money flows directly into the verticals Sygnity serves.

Sygnity doesn’t fit neatly into the same compounder framework as Topicus or Lumine, because it isn’t yet a functioning M&A machine. The turnaround has been impressive, but the acquisition engine is still being built. However, we see more and more deals and acquisitions, so I’m increasingly confident that Sygnity will get there.

Bear case: Mid-single-digit revenue growth, slight margin compression, 14x exit multiple. This would imply that M&A never materializes, and you only get organic growth. If that were the case, the stock might be more or less flat, which, for a bear case, is not a catastrophic outcome. Let me emphasize once again, though, that with companies at this size, many things can go wrong that are not yet part of this model.

Base case: 13% revenue CAGR (roughly 7% organic plus 6% from acquisitions as the program matures), EBITDA margins stabilizing around 35%, 20x FCF exit. That produces a five-year IRR of about 16%.

Bull case: If Sygnity reaches the growth and margin profile of established TSS operating groups — high-teens revenue CAGR, 40% EBITDA margins, 25x exit multiple reflecting the quality premium — the stock could compound at 30%.

My gut feeling is that Sygnity offers the widest range of outcomes among all four companies. The business transformation has exceeded expectations, but future returns will now depend on the success of the M&A engine. That said, at the current valuation, the downside should be somewhat capped. These are famous last words, though…

If I had to pick the single most interesting name from today’s lineup, it might be Asseco Poland. Lots of history, profitable, proven M&A engine, and the most recent opportunity to get Constellation/Topicus exposure.

Asseco is a giant compared to Sygnity (market cap in USD is about $3 billion). It’s the sixth-largest software vendor in Europe by revenue, operates in 62 countries, employs nearly 30,000 people, and has completed over 130 acquisitions of its own.

Founded and led by CEO Adam Goral, the company’s philosophy has always echoed Constellation’s: buy vertical software businesses, leave them decentralized, preserve local expertise, collect the cash flows, and reinvest them. About 80% of revenue comes from proprietary products and IT services.

The company is a holding structure with three distinct segments. The domestic Polish business generated $640 million in revenue in 2025 at roughly 15% operating margins. Asseco International, the Central and Eastern European arm, contributed $1.3 billion at slightly lower but still double-digit margins. And Formula Systems, an Israeli-listed holding that Asseco owns 25.8% of, accounts for nearly 65% of overall revenue but operates at lower margins than the other two.

If you look at the corporate structure above, it might become clear that understanding the whole operation is close to impossible. To some extent, you trust the judgment of Constellation/Topicus and, of course, the superficial financial analysis that you can do. Topicus took a 15% posiiton in Asseco late last year. After the success with Sygnity, this is obviously interesting.

Again, the companies are very different since Asseco is already exceptionally managed. Still, there seems to be some more margin potential and, of course, a lot of M&A runway.

I think of these as sidecar investments. You’re riding alongside a powerful engine — in this case, TSS and the broader Constellation family — betting that the same operational improvements and M&A discipline will be applied here. The benefit over Sygnity is that you have a company here that already performed well (fundamentally) before TSS’s involvement.

The valuation math is intriguing as well. We know TSS targets at least a 20% IRR on its investments and doesn’t include multiple expansion in its models. At the adjusted earnings level when TSS entered, Asseco was trading around 14x, implying a 7% earnings yield. Layer on the 12–13% annual earnings growth the company was already delivering, which has since accelerated, and you reach that 20% hurdle with no multiple expansion required.

But there’s another way to think about it. If TSS targets a 20% IRR purely from the earnings yield on their estimate of post-improvement normalized earnings, their purchase price at PLN 85 per share implies they believe the business will earn roughly PLN 17 per share once the operational changes take hold. At today’s price of about PLN 170, you’re paying about 10x those target earnings.

Some mental accounting is required, and you have to believe TSS will push through its business plan, but even without that leap of faith, you’re paying around 19x current earnings for a business with PLN 12.5 billion in contracted backlog, relationships across 62 countries, and a Constellation family shareholder actively pushing for better capital deployment.

After spending the better part of two weeks going through these businesses and debating them with members of our Intrinsic Value Community and Shawn, obviously, here’s where I land.

Topicus is the highest-quality, lowest-risk option. It has the deepest M&A expertise, the broadest target universe, Constellation’s direct oversight, and a two-decade track record at the TSS level. The tradeoff is that the market knows all of this, so the expected returns, while solid in a base case, aren’t extraordinary.

Lumine is probably the only company outside of Topicus and Constellation itself that already has a fully functioning M&A engine (using the Constellation playbook). The carve-out model has some unique advantages, returns on capital have been exceptional, and the price has corrected meaningfully. But the pipeline in a single vertical is inherently narrower; I lack industry insight, and the lumpiness of the deal flow makes it harder to underwrite with confidence.

Sygnity offers the widest range of outcomes. The transformation has been stunning, but the M&A engine still needs to prove itself. If TSS’s acquisition infrastructure takes hold and the deal pace accelerates, the stock could be an exceptional compounder. If it doesn’t, you’re left with a decent but unspectacular business in Poland.

Asseco Poland is, personally, the name I find most intriguing. It has a proven M&A track record of its own, though not yet with the full Constellation DNA. But TSS’s involvement gives you the chance to participate in both the operational transformation and the adoption of a superior capital allocation playbook. The valuation at today’s price provides a reasonable margin of safety.

The problem, which applies to all of these, is that we don’t know whether we will ever get the “Constellation Family Premium” back. If not, part of the twin engine of returns (multiple expansion) is gone.

For the Intrinsic Value Portfolio, the companies to consider remain Constellation and Topicus, and our views haven’t changed enough to warrant a different decision than the one we reached a few weeks ago. But for investors with a higher risk tolerance and a willingness to accept lower liquidity, some of these smaller names, particularly Asseco and Sygnity, might warrant a closer look.

Shawn put it well on the podcast: it’s hard to compare these companies to the Alphabets and Amazons of the portfolio, because they require fundamentally different analysis and carry fundamentally different risks.

For more on the Constellation Spinoffs and Acquisitions, you can listen to our podcast here.

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