1. business and industrial
2. company
3. merger and acquisition

TSX: CSU CN
Long Investment Thesis
Current Price: $469.68 CAD
Jan 2017 Price Target: $700 CAD (27% IRR)
May 4, 2015
Lily Miao
2015 MBA Candidate, The Wharton School
Highlights
•  Target price: $700 CAD in 2017
(27% IRR)
Capitalization
•  Excellent business with great
moats trading at 8.6% 2017 FCF
yield
Current Price (USD)
•  Monopoly-like company with the
benefits of a competitive market
•  Stellar CEO + mgmt team
•  History of smart capital allocation
and ability to integrate
acquisitions
•  Street underestimates ability to
continue to grow through
acquisitions
Current Price (CAD)
$469.68
CAD to USD FX
0.78
$366.35
Diluted S/O
21.2
Equity Value
$7,764
(+) Debt
276.0
(-) Cash
131.8
EV (USD)
$7,908
Key Metrics
Net Debt / EBITDA
0.4x
Trading Volume (CAD)
$38
Dividend Yield
1.1%
52wk Range
Valuation
230.08 – 503.43
2015E
2016E
2017E
EV / EBITDA
Street
16.8x
18.3x
12.7x
15.4x
9.6x
14.1x
P / Adj. E
Street
21.4x
29.2x
16.3x
24.5x
12.3x
22.6x
PEG
0.7
Excellent business with great moats
•  Vertical market software targets markets with only hundreds to
thousands of customers
•  Software is too specialized and markets are too small to move
the needle for larger software companies
•  Focus on mission critical software (e.g. accounting, production)
•  85-90% is on premise, which has higher customer stickiness
Constellation has high barriers to entry
Monopoly-like company with the benefits of a
competitive market
•  Portfolio of monopolies
•  CSU seeks to acquire market
leader and then make tuck-in
acquisitions to create a monopoly
•  Seeks fragmented verticals that
lack access to capital
•  CSU business units within the
same vertical are kept in friendly
competition
•  Benefits from pricing power of a
monopoly and superior product
of a competitive market
CSU Organic Recurring Revenue
Growth
15%
14%
12%
10%
12%
9%
7%
5%
8%
7%
7%
4%
0%
2006
2008
2010
2012
2014
Constellation Organic Recurring
Revenue Growth from Price
Increases
10%
8%
8%
6%
4%
9%
6%
5%
6%
5%
5%
2%
5%
3%
0%
2006
2008
2010
2012
2014
Stellar “Outsider” CEO / Founder +
Management Team
•  Called a modern-day “Outsider” CEO by
William Thorndike, author of The
Outsiders
•  11 years in VC prior to founding CSU
40%
20%
0%
CSU ROIC
•  CSU stock has 47% annualized return
since IPO and ROIC of 37%
•  Decentralized organization with deep
talent pool who have been at the
company for a long time. Based on my
checks, CEO does not micromanage
•  Unique compensation structure –
executives must use bonus to buy CSU
shares on the open market, which are
held in escrow for 4 years
Executives Years at CSU
CFO
12
COO
15
VP of M&A 20 (since inception)
Head of Op. Groups
Volaris
15
Harris
16
Vela
12 (was CFO of CSU)
TSS
Acquired in 2013
Jonas
19
Perseus
10
CSU directors and executives own ~11% of shares outstanding
History of smart capital allocation
•  FCF has largely been
deployed into acquisitions and
to pay dividends
•  Acquisition strategy: Create
monopolies, hold forever,
prefer distressed assets at
distressed prices
•  Very disciplined buying with
IRR hurdle in 20-30% range
•  Historically, paid 0.5-0.9x
revenues vs. 2-2.5x median
multiples in software M&A
•  Benefits from cyclicality, which
creates buying opportunities,
while diverse portfolio buffers
CSU from idiosyncratic shocks
Source: Historical transactional multiples are from Berkery Noyes
3.0x
CSU Historical Acquisition Multiples
vs. Market Multiples for Software M&A
Deals
Median EV/
Rev (Software
M&A deals)
2.5x
2.0x
Median EV/
Rev (Software
M&A deals:
$10-20mm)
1.5x
1.0x
0.5x
0.0x
2010
Excl. TSS
acquisition
2011
2012
2013
CSU Revenue
Multiple Paid
History of ability to integrate acquisitions
Labor
•  First, lay off non-mission critical employees (e.g.
accounting, IT, HR)
•  Labor is biggest cost component
Financial
tracking
•  Each business unit has a long-term plan and financial
metrics it must meet
•  Immediate access to P&L’s of all 240+ business units
Small teams
•  Teams kept small, so nimble and not bogged down by
process
•  No micro-managing
Benefits for
targets
•  Permanent home à Stability
•  Access to capital + resources / partnerships
•  Customer security that software will be around
Ability to continue to grow through acquisitions
Long runway
Scale-up
acquisitions
Scalable
organization
Leverage
Disciplined
buying
•  Street underestimating growth
potential
•  13,000+ potential targets in US,
Canada, and Europe
•  First large-scale acquisition in
2013
•  Successful integration is sign
CSU can scale-up acquisitions
•  Decentralized org is very scalable
•  Thin head office with 6 operating
groups
•  Raised LT debt for first time in
2014, sign CSU is willing to lever
up
•  Debt is trading at only a 2% yield
•  Evidenced by historical purchase
multiples
Source: Number of potential acquisitions based on CapIQ screen
Software companies in
US, Canada, Europe
Rev. (mm) # Companies
<$300
17,399
<$200
17,144
<$100
16,536
<$50
15,507
<$25
13,410
<$10
7,986
Total CSU
Acquisitions
from
2010-2014
(5yr)
131
Risks and Mitigants
Key man risk
•  CEO is the founder and has set company philosophy
•  Deep talent pool that has been at CSU for a long time
•  CEO involved in big acquisitions. Heads of op. groups
involved in acquisitions with <$20mm in revenue. Avg.
revenue / acquisition has been $7-20mm over the past
several years
Empire building
FX
Competition
from SaaS
•  Reined in by (1) requirement to invest bonus into CSU
shares and (2) tying bonuses to ROIC
•  CSU reports in USD, trades in CAD, debt is in CAD
•  Most expenses and revenues incurred in same currency
•  SaaS is less sticky than on premise hosting
•  10-15% of recurring revenue is SaaS
•  Disruption is limited to low-ticket software, which
comprises only 20-30% of recurring revenue
Base Case Valuation
VALUATION
EV / EBITDA
P / Adj. E
FCF Yield
PEG
PRICE TARGET
FCF Yield
FY 2017 FCF / S
FCF Yield
Price Target (USD)
Price Target (CAD)
Total Upside
IRR
Blended Price Target
Price Target (USD)
Price Target (CAD)
Total Upside
IRR
2015E
16.8x
21.4x
4.9%
0.7
$31.43
6.0%
$524
$672
43.0%
23.8%
$546
$700
49.0%
26.9%
2016E
12.7x
16.3x
6.5%
EV / EBITDA
FY 2017 EBITDA
EV / EBITDA Mult.
Enterprise Value
(-) FY 2016 Debt
(+) FY 2016 Cash
Equity Value
Price Target (USD)
Price Target (CAD)
Total Upside
IRR
2017E
9.6x
12.3x
8.6%
825.7
15.0x
$12,385.1
294.6
132.5
$12,222.9
$577
$739
57.4%
31.1%
P/E
FY 2017 Adj. EPS
P/E
Price Target (USD)
Price Target (CAD)
Total Upside
IRR
$29.82
18.0x
$537
$688
46.5%
25.6%