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Constellation Software, Vitec, & Röko M&A Sourcing: Proprietary vs Broker Channel

We hardly ever see Constellation or Topicus in the same deals as us - CEO of Vitec, March 2025

This comment from our recent meeting with Vitec in Stockholm piqued our interest. How can Vitec, a Nordic VMS acquirer, ‘hardly ever’ see any Constellation operating group when acquiring VMS assets across Europe? 

One simple explanation is that the companies have different targets: Vitec typically buys higher-growth SaaS companies for ~10x+ EBIT whereas CSU typically buys on-premise, slower-growing assets for 4-6x EBIT. Vitec and other competitors claim Constellation focuses on the ‘lower end’ of the market and relies on post-acquisition price increases and cost reductions to drive returns. 

This may all be true. 

But there is potentially another reason why the two companies rarely meet: deal sourcing. 

Last week, Vitec said over 80% of its acquisitions are sourced through brokers. While each operating group is slightly different, we estimate CSU sources ~70% of deals outside of broker channels which take an average of four years from first outbound to close. 

What most people need to understand is Constellation is seeing a lot of these opportunities before anyone else gets a look. Generally speaking, it's one-to-one; they're not shopping the business. I would say about 65% to 70% [of deals are proprietary]. - Former M&A Director at Constellation Software

How much does a proprietary funnel matter for long-term returns?

How does the multiple and underlying quality of the business differ across channels?

How does the sourcing channel define an acquirer’s moat?

This research curates years of learnings studying companies like Vitec, Constellation, and Röko, and insights from the last Redeye conference on how to evaluate M&A sourcing between proprietary and broker-led channels. This research can be read alongside the following interviews and IP research:

FTAI Aviation: How a Customer Uses Module Swaps

This interview with a Senior Director of an airline, who is also a customer of FTAIs module swap maintenance plan, explores how FTAIs offering works. The customer has over 300 wide and narrowbody aircraft, 30% owned and 70% leased, and has engaged in a three-year maintenance plan with FTAI for a portion of its owned CFM-56s. 

Reducing the turnaround time was the core reason the airline chose FTAI:

A typical overhaul in a facility, which was advertised to take 90 days, now takes nearly 200 days. We've had engines in the shop for close to a year. The primary reason [we work with FTAI] the lack of spares and supply chain issues. The turnaround time for an engine, advertised as 90 days, is now more than 200 days, which is double the time. Contractually, [FTAI] have to [replace the module] in five days. Seven days would include testing. - MRO Director of a large airline and customer of FTAI

The airline looks to match incoming modules with the the highest LLP cycle: 

If you install a full cycle LPT, you will still need to manage the engine when it comes to the overhaul cycle. We try to match the incoming cycle with the complete overhaul cycle. When you bring down the engine for a complete overhaul, you match whichever module you're replacing with the highest LLP cycle. So when you remove the engine, it's a complete overhaul rather than having bits and pieces falling apart in different ranges. - MRO Director of a large airline and customer of FTAI

This interview goes on to explore a few interesting topics. 

  1. How the airline instructs FTAI to source LLPs and the maximum number of cycles it’s allowed to put into the customer’s modules. 
  2. The liquidity of FTAIs module inventory; how airlines determine which type of modules can be swapped back onto their module and the impact on FTAIs ability to mix and match modules. 
  3. How the airline approaches full overhauls and how the customer thinks about using FTAI for core modules. 
  4. How the airline calculates cost savings vs FTAI alternatives

The interview forms part of our coverage of FTAI which includes various research to understand how a module swap really works, FTAIs addressable market, and potential maintenance risks:

  1. FTAI Aviation; a curation of all our work on FTAI
  9. FTAI Aviation: Short Report Review w/ Former FTAI Engineer

Formula 1 Group: Sponsorships History & Selling F1

A Former F1 Director on how Netflix's Drive to Survive changed F1 discussions with sponsors:

Drive to Survive" amplified this shift. Most of my time at Formula 1 was pre-Covid, and I was constantly advocating for making the sport more approachable and sustainable, both environmentally and financially. However, people weren't really listening. CMOs would give reasons why they weren't interested, but post-Covid, perceptions transformed significantly. It was truly transformative. - Former F1 Director

Pre-Covid, Formula 1 didn't resonate with many sponsors.

I've been selling sponsorship in Formula 1 since around 2010 or 2011. For the first 10 years, you would constantly hear the same things. Formula 1 was elitist, was bad for the environment, and misogynistic. - Former F1 Director

"Drive to Survive" has expanded sponsorship opportunities for F1 Group and teams.

Now, instead of being elitist, the sport is seen as aspirational. It's a subtle change in wording, but it means a lot. The sponsors haven't changed that much; we've gone from having Rolex as the timekeeping partner to LVMH. It's still a luxury sport, but it's now seen as more aspirational rather than elitist. (...) The audience numbers haven't changed much, but the perception of Formula 1 has transformed massively in the last four years. That's been the driving factor in terms of commercial deals in the sport. - Former F1 Director

The interview goes on to explore how F1 monetises the brand through sponsorship and the growth opportunities ahead.

Brown-Forman: Bourbon Oversupply & Craft Competition

This interview with a Former VP at Brown-Forman shares a history and evolution of competition to top brands such as Jack Daniels:

If we go back to pre-2010, when we thought of the bourbon category, even though Jack Daniel's is not bourbon, the consumer doesn't really know or care that it's a Tennessee whiskey. The competitive set was three or four brands. Essentially, it was Jack Daniel's, Jim Beam, Maker's Mark, and Crown Royal, which are not all bourbons, but they probably accounted for 80% or more of the category. As consumer trends shifted back towards brown spirits, the craft portion of the industry became significant. We also saw stages where flavored whiskeys became very popular, like Fireball. Once Fireball became popular, Jack Daniel's, Jim Beam, Crown Royal, and Maker's Mark introduced various flavors. The big takeaway is that the competition today is extremely different from 15 or 20 years ago. The biggest challenge for national brands now is how to grow against a competitive set that's in the hundreds, compared to single digits 15 years ago. - Former VP at Brown-Forman