As founders and investors look at options for liquidity, they may find that neither strategics nor private equity (PE) may be the right fit for them based on their sector focus being too niche or their financial profile not being large enough for PE. In situations like this, software consolidators may provide additional avenues for liquidity.
Canada headquartered Constellation Software Inc. (TSX: CSU) has successfully pioneered the consolidator model of buying and building small, profitable software companies. They have acquired over 500 businesses in the last 3 years, and with a market cap of US$ 66B as of 9/13/24, has become the 12th largest pure play software company in North America and 2nd largest in Canada after Shopify. Their stellar execution has been rewarded by the public markets: their stock has outperformed the SP500 and Nasdaq100 index by 450% and 300% respectively since Jan 2017.
Not surprisingly, their success has led to the formation of other similar software consolidators. Valsoft Corporation, also based in Canada, raised $170M in Jan 2024 and doubled in size in the last two years after raising $100M at a $1B valuation in 2022.
Allied Advisers short report on this topic provides an overview of software consolidators, covering the types of companies they look at, pros and cons to consider when exiting to this category, their recent transactions as well as a brief market map of some of the notable players in the space.
