Since its TSX debut in 2006, Constellation Software (TSX: CSU) has arguably outclassed most of its tech peers in Canada. This company is among the top long-term holdings of many growth investors, and for good reason. Looking at Constellation’s long-term stock chart, it’s easy to see how effective the company’s core business strategy has been for many years.
Looking forward, some investors may question if this kind of growth is still possible. I think it is. Let’s dive into the company’s latest deal, and why this signals Constellation Software may still be a great buy at these levels.
Constellation announces massive US$700 million deal
As mentioned, one of the key tenets of Constellation’s growth strategy is mergers and acquisitions. This company has made dozens of acquisitions over the years and has continued to improve its acquisition targets’ returns over time.
Recently, Constellation announced that a subsidiary would be buying medical records company Allscripts Healthcare Solutions for US$700 million. This cash and stock deal is one that many investors think is prudent.
Given the recent valuation compression we’ve seen, particularly around healthcare tech stocks, this deal is one which appears to be timed well. Allscripts’s business model is one that’s attractive, for those considering the long-term growth of this sector. This company’s software suite helps its clientele with workflow improvement, regulatory compliance, record-keeping, and billing. These key functions are ones software is well suited for, particularly in the context of improving productivity.
This deal builds on an already strong business model
One of the reasons I think Constellation Software is a preeminent option for investors looking at software-related investments is the company’s strong forward-looking prospects. From a historical perspective, we’ve seen what this company has done with its amalgamation strategy. Over the long term, assuming Constellation can continue to do what it has been doing, this growth is likely to continue.
The company’s +650 acquisitions over its lifespan have been remarkable, many of which were initially small acquisitions. Indeed, the average size of a Constellation deal is $10 million, meaning M&A flow has meant a great deal to this company’s forward-looking growth trajectory.
However, seeing Constellation engage in larger deals, which it has to due to the company’s size, means the company can be more selective with its acquisitions. Additionally, these larger deals should have a bigger bottom-line impact over the long term.
For those who like this recent US$700 million deal, this may be a signal of what’s to come moving forward. Personally, I’m on board with this strategy.
