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1/20/2026
**Constellation Software, Inc.
(5.3% of Sequoia’s capital at year-end, -21.8% total stock return in 2025)**
Shares of Constellation Software, Inc. (“Constellation”) returned -22% in US dollars in 2025. The company deployed
most of its free cash flow on the kinds of high-return, niche software acquisitions that have powered its strong growth
over the last 30 years. If we were to quibble, we would note that Constellation’s growth last year, though solid, fell slightly
short of what the company has typically achieved. We expect that Constellation will have grown revenues and earnings
per share at a mid-teens and low-twenties rate, respectively, for the year.
Two factors weighed on the Constellation’s stock last year. First, founder and CEO Mark Leonard resigned in November
due to a serious health condition. He remains on the Board as he recuperates, though we have no expectation that he will
reassume the CEO position. The second factor was the broader markdown in the valuations accorded to software
companies on account of AI-related fears. Investors see the potential for AI-based coding tools to change and accelerate
software development, which could be to the detriment of incumbents. Investors are also wrestling with the possibility
that AI itself may replace certain classes of software entirely.
To take up the first point, we will miss Mark Leonard at the tiller. “Miss” is a totally inadequate word. He is sui generis—
a combination of intellect, agency, diligence, humility, and decency we are not sure we have ever found so concentrated
in any individual CEO. Very few founders get a company off the ground. Very few then grow that company successfully
over 30 years. Very few CEOs truly care about the value they deliver for the common shareholder. Very few are both
introspective and worldly enough to understand when and how to increase their circle of competence, and to change their
minds and pivot when necessary. Very few CEOs build up such capable leadership talent that they can be trusted to be
CEOs of their own companies both inside and outside of the mothership. Mark Leonard has done all of these things.
What’s more, starting in January 2015 Mark has taken zero salary, bonus, or reimbursement of any kind while delivering
nearly 800% returns to shareholders.2
We have been honored to invest with Mark Leonard, and we wish him a full and
speedy recovery.
Notwithstanding our admiration for Mark Leonard, we believe former COO Mark Miller is eminently qualified to take
the CEO reins. He was the co-founder of the very first acquisition Constellation Software ever made, and he grew his
branch of the Constellation tree in exemplary fashion over the subsequent 30 years. While Mark Leonard was an investor who learned the software business over those decades, Mark Miller was a developer who learned to be an investor. Mark
Miller’s background as a developer should give him extra depth and credibility to help the company navigate what it
means to write and maintain software in an AI-enabled era.
Mark Miller and many of the leaders and companies at Constellation have lived through multiple eras of software. When
Mark wrote the first version of the transit software for the company he founded in 1988, he transitioned from his
background writing code in FORTRAN to the newer language C. Over the years, this particular software core has been
rewritten and extended many times in multiple new languages to work on PCs, over the internet, and on mobile devices.
This transit software business has gotten bigger and stronger all the while. The point is that while AI presents a new
paradigm shift, and a big one, Constellation's companies and leaders have navigated shifts before.
AI makes software code much easier to write and understand. It also provides new capabilities that eluded computers in
the past, like real-time conversation and real-world knowledge. We think this might very well be as much an opportunity
as it is a risk, particularly for the types of software companies that Constellation has sought to amass over the years.
Constellation has prized and prioritized the kind of software that runs businesses or significant aspects of them, where
customers particularly value the continuity of data, processes, and user interfaces. We think this gives Constellation plenty
of time and leeway to adopt and integrate AI in ways that defend and perhaps even bolster their position with customers.
Constellation's companies certainly cannot stand still. We would argue that they have never been able to stand still, that
they haven't, and that they are not standing still now. Mark Miller has already revved up the company's test-and-learn
culture to comprehend and adopt AI. They have not found any areas where AI has hurt their businesses yet, but they are
on the lookout. Mark wants Constellation’s businesses to disrupt themselves if they must. He has set a task for all
Constellation units to try to solve new problems for their customers with AI and generate new revenue from AI.
Separately, we consider it possible that AI-related concerns prove a boon to Constellation on the acquisition front. More
specifically, these concerns may lead to some combination of lower prices and more deals.
In the early weeks of 2026, Constellation’s shares have continued to decline. At the current price, they trade for a highteens multiple of our estimate of forward earnings per share. We find this valuation compelling, as we believe that
Constellation’s portfolio of existing businesses will largely sustain and that the company will continue acquiring additional
businesses at attractive returns.