| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | - | - |
Douglas Ott's Q2 2026 letter details Andvari's portfolio of vertical market software businesses performing well financially, with Constellation Software showing 19.9% revenue growth and record free cash flows while pursuing a record $2.76 billion in acquisitions. Tyler Technologies raised 2030 financial targets following successful cloud transition, with 95% of new contracts now SaaS-based. S&P Global spun out Mobility Global, enhancing quality of remaining high-margin businesses. However, the letter's primary focus is a detailed capital cycle analysis of AI infrastructure spending. Manager draws extensive parallels to railroad and dot-com bubbles, noting circular financing patterns, unsustainable return assumptions requiring $2.5 trillion in revenue (10% of U.S. GDP), and dangerous debt levels exemplified by Oracle's credit downgrade. Vanguard research suggests only 1-3 years remain before the AI investment phase peaks. Manager added limited AI exposure through diversified businesses like Amazon, Microsoft, Texas Instruments, and Martin Marietta, but deliberately underweights pure AI infrastructure plays. This positioning explains recent underperformance but reflects commitment to long-term capital preservation through disciplined investing in predictable, advantaged businesses.
Manager maintains concentrated positions in high-quality vertical market software businesses with strong cash flows and competitive moats, while deliberately underweighting AI infrastructure investments that show signs of capital cycle excess, circular financing, and unsustainable return assumptions reminiscent of railroad and dot-com bubbles.
Manager expects AI infrastructure buildout to continue for another 1-3 years before investment phase tails off and valuations begin to deflate, following patterns of historic capital cycles. Anticipates eventual overbuilding, overinvestment, and return compression as competition intensifies. Some businesses will use overly optimistic assumptions and take on dangerous debt levels. Despite near-term underperformance from underweighting AI, manager intends to maintain discipline investing in advantaged businesses with capable management operating in more predictable industries with less capital flooding in.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jul 10 2026 | 2026 Q2 | AMZN, CSU.TO, MBGL, MLM, MSFT, NVDA, ORCL, SPGI, TXN, TYL | AI, Capital Cycle, Cloud, infrastructure, semiconductors, software, Valuations, Vertical Software | - | Andvari's vertical software holdings like Constellation and Tyler Technologies deliver strong results with record cash flows and successful cloud transitions. Manager views AI infrastructure buildout as approaching capital cycle peak, with circular financing and unsustainable economics requiring 10% of U.S. GDP to justify valuations. Deliberately underweights pure AI plays despite near-term underperformance, adding only diversified exposure through Amazon, Microsoft, and Texas Instruments while maintaining discipline. |
| Jun 30 2025 | 2025 Q2 | ACN, APH, ATCO-A.ST, CPRT, DPLM.L, HLMA.L, JKHY, MSFT, OR.PA | AI, Beauty, Cloud, growth, Industrial, international, Quality, technology |
APH MSFT DPLM.L HLMA.L CPRT ACN OR.PA JKHY |
Aoris delivered 8.2% quarterly returns through concentrated exposure to quality international businesses benefiting from AI and cloud computing growth. Strong performance from Amphenol and Microsoft offset weakness in Copart. Portfolio changes included adding Jack Henry and exiting Atlas Copco. The fund maintains its disciplined approach to owning wealth-creating businesses targeting 8-12% annual returns over market cycles. |
| Apr 4 2025 | 2025 Q1 | AAPL, AMT, AMZN, CSGP, CSU.TO, DHR, GOOGL, IDXX, META, MO, MSFT, MTD, NFLX, NVDA, PM, SBAC, TOI.TO, TSLA, TYL, ZTS | durability, Life Sciences, Quality, REITs, tariffs, Tobacco, value | - | Andvari outperformed significantly in Q1 2025 as money rotated from Mag 7+ into their quality holdings. Portfolio benefits from tobacco industry's transition to reduced risk products, life sciences normalization post-COVID, and defensive positioning against tariff risks through software/services focus. High quality businesses with pricing power and century-plus track records of resilience. |
| Jan 20 2025 | 2024 Q4 | AMT, CSGP, CSU.TO, KPG.AX, MA, MO, ORLY, PM, SBAC, TOI.TO, TYL | dividends, interest rates, real estate, REITs, software, technology, Telecommunications |
AMT SBAC CSGP TOI.TO |
Andvari delivered solid 13.3% returns despite underperforming markets due to interest rate pressure on tower REITs and real estate data provider CoStar. These high-quality businesses maintain strong fundamentals and pricing power, trading at attractive valuations. Software acquirers performed well with continued consolidation activity. Portfolio positioned for long-term outperformance through mission-critical business models. |
| Oct 13 2024 | 2024 Q3 | AJG, CSU.TO, LMN.TO, ROL, TOI.TO | Capital Allocation, insurance, M&A, Serial Acquirers, software, value creation |
CSU.TO AJG ROL |
Andvari's portfolio concentrates on proven serial acquirers in fragmented markets, particularly vertical market software and insurance brokerage. Holdings like Constellation Software and Arthur J. Gallagher create value through disciplined M&A strategies, acquiring 22+ businesses quarterly while offering permanent homes to sellers. The manager views these as semi-permanent holdings with multi-year consolidation runways ahead. |
| Jul 22 2024 | 2024 Q2 | AJG, MO, MTD, ORLY, PM, POOL, UNH, ZTS | Capital Allocation, Concentration, Essential Services, Quality, Resilience, value | - | Andvari sold underperforming Mesa and redeployed capital into seven high-quality businesses providing essential services with strong pricing power and cash generation. The concentrated portfolio focuses on resilient companies like insurance broker Gallagher, auto parts retailer O'Reilly, and pet healthcare leader Zoetis. Despite Q2 underperformance versus mega-cap tech, the manager expects better returns ahead from these defensive, cash-generative positions. |
| Apr 19 2024 | 2024 Q1 | AMT, BUD, CSGP, IWM, MA, MO, SPY, WEA | dividends, Quality, rates, real estate, Tobacco, value |
KPG.AX CSGP WEA MO |
Andvari outperformed in Q1 2024 with 12.1% returns, continuing recovery from 2022. Rising rates created opportunities in high-yielding securities like Altria at 9.7% dividend yield and Western Asset bonds. Key holdings CoStar and Kelly Partners show strong business development with international expansion and strategic capital reallocation. Quality businesses with pricing power drive long-term value creation. |
| Jan 20 2024 | 2023 Q4 | CSU.TO, LMN.TO, MLAB, TOI.TO | Acquisitions, Capital Allocation, Compounding, Concentration, software | CSU.TO | Andvari returned 17.5% in 2023, trailing the S&P 500 due to concentrated positioning. Constellation Software was the standout performer with 58.9% returns, driven by aggressive acquisition activity and exceptional growth. Mesa Labs declined 36.7% due to customer losses and debt concerns. The firm maintains its concentrated approach targeting high-quality compounders. |
| Jul 11 2023 | 2023 Q3 | AMT, ROL | - | - | |
| Jul 20 2023 | 2023 Q2 | KPG.AX | Accounting, Australia, Serial Acquirers, small caps, value | KPG.AX | Andvari is tax-loss harvesting to fund investments in serial acquirer businesses, headlined by Kelly Partners Group. The Australian accounting consolidator has grown revenues 100x since 2006 through acquisitions and superior margins. With founder-CEO Brett Kelly owning 50% and expansion into US/UK markets beginning, Andvari expects continued revenue doubling over the next decade. |
| Apr 24 2023 | 2023 Q1 | JPM, TYL | Banking, Quality, software, technology, value | TYL | Andvari outperformed in Q1 2023 while explaining their avoidance of commodity businesses like banks. Tyler Technologies, despite 2022 underperformance, appears attractively valued as cloud transition nears inflection point with management targeting significant margin expansion by 2025. Focus remains on concentrated portfolio of high-quality businesses with pricing power. |
| Jan 30 2023 | 2022 Q4 | ADBE, CPRT, CSGP, CSU, DBGI, MA, MLAB, SPGI, TOITF, TYL | - | - | |
| Oct 17 2022 | 2022 Q3 | ADBE | - | - | |
| Apr 29 2022 | 2022 Q1 | CSU CN, TOI CN, TYL | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q2 |
AIManager views AI infrastructure buildout as approaching a capital cycle peak, with $1 trillion in contemplated U.S. spending representing 3% of GDP. Draws parallels to railroad and dot-com bubbles, noting circular financing patterns among AI companies, vendor financing risks, and unsustainable return assumptions. Estimates suggest industry would need $2.5 trillion in revenue to justify current valuations—roughly 10% of U.S. GDP. Manager expects overbuilding and return compression within 1-3 years as competition intensifies. |
Infrastructure Capital Cycle Valuations Data Centers Overbuilding |
Vertical SoftwareManager holds concentrated positions in vertical market software businesses including Constellation Software and Tyler Technologies. Constellation showed 19.9% revenue growth and record free cash flows, with RBC estimating a record $2.76 billion in acquisitions for 2026. Tyler raised 2030 financial targets due to successful cloud transition, with 95% of new contracts now SaaS-based and transaction-based businesses becoming a visible growth lever. These businesses are viewed as resilient despite AI uncertainties. |
SaaS Cloud Transition Government Software M&A Recurring Revenue | |
CloudTyler Technologies completed migration of 5,000 hosted customers onto AWS and exited its last private data center on schedule. The cloud transition has moved from aspiration to solid proof, with management raising 2030 targets to $3.3-3.4 billion in recurring revenue and $1.1-1.2 billion in free cash flow. Cloud Living phase expected to reduce version complexity, lower support burden, and create more scalable operating model. |
Migration AWS SaaS Conversion Operating Leverage | |
Capital CycleManager extensively analyzes capital cycle dynamics, particularly in AI infrastructure. Cites Marathon Asset Management's framework that industries sow seeds of their own boom-bust cycles. Historical analysis shows U.S. railroads delivered only 8.3% annualized returns despite transformative impact, with multiple bankruptcy waves. Dot-com bubble saw 4,854 internet companies shut down and major telecom bankruptcies. Manager believes AI is tracking historic capital buildouts and approaching similar inflection point. |
Boom-Bust Supply Dynamics Competition Historical Parallels | |
SemiconductorsSamsung and SK Hynix have sold out high-bandwidth memory capacity for 12-15 months. Nvidia's advanced AI processors effectively booked out for 12 months. Manager added Texas Instruments for analog and power management chip exposure but views it as diversified play rather than pure AI bet. Notes circular financing patterns where Nvidia customers use chips as collateral for loans to buy more chips. |
Memory AI Chips Supply Constraints Nvidia | |
| 2025 Q2 |
AIMicrosoft's AI computing revenue rose rapidly with demand exceeding capacity. Copilot AI product experiencing very rapid growth, generating 3.7x returns on investment according to IDC. AI tools being applied to enhance productivity across software coding, customer enquiries, and sales preparation. |
Artificial Intelligence Copilot Productivity Computing Microsoft |
CloudMicrosoft Azure accounts for almost one-third of group revenue with 25% market share, gaining consistently against competitors. Only one-quarter of SAP's customer base has moved to cloud, suggesting significant remaining opportunity for cloud migration from on-premises servers. |
Azure Cloud Computing Migration Infrastructure SaaS | |
Data CentersAmphenol's sales into data centre market more than doubled in the quarter, accounting for roughly one-third of revenue. Strong growth driven by AI computing demand and Amphenol gaining market share in this rapidly expanding segment. |
Data Centers Infrastructure Connectors AI Computing Growth | |
BeautyL'Oréal is the world's largest beauty company with 15% global market share, larger than its two closest peers combined. The company has outgrown its market in 18 of the last 20 years through diversification across categories, brands, channels, and geographies. |
Cosmetics Skincare Market Share Global Growth | |
| 2025 Q1 |
TobaccoAndvari made first investments in Philip Morris International and Altria, benefiting from the transition to reduced risk products like nicotine pouches. The ZYN brand has grown 40-80% despite product shortages, while Altria's on! brand grew 32-48%. With 1.1 billion nicotine users globally and only 100 million using reduced risk products, there is significant runway for market share growth. |
Nicotine Reduced Risk ZYN Pouches Sweden |
Life SciencesFour holdings serve life sciences and companion animal markets: Mettler-Toledo, Danaher, IDEXX, and Zoetis. All are market leaders with high margins and solid growth tailwinds, but have been working through COVID-era demand pull-forward. Growth normalization should drive share price appreciation when it reverts to pre-COVID levels. |
Equipment Consumables Veterinary Pharma COVID | |
Trade PolicyAndvari's portfolio is well-positioned for tariff impacts due to focus on software and services businesses rather than physical goods manufacturers. Companies with physical goods exposure have above-average pricing power from selling critical products that represent small portions of customer costs with high switching costs. |
Tariffs Software Services Pricing Power Switching Costs | |
Real EstateHoldings include two cell tower REITs (American Tower and SBA Communications) that have reduced debt and increased dividends. CoStar Group continues investing in residential property portals and made a bid for Domain Group in Australia, though success in residential is not necessary for good returns. |
REITs Cell Towers Property Portals Interest Rates Dividends | |
| 2024 Q4 |
Tower REITsCell tower REITs AMT and SBAC declined due to interest rate sensitivity but maintain strong fundamentals. Mobile data usage growth drives demand for more antennas on existing and new towers. Land scarcity and regulatory barriers provide pricing power with steady rent increases built into contracts. |
Cell Towers REITs Mobile Data Pricing Power Land Scarcity |
Commercial Real EstateCoStar serves the real estate industry with mission-critical tools for brokers and property owners. The company continues growing across all business lines with CoStar Suite up 10%, Apartments.com up 15.5%, and Homes.com up 169%. CoStar maintains competitive advantages through extensive data collection and strong intellectual property protection. |
Real Estate Data Commercial Brokers Property Management Data Collection Intellectual Property | |
Vertical SoftwareSerial acquirers Topicus, Constellation Software, and Tyler Technologies performed well by acquiring niche vertical market software businesses. Topicus recently announced acquiring Cipal Schaubroeck for €200-250 million, continuing its strategy of doubling revenues and free cash flows every five years. |
Software Acquisitions Vertical Markets Serial Acquirers Niche Software Government Software | |
DividendsAMT paused dividend increases to focus on debt reduction, with resumption of dividend growth expected as a positive catalyst this year. Both AMT and SBAC are trading near highest dividend yields in their history, creating favorable setup for future shareholder returns. |
Dividend Growth Debt Reduction Shareholder Returns Dividend Yields Capital Allocation | |
| 2024 Q3 |
Vertical SoftwareThe fund owns three serial acquirers of vertical market software companies: Constellation Software, Topicus.com, and Lumine Group. This trio acquired another 22 software businesses in just the prior quarter. The manager views this group as a semi-permanent holding still capable of outperforming the market over the long term. |
Software Acquisitions Technology VMS Serial Acquirers |
Serial AcquirersThe portfolio is concentrated in companies with proven acquisition track records including Constellation Software, Arthur J. Gallagher, and Rollins. These companies have highly rational acquisition strategies and have created enormous value for shareholders through M&A. They position themselves as acquirers of choice by offering fair prices and permanent homes for businesses. |
M&A Acquisitions Capital Allocation Growth Consolidation | |
| 2024 Q2 |
ResilienceAndvari focuses on companies that provide essential services and products that customers will buy regardless of economic conditions. These businesses demonstrate revenue stability even during challenging periods, with examples like Gallagher showing minimal revenue declines during recessions and O'Reilly selling essential auto parts. The portfolio emphasizes businesses with predictable cash flows and non-discretionary purchase patterns. |
Essential Services Revenue Stability Non-discretionary Cash Flow Economic Resilience |
TobaccoThe tobacco industry has consolidated to a handful of players who have successfully offset declining cigarette volumes with price increases for decades. Both Altria and Philip Morris are introducing safer nicotine delivery products including vaping, nicotine pouches, and heat-not-burn products, with nicotine pouches showing extraordinary growth rates of 30%+ and 70%+ respectively. The manager sees potential for a nicotine renaissance aided by less harmful products. |
Nicotine Pouches Price Increases Product Innovation Volume Decline Harm Reduction | |
Pet CareThe pet healthcare market benefits from increasing pet ownership trends and growing willingness to spend more on pets annually. Spending on pets has nearly doubled since 1990 compared to overall consumer spending, and the pet healthcare industry has never had a year of negative growth in the last 15 years. Zoetis operates in this resilient market with exceptional financials including 70% gross margins and steady revenue growth. |
Pet Ownership Healthcare Spending Market Growth Consumer Trends Veterinary | |
| 2024 Q1 |
Commercial Real EstateCoStar Group is investing $1 billion into Homes.com to compete against Zillow in residential real estate. The National Association of Realtors settlement could provide a tailwind by changing commission structures that favor Homes.com's seller-focused business model over buyer-focused portals. |
Real Estate Portals Commissions Settlement Competition |
DividendsAltria offers a 9.7% dividend yield at levels seen only twice since 2000, with ability to grow dividends 2-3% annually. Kelly Partners eliminated its monthly dividend to redeploy capital at higher returns through acquisitions. |
Yield Income Payout Growth Capital Allocation | |
TobaccoAltria maintains extraordinary profitability despite declining cigarette volumes through regular price increases. The company is transitioning to reduced risk products like nicotine pouches, with the on! brand growing volumes over 30% annually. |
Cigarettes Nicotine Pricing Power Harm Reduction Volumes | |
| 2023 Q4 |
Vertical SoftwareConstellation Software's acquisition strategy focuses on niche, vertical market software businesses with high margins and mission-critical applications. The company acquired over 100 such businesses in 2023, demonstrating the continued opportunity in this space. These businesses typically have low organic growth but generate substantial free cash flows that can be reinvested at high rates of return. |
Software Acquisitions Vertical Mission Critical Niche |
| 2023 Q2 |
ValueAndvari employs a concentrated investment strategy focused on identifying high quality businesses with high quality managers that can deploy capital at high rates of return. The fund seeks to buy shares of these businesses at sensible prices to produce excellent long-term returns. |
Value Quality Capital Allocation |
| 2023 Q1 |
QualityAndvari seeks businesses with highly valued products or services that enable higher than average margins and returns, more robust free cash flows, more dependable revenues, and stronger customer relationships. They avoid commodity businesses like banking that compete primarily on price. |
Quality Margins Returns Differentiation Pricing Power |
CloudTyler Technologies has transitioned to a cloud-first, software-as-a-service business model with a partnership with Amazon Web Services. While this transition has been a short-term headwind, it will lead to more predictable revenue growth and higher free cash flows in the long run. |
Cloud SaaS AWS Transition Recurring Revenue |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Jul 20, 2023 | Fund Letters | Andvari Associates | KPG.AX | Kelly Partners Group | Commercial & Professional Services | Professional Services | Bull | ASX | accounting services, Acquisitions, Australia, EBITDA margins, founder-led, growth, market consolidation, professional services, recurring revenue, serial acquirer | Login |
| Jun 30, 2025 | Fund Letters | Andvari Associates | APH | Amphenol Corporation | Information Technology | Electronic Components | Bull | NYSE | Aerospace, AI infrastructure, automotive, data centers, Electronic Connectors, market share gains, Sensors, technology hardware | Login |
| Jun 30, 2025 | Fund Letters | Andvari Associates | MSFT | Microsoft Corporation | Information Technology | Systems Software | Bull | NASDAQ | AI Computing, Azure, Capacity constraints, Cloud computing, data centers, Enterprise software, infrastructure, SaaS | Login |
| Jun 30, 2025 | Fund Letters | Andvari Associates | DPLM.L | Diploma PLC | Industrials | Trading Companies & Distributors | Bull | LSE | Commercial Ambition, Industrial, life sciences, manufacturing, market share gains, operational excellence, UK, Value-Added Distribution | Login |
| Jun 30, 2025 | Fund Letters | Andvari Associates | HLMA.L | Halma plc | Information Technology | Electronic Equipment & Instruments | Bull | LSE | defensive, Dividend Growth, Environmental, Medical, Mission-Critical, Safety Products, Specialized Products, UK | Login |
| Jun 30, 2025 | Fund Letters | Andvari Associates | CPRT | Copart, Inc. | Industrials | Commercial Services & Supplies | Bear | NASDAQ | Auto auctions, Competition, Insurance, margin pressure, Market Share Loss, Structural headwinds, Uninsured Vehicles, Used cars | Login |
| Jun 30, 2025 | Fund Letters | Andvari Associates | ACN | Accenture plc | Information Technology | IT Consulting & Other Services | Bull | NYSE | AI implementation, cloud migration, Data Security, Enterprise transformation, Government Pressure, It consulting, Large Contracts, Technology Services | Login |
| Jun 30, 2025 | Fund Letters | Andvari Associates | OR.PA | L'Oréal S.A. | Consumer Staples | Personal Care Products | Bull | Euronext Paris | beauty products, brand portfolio, consumer staples, Cosmetics, diversification, Emerging markets, Global Market Leader, R&D investment | Login |
| Jun 30, 2025 | Fund Letters | Andvari Associates | JKHY | Jack Henry & Associates, Inc. | Information Technology | Application Software | Bull | NASDAQ | Banking Software, Core Processing, customer satisfaction, digital banking, financial technology, market share gains, Mission-Critical, recurring revenue | Login |
| Jan 20, 2025 | Fund Letters | Andvari Associates | AMT | American Tower Corporation | Real Estate | Specialized REITs | Bull | NYSE | Cell Tower, dividend, infrastructure, Interest Rate Sensitive, Mission-Critical, Mobile Data, Pricing power, REIT, telecommunications | Login |
| Jan 20, 2025 | Fund Letters | Andvari Associates | SBAC | SBA Communications Corporation | Real Estate | Specialized REITs | Bull | NASDAQ | Cell Tower, infrastructure, Interest Rate Sensitive, Mission-Critical, Mobile Data, Pricing power, REIT, share repurchases, telecommunications | Login |
| Jan 20, 2025 | Fund Letters | Andvari Associates | CSGP | CoStar Group Inc | Real Estate | Real Estate Services | Bull | NASDAQ | commercial real estate, competitive moat, Data Analytics, high-margin, Intellectual Property, Mission-Critical, Real Estate Data, SaaS | Login |
| Jan 20, 2025 | Fund Letters | Andvari Associates | TOI.TO | Topicus.com Inc | Information Technology | Systems Software | Bull | TSX | European Software, Free Cash Flow, government software, growth, M&A, serial acquirer, Software, vertical software | Login |
| Oct 13, 2024 | Fund Letters | Andvari Associates | CSU.TO | Constellation Software Inc. | Information Technology | Systems Software | Bull | Toronto Stock Exchange | Canada, Decentralized, M&A, serial acquirer, Software, technology, Value Arbitrage, VMS | Login |
| Oct 13, 2024 | Fund Letters | Andvari Associates | AJG | Arthur J. Gallagher & Co. | Financials | Insurance Brokers | Bull | New York Stock Exchange | financial services, Fragmented Market, Insurance Broker, M&A, Property & Casualty, Reinsurance, serial acquirer | Login |
| Oct 13, 2024 | Fund Letters | Andvari Associates | ROL | Rollins Inc. | Industrials | Environmental & Facilities Services | Bull | New York Stock Exchange | Consumer services, Fragmented Market, M&A, North America, pest control, Roll-up Strategy, serial acquirer | Login |
| Apr 4, 2024 | Fund Letters | Andvari Associates | KPG.AX | Kelly Partners Group | Financials | Professional Services | Bull | ASX | accounting services, Acquisitions, Australia, capital allocation, professional services, Roll-up Strategy, Small Business Services, US Expansion | Login |
| Apr 4, 2024 | Fund Letters | Andvari Associates | CSGP | CoStar Group | Real Estate | Real Estate Services | Bull | NASDAQ | commercial real estate, market share gains, Marketing Investment, NAR Settlement, Online Marketplaces, real estate technology, Residential Real Estate, Zillow Competition | Login |
| Apr 4, 2024 | Fund Letters | Andvari Associates | WEA | Western Asset Premier Bond Fund | Financials | Asset Management & Custody Banks | Bull | NYSE | Berkshire Connection, bond fund, closed-end fund, fixed income, high yield, income investment, NAV discount, Western Asset | Login |
| Apr 4, 2024 | Fund Letters | Andvari Associates | MO | Altria Group | Consumer Staples | Tobacco | Bull | NYSE | consumer staples, high dividend yield, Nicotine pouches, Pricing power, Reduced-Risk Products, share repurchase, tobacco, Value Investment | Login |
| Apr 18, 2023 | Fund Letters | Andvari Associates | TYL | Tyler Technologies | Information Technology | Application Software | Bull | NYSE | Cloud computing, government software, margin expansion, recurring revenue, SaaS, Technology Transition, turnaround, Value | Login |
| Jan 20, 2024 | Fund Letters | Andvari Associates | CSU.TO | Constellation Software Inc. | Information Technology | Systems Software | Bull | Toronto Stock Exchange | Acquisitions, Canada, compounding, Decentralized, Free Cash Flow, growth, Mission-Critical, Software, Vertical Markets | Login |
| TICKER | COMMENTARY |
|---|---|
| CSU.TO | Constellation Software in its first quarter results showed revenue growth of 19.9% and record free cash flows. Given the contraction in software company values over the last 12 months, Constellation this year has also been very active in acquiring other vertical market software businesses. RBC Capital Markets estimates Constellation is on track to spend a record $2.76 billion on acquisitions in 2026. If that happens, it would be a record year for Constellation in terms of capital deployed for acquisitions. Finally, the company and its subsidiaries have devoted more time to sharing with the public how they are using AI tools to (1) become more productive and (2) to further solidify their customer relationships, which typically have spanned decades. If Constellation can prove over the next few years that its 1,000+ software businesses are still valuable, cash-flowing assets despite the fears and uncertainties caused by the advent of AI-based coding tools, its share price should begin to recover. |
| TYL | Tyler Technologies, a software company focused solely on state and local government customers, recently raised its 2030 financial goals because the cloud transition for its customers has moved from aspiration to solid proof. Since its 2023 investor day, Tyler has met or exceeded its 2025 interim targets, shifted more than 95% of new-client total contract value to SaaS, completed the migration of its roughly 5,000 hosted customers onto AWS, and exited its last private data center on schedule. All this gives management more confidence in both future growth and margins. Tyler's remaining on-premise maintenance base still represents a large conversion pool, and each maintenance-to-SaaS flip is expected to lift recurring revenue by roughly 1.7x before any cross-sell, payments attach, or module expansion. Just as important, Tyler's next phase—Cloud Living—should reduce version complexity, lower support burden, speed upgrades, and create a more scalable operating model. The other reason for Tyler raising its 2030 financial goals is that its transaction-based businesses have become a more visible growth and cash-flow lever, not just a sidecar. Management says transaction goals set in 2023 were met or exceeded, with growth coming from higher volumes, higher attach rates, and expansion of transaction-funded software. That model matters because Tyler's customers can fund public-sector software outside normal budget appropriations. For example, California State Parks is one of Tyler's largest transaction-based customers. Tyler's software enable visitors to California parks to reserve spots and Tyler gets a fee for each spot reserved via its software. California doesn't have to spend any money upfront for this software because Tyler collects its revenues and profits via the transactions on its reservation platform. The upside for California is it gets to collect revenues with little to no initial outlays. Put together, cloud conversion, transaction attach, and operating leverage support Tyler's raised 2030 targets: recurring revenue of $3.3B–$3.4B, free cash flow of $1.1B–$1.2B, and low-30s free cash flow margins. |
| SPGI | S&P Global recently spun out its Mobility Global (MBGL) division to shareholders. The remaining S&P Global is now an even higher quality business because its crown jewels can shine even brighter. In 2025, S&P's credit ratings business had adjusted operating margins of 65%, its S&P Dow Jones Indices business had 71% adjusted operating margins, and its Energy business had 48% adjusted operating margins. Mobility Global had just 40% margins. |
| MBGL | As a new separate entity, Mobility Global will likely be a good business to hold on to as it has many trusted products (CARFAX, Polk, Automotive Mastermind, and Market Scan) that are deeply embedded in the automotive ecosystem. MBGL's customers span from nearly every global auto OEM and tier 1 supplier to thousands of car dealers. With annual revenues of just $1.75 billion, high margins, >80% subscription-based revenues, and now with greater flexibility to invest and acquire, MBGL management believes it can continue to grow at a high single-digit rate and expand margins. |
| NVDA | Nvidia's advanced AI processors are effectively booked out for 12 months. When Nvidia invested in OpenAI in late 2025, it was reported most of the money would be used to lease Nvidia chips. Also, some companies like Nvidia and Anthropic have invested directly into special purpose vehicles (SPVs), which in turn use that money to buy hardware from those exact same hardware makers. I've also read that some Nvidia customers are using Nvidia chips as collateral for loans to buy even more chips. |
| AMZN | This year I added two hyperscalers: Amazon.com and Microsoft. While each of these companies has varying degrees of exposure to the AI theme, I like that they all generate revenues and profits from other sources. Although Amazon and Microsoft are two of the five largest hyperscalers, Amazon has its logistics network, online retailing business, advertising network, and grocery stores. |
| MSFT | This year I added two hyperscalers: Amazon.com and Microsoft. Microsoft will continue to sell its ubiquitous software to consumers and businesses, it has its gaming business, it has LinkedIn, and it has its Azure cloud computing platform. |
| TXN | I also added Texas Instruments, which makes analog and power management chips. Texas Instruments might be getting a nice temporary bump in profits and revenues from helping build out AI infrastructure, but AI and data center-related revenues are by no means the majority of revenues for this company. |
| MLM | Martin Marietta, one of the largest aggregates companies in the U.S., is also a minor beneficiary of the AI theme given robust construction activity in data centers and power generation. Martin Marietta might be getting a nice temporary bump in profits and revenues from helping build out AI infrastructure, but AI and data center-related revenues are by no means the majority of revenues for this company. |
| ORCL | For example, S&P recently downgraded the credit rating of Oracle to just one notch above the level reserved for junk bonds as it plans to spend $90-$95 billion in 2027 on AI cloud infrastructure. |
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