Topicus.com Inc.
Building A European Software Empire
We would like to acknowledge Chris Mayer and Woodlock House Family Capital for bringing the Topicus opportunity to our attention. Their extensive due diligence and ongoing support throughout our research process were invaluable in deepening our understanding of the business after the spin-out transaction was announced. For further information regarding Woodlock House Family Capital’s investment approach, please refer to their website linked here.
Investment Summary
Investing in Topicus.com offers an equity opportunity similar to a smaller, Europe-focused version of Constellation Software. Topicus.com mirrors Constellation's capital deployment, M&A approach, and operational strategies, while benefiting from Constellation's experienced governance and history of strong value creation and fair treatment of minority shareholders over nearly two decades in the public markets. We believe Topicus.com's valuation is reasonable given its expected capital compounding and offers attractive upside.
Although public since January 2021, Topicus.com has a demonstrated history of value creation. Since its predecessor was acquired by Constellation in late 2013, Topicus.com's revenue CAGR of 22% closely matches Constellation's growth. Prospectus disclosures for FY18 show even stronger growth over the prior six years, with revenue at a 24% CAGR and free cash flow at a 27% CAGR, slightly outpacing Constellation's respective CAGRs. Management-shareholder alignment is strong, with insiders holding a significant 70% of shares on a diluted basis.
Key aspects of our positive investment thesis are:
1) Reinvestment Machine
Topicus.com's significant revenue growth, averaging 22% annually (CAGR) from FY14 to FY24, is a direct result of their high-return acquisition strategy. Since Constellation acquired TSS, the company that preceded Topicus.com (on December 31, 2013), Topicus.com has consistently deployed capital into acquisitions, generating an estimated internal rate of return of 25%, coupled with organic growth of 4-6%, we think this can result in 25-30% FCF per share growth over the next five years.
2) Large Untapped VMS Opportunity
Operating predominantly in Europe, Topicus.com has a vast addressable market for M&A, estimated at 16,000 targets with a combined annual revenue of €67 billion. Given their 2024 revenue of €1.295 billion, Topicus.com has only captured 1.9% of this market, suggesting a long and promising path for future capital re-investment.
3) Shareholder Alignment
Long-term alignment with shareholders is embedded in Topicus.com's governance structure through significant shareholder representation on the board. Constellation, holding a 31.3% equity stake (40.6M shares), has the power to appoint three of the five directors as long as their ownership remains above 15%. Furthermore, Joday Group (29.4% equity), controlled by Topicus.com's Chair and CEO Robin van Poelje, and IJssel B.V. (9% equity), controlled by Topicus operating group CEO Daan Dijkhuizen, each have the right to appoint one director, contingent on maintaining at least a 5% interest. Topicus.com's policy mandating executive investment of 75% of after-tax bonuses into escrowed shares for a minimum of four years is expected to further increase management's stake, ensuring their interests remain closely tied to those of the shareholders.
4) Valuation Appears Cheap
Topicus.com's acquisition activity in 2025 is already significant, with an estimated €625 million committed, substantially exceeding their €128 million annual average over the past three years. This surge is driven by two major investments this year (Asseco Poland and Cipal Schaubroeck). We estimate Topicus is currently trading for 20x 2026 FCFA2S.
5) Defensive & Diversified
TOI's diversified portfolio of VMS businesses provides a highly defensive foundation, driven by recurring revenue and minimal churn. Notably, its acquisition strategy is countercyclical, with volumes and returns expected to increase during periods of macroeconomic stress. Long-term visibility is achieved by Topicus.com's strategic focus on mission-critical software within markets exhibiting favorable structures. Their acquisition strategy targets companies providing essential ERP solutions in desirable vertical markets. The inherent stickiness of this deeply integrated software results in significant customer dependence and high switching costs.