▶ Full Post Text
I am not talking about the already established Topicus or Lumine.
I wanted to have your opinion on Chapters Group.
**What is Chapters Group ?**
Young company (2019) that has rapidly expanded, they are very similar to Topicus or Constellation. Chapters Group is a long term owner of small and niche mission critical softwares, with focus on european market. Most of its companies sell boring but essential software to public institutions, regulated industries, and specialized private businesses.
**Differentiator:**
To me, the main differentiator (and that might be the reason of the title) is how they combine decentralization with explicit operating philosophy. Unlike Constellation or Topicus, it does not rely only on culture and incentives to guide behavior. Instead, it has built what it calls the “Manuscript Method,” a shared internal playbook that focuses on pricing discipline, benchmarking, talent development, and accountability. Management teams are given autonomy, but they are also measured, coached, and compared in a structured way.
Also, their business seem broader as they do not only rely on vertical market software but they also build platforms (i.e. very specific fintechs) or buy companies that are not operationally optimized (need some hands-on).
Finally, and I am very sensitive to this, management: They are very explicit and open about mistakes and goals while always value-driven. One could like or very much dislike this proactive management stance compared to the more discrete Constellation models.
For instance, in their last letter to shareholders, they explain what decentralization requires and how they enforce it. It is not assumed but explicitly laid out.
Or when they acquire one of those business they believe in but know needs work on, they openly tell their shareholder that this approach will affect operating results but that they expect to become valuable in medium term.
Also, the very European management allows them not only to know this market very well but to go beyond price and numbers to acquired founder-owned business while working on trust.
**Weaknesses:**
It is far more dependent on the quality and continuity of its current leadership than Constellation or Topicus. If management execution weakens, the model does not yet have decades of inertia to protect it. The portfolio is also more complex, with restructurings, platforms, and shared initiatives that increase operational risk.
Also, because their business is broader it is also more complex and thus more complex to follow/analyse.
Revenue growth is fast but uneven, driven mainly by acquisitions rather than organic expansion. Because many acquired companies are either newly integrated or undergoing restructuring, reported growth does not yet reflect steady-state earning power.
Because it is much younger, there is nothing that could tell us if they'll be able to scale at the level of Topicus, yet alone Constellation Software.
I habe both Topicus and Chapters Group in my watchlist - knowing full well I would not buy both as I try to keep a small and concentrated portfolio. Today, none trade at desired levels (although if Topicus keeps on declining a further 10% it would reach my original price target). It is not a value stock - I am aware - but I think it is an interesting one to share as many of you highly regard Constellation Software.
Do you have an opinion on them ?