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The Wizard Behind the Constellation
Methods of Prosperity newsletter no. 106: Mark Leonard
Sean Allen Fenn
June 26, 2025
Mark Leonard is the founder and president of Constellation Software Inc., (CSI). It’s a Canadian technology company renowned for its unique strategy. CSI acquires vertical market software (VMS) businesses. Before founding CSI, Leonard worked various jobs. A dog handler, furniture mover, and even a gravedigger. Then he entered venture capital. Leonard spent eleven years in the venture capital industry. Until he became disillusioned with the short-term focus of the sector. That’s why he established Constellation Software in 1995.
Most Capital Allocators pursue economies of scale through consolidation. You know. Typical cost-cutting, and centralizing operations to reduce overhead.
Not Mark Leonard. He breaks up larger units into smaller ones. Why? Small teams outperform large teams.
Decentralization is empowerment.
We are the anti-economies of scale company. We believe in small teams outperforming large teams, and so given the choice of taking a 200-person business and buffing it up into two smaller ones, we would much prefer to do that and believe that the benefits are there as opposed to ramming businesses together, firing a bunch of people and moving a bunch of work offshore.”
Most Capital Allocators integrate acquisitions. They always try to eliminate “redundancies,” fire overlapping staff, and impose corporate systems.
Not Mark Leonard. Instead, he maintains extreme decentralization. He keeps existing management, and preserves the acquired company’s culture and autonomy. As he states:
CSI will not take over the day-to-day management of its businesses. We continue to rely on the managers and employees of our subsidiaries to run their businesses well.”
Most Capital Allocators want their stock price as high as possible. They celebrate when it outperforms.
Not Mark Leonard. He complains when his stock rises too much. He prefers the stock price to track intrinsic value. That is, rather than getting ahead of fundamentals.
“Unfortunately, our stock price has increased at over twice that rate during the last year, a differential that would seem difficult to sustain in future years.”
Mark Leonard isn’t into “Synergies”.
Most Capital Allocators cut R&D spending post-acquisition to boost short-term margins. They want to eliminate “duplicate” research efforts.
Not Mark Leonard. He maintains R&D spending. But he makes it more disciplined through his “Initiatives” framework. Which means he focuses on long-term value creation rather than immediate cost savings.
Most Capital Allocators focus on growing the largest businesses. They tend to divest smaller, “non-core” assets.
Not Mark Leonard. He targets small vertical market software companies (often $2-4 million range). The other guys consider that too small to bother with. Through CSI, he builds a portfolio of hundreds of small businesses rather than a few large ones.
Most Capital Allocators create complex incentive structures tied to corporate-wide metrics.
Not Mark Leonard. He aligns managers with shareholders. He does this through direct equity ownership rather than complex bonus schemes.
Managers are strongly encouraged to buy Constellation stock with 75% of their bonuses”
Most Capital Allocators diversify across industries or concentrate in a few large positions.
Not Mark Leonard. He takes a unique middle path. He concentrates in one industry (vertical market software). But also diversifies across hundreds of small positions within that industry.
Most Capital Allocators feel pressure to deploy fast capital. They try to return excess cash to shareholders.
Not Mark Leonard. He’s willing to sit on cash. He’d rather wait for the right opportunities. That’s even when shareholders pressure him to return it.
My preference would be to hang on to the cash... rather than returning it to shareholders, rather hang on to it at least for the time being and see if perhaps we can deploy it."
Most Capital Allocators buy when times are good and credit is cheap.
Not Mark Leonard. He does the opposite. He targets distressed situations and increases acquisition activity during downturns:
We did terrific doing that [in the] '08, '09 period. We just didn't deploy enough capital."
Most Capital Allocators view founder-sellers as obstacles to optimization. They tend to want them transitioned out.
Not Mark Leonard. He prefers buying from founders and keeping them involved:
Our favorite and most frequent acquisitions are the businesses that we buy from founders... most of the ones that we buy, operate as standalone business units managed by their existing managers.”
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– Sean Allen Fenn
PS: What do you notice about this week’s newsletter?
Methods of Prosperity newsletter is intended to share ideas and build relationships. To become a billionaire, one must first be conditioned to think like a billionaire. To that agenda, this newsletter studies remarkable people in history who demonstrated what to do (and what not to do). Let me know how I can help you out. For more information about the author, please visit seanallenfenn.com/faq.