Mark Leonard created $92B by quietly acquiring 600+ SaaS companies...Here's the story of an acquisition legend 👇 In 1995, Mark Leonard, disillusioned with the hype-driven venture capital world, saw an overlooked opportunity: acquiring and holding vertical market software (VMS) businesses indefinitely. For clarity: VMS companies build and sell software solutions designed specifically for the unique needs of particular industries or market niches. It got him to start Constellation Software (CSU), acquiring niche B2B software businesses with: → High margins → Low competition → Sticky, recurring revenues → Hard-to-replace products When they went public in 2006, most investors thought CSU was "overvalued." They were wrong. Since its IPO, Constellation has: • Grown over 125X • Generated $95B in market cap • Delivered 34% annualised returns Here's how Leonard pulled this off👇 1/. Decentralised leadership. Leonard wanted a business that could scale without a typical corporate structure. So he built a nimble decentralised system: It has Operating Groups (OGs), which are holdings operating in multiple geographies/verticals and composed of dozens of Business Units (BUs). ↳ Every acquisition becomes a BU. ↳ Each BU is run autonomously ↳ BUs have autonomy to make new acquisitions (they must hit CSU’s hurdle rate) This structure allows CSU to scale aggressively without losing operational control. 2/. Disciplined M&A. Constellation buys VMS businesses to own forever. Cash from its existing portfolio is reinvested into new acquisitions. It looks for acquisitions that can generate a return above its internal hurdle rate (above 20% for small acquisitions). Also, follows the strict criteria of acquiring companies with: • > $5M in revenue and > $1M in EBIT • Rule of 40 above 20% (growth + EBITDA margin) • Category leaders (typically #1 or #2 in their niche) • Low-competition, fragmented markets. CSU also has a data advantage as it operates 800+ VMS and has a database of 40k VMS targets. 3./ Strategic Secrecy. Mark Leonard is a ghost. No press. No interviews. Just a few elusive photos. He even stopped writing shareholder letters in 2017. But behind the scenes, he built a compounding machine that: ✓ Avoids hype and product cycles ✓ Targets overlooked businesses with real cash flow ✓ Builds moats through industry-level knowledge and decentralization What started as a $25M investment is now a $92B empire. And it’s still growing. A story with tons of insights for both acquirers and founders.
David Parker
7mo
Ran into Mark a few years back at a company event. I was with my GM at the time, who had the gumption to stop and introduce himself as Mark was walking through a crowded hallway. Mark knew my GMs name, our business model, and other facts about our tiny 15 person BU out of the hundreds of other BUs under the Constellation umbrella. We were not a recent acquisition either. One of the smartest people with whom I've personally interacted.
Somduta Singh
8mo
What stands out to me isn’t the scale. It’s the clarity of thought. Most people acquire to flip. He acquired to hold. And that decision shaped how they operated. What they bought, how they structured teams, how they used capital. There’s something to learn here for founders too. What you prioritise early ends up guiding a lot more what you do in later stages.
Nicolas Messina
8mo
I guess you are missing one big point. The kind of business that they target are negative NOWC which means that growing does not require more working capital. So once you acquire the business you have free cashflow for M&As. Tipically subscripcion based services. Genius business model.
Pierre Schramm
8mo
The CSU strategy is the ultimate antithesis to the hyperventilating VC logic: narrow over broad, focus over FOMO. Vertical software models demonstrate how sustainable value is created through deep domain expertise, operational autonomy, and the principle of replication. Leonard has created an alternative paradigm to scale fanaticism.
Great post, Thomas! When I first got curious about Mark Leonard and Constellation Software, I was really interested in understanding how their whole business model works. And honestly, the way they’re doing things is just amazing. One more cool insight I came across — apart from all the great points you mentioned — is that after they acquire a company, they don’t try to take over and run everything themselves. Instead, they actually trust the original founders to keep leading the business in their own way. I found that super interesting!
Trevor Presser
7mo
Have advised firms selling to CSU and competed against CSU in deals and yes, their model does work really well. And a documented M&A playbook like none other. It works so well that in fact at least 5 other corporate groups are copying parts or all of the model.
Angelica Sanchez
7mo
This post brought back a great memory for me! I joined Constellation in 2022 through one of its operating groups (Volaris). My very first week on the job I had the privilege of hearing Mark Leonard speak at Quadrants, Volaris Group’s premier event hosted in London that year. I didn’t realize then how significant it was having him there, learning much later his preference to remain behind the scenes. Going on 3 years now with this empire that Leonard built and I’m grateful for all that I’ve learned about M&A. And more importantly how true it is for our acquired companies to find a stable “forever” home to continue their legacy.
The wisdom: 1. Avoids hype and product cycles. 2. Targets overlooked businesses with real cash flow. 3. Builds moats through industry-level knowledge. What tech investment world love to do instead: 1. Chasing shiny objects and hypes of the day. 2. Value companies with no products in a high sky valuation because the founders was working in [hyped companies] or dropped out from [hyped schools]. 3.Celebrate youth and inexperience with big dreams over domain knowledge and operational maturity.
Finance Hiring → Frictionless. For Busy Leaders Who Need Results, Not Resumes.
8moThomas Smale The decentralized M&A model works precisely because it solves the core financial challenge of most acquisitions information asymmetry. When operating units make their own acquisitions in verticals they already understand, they eliminate the valuation risk that plagues traditional top down M&A. This approach creates financial efficiency that compounds their Rule of 40 threshold of 20% is telling. In financial advisory work, we've seen similar decentralized structures dramatically reduce post-acquisition integration costs while improving unit economics.