Mark Leonard will not stand for re-election to the board of Constellation Software Inc. CSU-T, the company he founded and led until stepping down for health reasons last fall, at its next annual meeting on May 15, the company announced late Friday.
The Toronto-based software consolidator, Canada’s second-most valuable publicly traded technology company, said in a release that Mr. Leonard, who is in his 60s, will remain an advisor to Constellation, with “a particular focus” on supporting a new investment strategy adopted by the company.
Constellation has grown over the company’s 31-year life by buying up hundreds of small software companies that provide “mission-critical” software for niche sectors such as golf courses and public transit providers that typically face little or no competition. It has also bought a few larger business units carved out of big companies in recent years, and spun out two units into publicly traded subsidiaries, Topicus.com and Lumine Group Inc.
While the company has typically bought businesses outright, the new strategy that Mr. Leonard will help bring to fruition involves buying minority stakes in large companies. Its first such foray saw Constellation accumulate 12.7 per cent of the stock of publicly traded U.S. travel technology company Sabre Corp. over the last year. Sabre took measures to protect itself against an unwanted takeover in early March, but days later the two companies struck a governance agreement that saw the Texas company appoint a Constellation executive to its board.
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Some analysts have questioned that approach, concerned that Constellation may have limited influence with minority ownership of bigger companies than it has typically bought.
“While we will miss Mark’s presence in the boardroom, we are fortunate that he will remain as an advisor,” Mr. Leonard’s successor as president, long-time Constellation executive Mark Miller, said in a statement. “His perspective and investment expertise will be particularly valuable as we continue to expand” on the new strategy.
Constellation chairman John Billowits stated that Mr. Leonard’s “influence on Constellation’s culture and capital allocation discipline is foundational and enduring. The board remains confident in the company’s strategy and leadership continuity.”
The company delivered years of 30 per cent-plus average shareholder returns, making it a top performer on the Toronto Stock Exchange. But Constellation’s share price has fallen steeply over the past year – along with many other tech companies - over fears that artificial intelligence will corrode the traditional subscription software-as-a-service business model. Companies able to increase productivity with AI may purchase fewer software licenses for employees or build their own tools – while the ease of creating software using AI could lower the barrier to entry for startups to displace incumbents, many market observers worry.
Mr. Miller told analysts during a conference call this month that Constellation can weather the uncertainty and disruption caused by AI, saying the company’s revenues hadn’t been affected. He also refuted the pessimistic narrative about Constellation. “Building products and features faster will not be what differentiates us,” he said. “What will matter is what our businesses have spent many years developing – deep, vertical knowledge, a genuine understanding of customer workflows and processes, the data inside their solutions and the trusted relationships they built.”
He also stressed that Constellation and its subsidiaries are adopting AI and sharing best practices and that the company would benefit from productivity gains. Constellation also now scores acquisition targets for how they will be affected by AI.