has a message for Canadian venture-capital backed software companies that are no longer on a trajectory to reach US$1-billion “unicorn” valuations and struggling to raise funds: Come join our galaxy.
It’s a new endeavour for Constellation, which has bought about 1,000 small companies since its founding in 1995. It targets “mission critical” software providers that serve niche subsectors, or verticals, such as golf courses or public transit providers. Its six subsidiaries typically buy companies with US$2-million to US$10-million in annual sales, modest growth, a high degree of recurring revenues, solid cash flows and operating profits, and preferably few rivals. It never sells them..
Constellation was already struggling to find enough to buy by the late 2010s and paid out surplus free cash as special dividends. Some board members Venture capitalists now have some zombie companies in their portfolios that likely won’t command the rich exits they once anticipated. That’s where Constellation sees an opening.
“We want to see Canadian companies succeed, and we think in the Constellation family we can help them do that.” Mr. Noble added: An acquired company “will never be sold again so it will live on indefinitely. That’s a positive story.” Brookfield Asset Management and Sequoia Heritage are also looking to buy stalled tech companies through jointly-owned Pinegrove Capital Partners.