Constellation Software program primed for extra offers after US$1.2B spree: Analyst

After what’s believed to be a record-breaking deal spree within the first half of this yr, Constellation Software program Inc. is not about to cease gobbling up property, an analyst stated Tuesday.

In a report back to shoppers, RBC Capital Markets Analyst Paul Treiber estimated Constellation clinched about US$1.2 billion in offers within the first half of the yr, which he stated can be a file tempo of progress for the Canadian know-how agency within the first six months of a calendar yr.

Treiber calculated 30 acquisitions made by Constellation and its numerous working items within the second quarter of 2022, totaling US$210 million in spending. Of the 30 offers reached, Treiber stated two have been mid-sized acquisitions: TOMIA, for US$39 million; and Rohde & Schwarz Cybersecurity France, for US$25 million. Treiber excluded the purchases of Allscripts HLP, for US$700 million, and Sygnity SA, for US$71 million, from the second-quarter tally since they have been introduced within the first quarter of the yr.

“We estimate that the companies acquired [in the second quarter] generate US$254 million in annual income and are eight per cent accretive to [earnings per share],” he acknowledged within the report.

The probability of Constellation rising its deal stream is even greater amid the current market downturn, he added.

“We consider the pullback in public market software program valuations will increase the chance of a better tempo of acquisitions,” he stated.

Treiber additionally famous that Constellation has mastered shopping for corporations throughout market weak spot.

“We consider Constellation is ready to deploy capital on acquisitions in intervals of financial duress at charges properly above its hurdle charges,” he stated. Treiber added that Constellation’s potential to purchase greater than 100 corporations a yr displays its “de-centralized M&A mannequin” and the dimensions of its addressable market that he estimated to be price greater than US$200 billion, with greater than 40,000 potential targets.

Treiber has a sector outperform suggestion (the equal of a purchase) on Constellation Software program’s shares and a 12-month goal worth of $2,700. That suggests a 40 per cent return relative to Constellation’s closing worth on the Toronto Inventory Change Monday.

The corporate’s M&A technique has additionally made it a favourite of Barry Schwartz, chief funding officer and portfolio supervisor at Baskin Wealth Administration.

“They know easy methods to run [software companies] they usually know easy methods to generate free money stream,” he stated in an look on Market Name final month. “We expect the runway of progress for [Constellation Software] is big.”