Why Constellation Software Inc. Is up Over 7%

Constellation Software Inc. (TSX:CSU) is up over 7% following its acquisition of Acceo Solutions Inc. What should you do now? Let’s find out.

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What?

Mission-critical software solutions provider Constellation Software Inc. (TSX:CSU) is up over 7% in early trading on Tuesday following its announcement that its wholly owned subsidiary N. Harris Computer Corporation (“Harris”) has agreed to acquire the assets and shares of Acceo Solutions Inc. for $250 million.

So what?

Acceo Solutions is one of Canada’s leading IT solutions companies, specializing in software design, implementation, integration, and support for the management, accounting, and e-business development fields, and it also offers consulting, payment solutions, and technical services.

In its trailing 12-month period ended on November 30, 2017, Acceo’s estimated and unaudited revenue was approximately $116 million, so Constellation is paying just 2.16 times sales for the company; I think this is a very good deal, and Constellation went on to note that it expects to finance the acquisition on a standalone basis.

Commenting on the acquisition, Jeff Bender, Harris’s CEO, stated the following:

“Harris is looking forward to building upon our decade-long presence and commitment in and to Quebec and is excited to continue the journey of one of Quebec’s largest software enterprises … The Acceo software solutions are supported by a group of experienced and dedicated employees as well as relied upon by many loyal customers — we will be engaging with both to support them now and into the future.”

Now what?

Constellation has been on a shopping spree for quite a while now, as it closed 12 acquisitions for aggregate cash consideration of US$62 million in the first quarter of 2017, 16 acquisitions for aggregate cash consideration of US$71 million in the second quarter of 2017, and 14 acquisitions for aggregate cash consideration of US$52 million in the third quarter of 2017; however, as you can see, the total price tag of the 42 acquisitions noted above is just US$185 million, so the $250 million acquisition of Acceo is a much larger splash than usual for Constellation, so I think that’s why the stock is having such a positive reaction.

Including reinvested dividends, Constellation’s stock has returned more than 55% since I’d first recommended it on June 18, 2015, and more than 18% since I last recommended it on July 28, 2017, and I think it’s still a strong buy today, so take a closer look and consider beginning to scale in to long-term positions over the next couple of trading sessions.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

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