TIVP060: CONSTELLATION SOFTWARE (CSU): HISTORIC DRAWDOWN, HISTORIC BUYING OPPORTUNITY

W/ DANIEL MAHNCKE & SHAWN O’MALLEY

TIVP060: CONSTELLATION SOFTWARE (CSU): HISTORIC DRAWDOWN, HISTORIC BUYING OPPORTUNITY W/ DANIEL MAHNCKE & SHAWN O’MALLEY

22 February 2026

Daniel Mahncke and Shawn O’Malley take a deep dive into Constellation Software — the popular Canadian compounder that has turned buying “boring” vertical market software into one of the most effective capital-allocation machines in public markets. Constellation owns hundreds of niche, mission-critical software businesses, keeps them decentralized, and lets their managers operate with lots of autonomy while the parent company focuses relentlessly on incentives, discipline, and reinvesting cash flows into further acquisitions. 

The episode explores the flywheel that made CSU famous: acquire small, sticky software companies, improve them steadily without breaking what already works, and recycle the cash into the next deal — again and again. Along the way, Daniel and Shawn unpack the risks and opportunities that AI introduces to the business model, the mysterious founder Mark Leonard, and the risk of copycats.

Join Daniel Mahncke and Shawn O’Malley as they assess whether Constellation’s acquisition engine can keep scaling, whether fears like AI disruption are overblown, and whether CSU deserves a spot in The Intrinsic Value Portfolio. 

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IN THIS EPISODE, YOU’LL LEARN:

  • How Mark Leonard founded Constellation
  • What principles drive Mark Leonard
  • About the metrics that matter to Constellation
  • What Constellation looks for in acquisition targets
  • How Constellation is structured and incentivized
  • Whether AI is a threat or chance
  • Why Constellation considers investing outside of VMS
  • Whether Shawn and Daniel add Constellation to the portfolio
  • And much, much more!

Disclosure: This episode and the resources on this page are for informational and educational purposes only and do not constitute financial, investment, tax, or legal advice. For full disclosures, see link.

TRANSCRIPT

Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

[00:00:00] Daniel Mahncke: In early 2025, Mark Leonard, founder and CEO of Constellation Software basically said the stock is overvalued. You should expect returns of 8% investing at those levels. He said it would need a massive drop to get back to 25% annualized returns.

[00:00:15] Shawn O’Malley: Well, patience has paid off for us. And this one, the stock is amid its largest drawdown ever down 50%.

[00:00:23] Daniel Mahncke: And we all know why AI strikes again, but CSI’s management team keeps buying more shares, so we might get the best deal on CSI stock in many, many years today.

[00:00:38] Intro: You’re listening to the Intrinsic Value Podcast by The Investor’s Podcast Network since 2014, with over 180 million downloads, we’ve learned directly from the world’s best investors. Now we are applying those lessons to analyze businesses and investment opportunities every week, helping you uncover intrinsic value. And now here are your hosts, Shawn O’Malley and Daniel Mahncke.

[00:01:10] Shawn O’Malley: A couple of weeks ago, I pitched exert here on the show and I more or less jokingly said it’s kind of like an Italian Berkshire Hathaway. And that might have been a somewhat superficial comparison just to kind of explain that. Exert is a holding company that owns many companies across various industries, but today we will discuss a company that is a lot closer to the actual Berkshire Hathaway, although the industry it invests in really could not be more different.

[00:01:38] Shawn O’Malley: And so the company I’m talking about is Constellation Software, and the industry I’m talking about is vertical market software and. We will of course, get into exactly what that means and why it is such an attractive business to be in. But really, if I had to take a guess as to why you brought this stock before us today, Daniel, I would say that it’s because Constellation is currently going through its largest drawdown in company history in hospital because while just so many folks from our audience have requested that we cover it, CSU shares have lost 50% of their value in the last six months, which has never happened before in the company’s history.

[00:02:12] Shawn O’Malley: That’s their biggest drawdown to date. And so Constellation, despite that, is historically known for being a very, very high quality compounder that had this reputation of pretty much being able to withstand anything. And so now my question for you, Daniel, is, is what has changed?

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