Constellation Software Pursues New Strategy and Private Equity Hunting in the SaaS-pocalypse
Constellation Software Takes Another Step in its New Strategy and Private Equity Looking for Bargains
Constellation Software Subsidiary Acquires TouchBistro for C$100 Million
Earlier this month, Constellation Software’s subsidiary, Harris Computer, acquired TouchBistro for C$100 million. Once one of Canada’s fastest-growing software startups valued at C$650 million in 2019, TouchBistro faced macroeconomic and competitive pressures over the past five years that have significantly compressed its valuation.
For those who aren’t familiar with the company, TouchBistro provides restaurant point-of-sale and management systems for over 16,000 restaurants across more than 100 countries. If you’ve been to a restaurant where you can order by scanning a QR code at your table, chances are you’ve used their software before. But tableside ordering is only a small part of what they do. Their platform also includes features like floor plan management, online ordering, reservations, loyalty programs, staff scheduling and reporting, and much more. Essentially, it’s the behind-the-scenes software layer that allows restaurants to function smoothly.
While the company grew rapidly before 2019, the COVID-19 pandemic hit restaurants hard, which had knock-on effects for TouchBistro. The hikes in interest rates in 2022 didn’t help either, as funding for fast-growing, cash-burning businesses dried up. To add to this, its U.S. rival, Toast, raised much more capital than TouchBistro and aggressively invested to take market share. Now, Toast has become the dominant player in the space with a US$18 billion market cap.
For Constellation, this acquisition is a step outside its usual strategy of acquiring smaller, free-cash-flow generating, founder-led companies. Constellation hinted at this idea back in 2024 when one of its executives said the company would look for “venture capital-backed businesses that did not live up to investors’ or founders’ expectations, companies that are running out of options.” Targeting companies generating more than US$20 million in revenue, the strategy would try to turn those companies around and make them profitable. Constellation’s acquisition of Librestream in 2025 for an undisclosed amount was the first iteration of this new approach.
The acquisition of TouchBistro is another big step forward in testing this strategy. Leveraging Constellation’s operational expertise, there is the real possibility of a turnaround. However, only time will tell if this strategy is truly effective. If it is, it would bode well for the company’s ability to scale and pursue more opportunities in the future, especially since VC-backed software companies have taken a hit in their valuations over the past year due to concerns about AI.
Disclosure: I own shares of Constellation Software
Private Equity Hunt for Software Companies
Some investors are not afraid of the SaaS-pocalypse. While the broader market has punished software valuations because of the threat of AI disruption, some think it’s the right time to hunt for bargains. Francisco Partners, a private equity firm focused on the technology sector with more than US$75 billion in capital raised, has been eyeing the software industry. Its co-founder, Dipanjab Deb, stated that AI will create a dispersion of winners and losers and that some companies with strong moats will have greater market potential.
Other firms like Thoma Bravo have echoed this sentiment by stating that although many software companies will be disrupted by AI, some will be big winners because of AI. This argument is one I’ve highlighted in my Spotlight on Constellation Software; not every software company is created equal. Some software companies with truly mission-critical solutions and specialized expertise should not be as heavily discounted as they are.
Some institutional investors seem to agree with this sentiment. Since the beginning of the year, Francisco Partners has raised US$21 billion, showing appetite from institutional investors to invest in the software industry at these historically low valuations.
Dipanjab Deb has also warned investors about AI valuations, stating that the current environment reminds him of the dot-com bubble. We have already seen a sizable pullback in some AI names over the past few weeks, with companies like Micron and Sandisk falling 30-50% from their highs. Meanwhile, some software companies have halted their downtrend and have been building a base. Anyone watching the markets will clearly see the inverse price relationship between AI names and software names as investors rotate between the industries.
It’ll be interesting to see how all this plays out with big shifts happening every week. Amidst the uncertainty, the businesses and investors who can sift through the noise and focus on the factors that matter will be the ones to come out on top.
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