.png)
Topicus.com (TOI.V) investment memo
- Mar 26
- 11 min read
Topicus.com (“TOI”) is a European-focused serial acquirer and operator of vertical market software (“VMS”) businesses. Like its parent, Constellation Software (“CSI”), TOI acquires small, mission-critical software companies serving niche end markets – municipalities, healthcare systems, utilities, courts, and transportation networks – and redeploys the resulting cash flows into further acquisitions.
The model has produced exceptional results at CSI over multiple decades. The shares’ total return since IPO 20 years ago is 16,312%[1] to date, which translates to a 29% CAGR. Mechanically, these returns have been driven by earnings reinvestment at high returns on capital and sustained growth in free cash flow per share. TOI[2] was CSI’s European focused subsidiary which, because of a transaction, was spun-out and became publicly traded. CSI owns >30%[3] of TOI and effectively controls it. We see TOI as effectively operating as a CSI subsidiary with very little operational changes since spin-out.
While still a young publicly traded company (the spin-out was in 2021), TOI has over two decades of positively contributing to CSI’s success. TOI’s predecessor – then managed by current CEO Robin van Poelje – was acquired by CSI in 2014 and has been successfully executing the CSI playbook since. Since becoming a public company, TOI has demonstrated attractive growth, margins, and returns (see below), and we believe they have a long runway to continue executing. Broad fears around AI disruption have given us a chance to acquire shares in this unique company at an attractive valuation.
Revenue growth (3yr CAGR): 19.2%
EBITA growth (3yr CAGR): 24.8%
EBITA margins (3yr average): 26%
ROIC/ROE (3yr average): 29%/45%
As of March 25th 2026, TOI shares trade at C$95.14 per share. This translates to an 18x Price to Free Cash Flow (P/FCF) using our 2026 estimates.
VMS
Understanding VMS is imperative to understanding TOI. VMS is specialized software designed to meet the unique, specific needs of a particular industry or niche. It provides deep functionality and is usually highly embedded in customer workflows. TOI’s businesses provide software that is:
Mission-critical: These systems are deeply embedded in customer workflows (e.g., hospital management, government workflow, insurance underwriting). Failure is not an option.
Low cost, high switching risk: The software often represents a trivial portion of customer spend (usually ~0.1% of operating costs), yet replacing it carries meaningful operational risk.
Niche markets: Many operate in small, fragmented verticals, limiting competition and attracting little attention from large software vendors.
Low churn: Annual attrition tends to be in the low-to-mid single digits. Customers rarely switch vendors.
These dynamics create a business with durable revenue, strong pricing power, and high incremental margins. When well-managed, these businesses can have tremendous longevity.
VMS under TOI
As a serial acquirer, TOI adds value by (1) buying small VMS companies at attractive prices and (2) implementing operational improvements in newly acquired companies. It sounds simple, but it is difficult to execute. The CSI family has the best track record we are aware of in executing this strategy. As highly decentralized organizations, CSI and TOI have institutionalized these core capabilities in their processes, incentives, and culture, in a way that makes them highly repeatable and (we believe) low risk.
TOI tends to buy small, overlooked assets. Focusing on companies with €5mm – €50mm in revenue, growing modestly, and poorly optimized commercially. These characteristics allow TOI to acquire at reasonable multiples. Our research suggests that they can acquire companies at 1x-2x EV/Sales, significantly below the 4x-5x seen on average for VMS (see below).
As the valuation suggests. TOI is not buying the highly desired in-vogue software company. They focus on the small, boring software provider with limited growth prospects but very loyal customers. They generally provide something of value to the seller other than price. It can be continuity for the founders, a “safe and perpetual” home for the business, the ability to execute a larger transaction, amongst others. In our research, we have encountered example after example of TOI using tremendous creativity to acquire assets at attractive valuations.
Post-acquisition TOI typically (1) raises the acquired company’s prices (often below value delivered), (2) rationalizes costs (usually through benchmarking), and (3) invests selectively in product and sales.
That might sound like the company is ‘milking’ the asset and pulling forward future returns at the expense of longevity. That was our initial fear, but our research has found that to be far from the truth. One of the more counterintuitive aspects of the model is that growth can coexist with price increases and cost rationalization. These small software companies acquired by TOI can be ineffectively run. This allows an experienced operator to improve operations and raise prices – while having a happier customer. In our research, we encountered numerous examples where:
Prices were increased post-acquisition.
Costs were streamlined.
Yet customer counts and revenues continued to grow.
The result is a very accretive use of capital, and the reason TOI has the return metrics it has. The acquired company, which was acquired at an attractive price, is generally able to significantly increase cash flows (without hurting longevity). The excess cash flows are used to acquire more companies and run the same playbook.
TOI’s operating structure makes this process repeatable. Like CSI, TOI operates a decentralized structure. Local teams make operating decisions but can choose to get support from headquarters. Capital allocation is also pushed down, with deals below a certain size threshold not having to be approved by leadership. Accountability is high, return thresholds are explicit, alignment is clear. Successful operators are given more responsibility and capital. We believe this is an important reason why CSI and TOI have been able to remain successful despite their size, and part of why TOI’s runway is long.
A long runway
There are about 28,500 VMS companies in Western Europe[4]. That is excluding Eastern Europe where it is difficult to get a reliable count. New companies are being formed every day. TOI only owns around 216 operating companies. We find Europe to be a great geography for implementing TOI’s strategy. With its differences in languages, regulations, and culture across the continent, the market lends itself to a high degree of fragmentation. This leads to lots of small VMS operators. Boots on the ground and local expertise are also very important to source and execute deals. That makes Europe less competitive than the US and other large markets.
Both CSI and TOI have a centralized CRM where acquisition targets are tracked globally. According to former employees, this database contains thousands of potential targets, accumulated over years of sourcing efforts. Importantly, the pipeline is not static. Opportunities must be actively pursued with progress inputted into the system in order to maintain internal ownership of a prospect. This creates both internal competition and a continuously refreshed deal funnel.
Another way in which we contextualize TOI’s runway is by looking at CSI. At $11.6bn in revenue, CSI is 6.3x bigger than TOI, and still growing at >15% a year.
A software company in the age AI disruption?
Shares in TOI have sold off by 51% since their July 2025 highs. While coming off a high valuation, TOI shares have sold off along with most publicly traded software companies as fears of AI lowering the cost of coding have spooked the market. We wrote about the AI risk for software companies in our 4Q25 letter. We think the market is directionally right that AI creates risk for software. We also think it is directionally wrong to treat all software as equally exposed.
AI unquestionably lowers the cost of building software. That matters most in categories where the product is standardized, visible, lightly integrated, easy to trial, and sold through product-led growth. At the risk of overgeneralizing, we believe horizontal SaaS is more exposed to AI disruption because the product can often be replicated cheaply and distributed broadly.
Conversely, TOI’s VMS products are usually sold into small, unsophisticated niches, have long sales cycles, and serve customers who are risk averse. These businesses enjoy a combination of mission criticality, low price relative to customer opex, and customer conservatism. TOI’s businesses tend to be deeply embedded in workflows, are compliant with local regulatory frameworks, and shaped by years of client level customizations. According to our research, the replacement cost of a robust VMS solution can amount to up to 10 years of maintenance spend, and projects can still overrun or fail.
If we think of it from the lens of a potential new entrant, we think it is a very tough business case to try to attack these small VMS providers. Most of TOI’s businesses operate in small markets of between $10-$50mm. For a potential new entrant to enter, they would have to offer a substantially better product at a lower price. They would have to hire a sales force to hopefully take customers away from incumbents in a process that would only start playing out after many years. All this effort for a total (uncertain) prize of maybe $10mm of revenue. To what up-and-coming entrepreneur would that appeal? What Venture Capital firm is going to fund that? We think it is a lousy business case.
Moreover, we think that AI can actually be a tailwind for TOI. TOI has lots of engineers working on R&D and product development within their respective businesses, and guess what, they also have access to AI tools. Not only that, they also have access to client feedback and know what customers want. In fact, TOI has long backlogs of customer requests. Lower development costs will allow the company to deliver more features and more customization, increasing customer value and retention.
Lastly, TOI is highly diversified across operating businesses and end markets. Should any individual business fare poorly in this new AI world, the impact to the enterprise would be negligible.
We believe that if TOI’s businesses stay up to date with the best coding and product tools – and allow their customers to benefit from them – that the AI risk is quite limited. Our work suggests that they have their sleeves up and are hard at work.
Valuation
TOI currently trades at ~18x Price to Free Cash Flow[5] on our 2026 estimates. In our view, through accretive acquisitions and moderate organic growth, TOI can grow earnings in excess of 20% a year for at least the next five years. We believe the runway is long and don’t see the next five years as a ceiling. Importantly, we believe the company will be able to achieve this growth with incremental returns on investment above 20% which will allow them to maintain their conservatively capitalized Balance Sheet. Putting all this together and if our assessment proves correct, TOI’s shares should be able to grow at a 20%+ CAGR over many years.
Risks
AI disruption is more severe than expected: if our assessment of the AI risk is incorrect, then company fundamentals can deteriorate. Leading to lower revenue growth and decreased margins.
Mitigant: please refer to AI section above. Even if our investment is directionally incorrect, the fact that TOI owns over 200 heterogenous and independent VMS companies, makes this risk manageable. If AI disrupts some higher percentage of the operating businesses, the company might be worth a little less, but the other businesses will continue operating and generating value for their customers and the company.
Cultural or management drift: the TOI model is heavily dependent on culture and capital allocation discipline. A shift in leadership, incentives, or operating philosophy (i.e. chasing growth over returns, overpaying for assets) could degrade returns over time.
Mitigant: this is a risk that we monitor. It would take many years to play out which should give us time to react to it. Furthermore, the system is highly decentralized and institutionalized, adding a layer of protection against it.
Deterioration in acquisition discipline: either because of competition or size. If acquisition multiples increase, or the company decides to lower hurdles, forward returns will be compromised.
Mitigants: TOI’s acquisition criteria and process is clear and transparent. We don’t expect changes. If there are any changes, we expect to know about them and reassess accordingly.
Avoiding biases
As the great late Charlie Munger said “if you make a public disclosure of your conclusion, you’re pounding it into your own head.” Writing these letters exposes us to anchoring bias, escalation of commitment bias, and confirmation bias. Please note that no investment operation has had a perfect success rate. We will not be the first. Accordingly, we reserve the right to change our minds and hope to do so quickly and swiftly when appropriate. We take on no obligation to communicate changes of opinion.
[1] IPO date was May 16, 2006. Includes the value of the two spun out entities TOI and Lumen. No dividend reinvestment.
[2] While a CSI subsidiary it was called TSS.
[3] The ownership structure is a bit complex.
[5] For TOI’s Asseco investment, we incorporate those earnings on a look-through basis.
Disclaimer and disclosures
The information in this presentation was prepared by Zorea Capital LP (“Zorea”). It has been obtained from public sources believed to be reliable. Zorea makes no representation as to the accuracy or completeness of such information. Opinions, estimates, and projections in this presentation constitute the current judgment of Zorea and are subject to change without notice.
Any investment in any strategy, including the strategy described herein, involves a high degree of risk. The description of the approach of Zorea Capital LP (“Zorea”) and the targeted characteristics of our strategies and investments is based on current expectations and opinions and should not be considered definitive or a guarantee that the approaches, strategies, and your investment portfolio will, in fact, possess these characteristics. In addition, the description of our risk management strategies is based on current expectations and should not be considered definitive or a guarantee that such strategies will reduce all risk. These descriptions are based on information available as of the date of preparation of this presentation, and the description may change over time. Past performance of any strategy we employ is not necessarily indicative of future results. There is the possibility of loss, including loss of principal.
Any projections, forecasts, or estimates contained in this presentation are necessarily speculative in nature and are based upon certain assumptions. It can be expected that some or all of such assumptions will not materialize or will vary significantly from actual results. Accordingly, any projections are only estimates and actual results will differ and may vary substantially from the projections or estimates shown. This presentation is not intended as a recommendation to purchase or sell any commodity or security.
Performance information in this document reflects the actual performance of the account established by Zorea’s Chief Investment Officer as of May 1, 2024. Reported net performance is net of all actual trading and other account expenses, reinvestment of all income, as well as Zorea’s fees. Zorea’s fees, as presented here, are composed of our standard fee schedule for non-Qualified Clients, consisting of a 1.8% management fee. Our Qualified Clients may elect from other fee schedules we offer. Qualified Clients who elect a different fee schedule may pay higher (or lower) fees and therefore realize lower (or higher) net returns depending on the portfolio’s performance. The specific fee charged to a client will be identified in the client’s advisory agreement.
Because this account was established prior to Zorea becoming a registered investment advisor, this means the performance results are ‘hypothetical’. Different types of investments involve varying degrees of risk and there can be no assurance that any specific investment will either be suitable or profitable for a client’s investment portfolio.
Index information is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators. Index performance does not include the deduction of fees or transaction costs which otherwise reduce performance of an actual portfolio.
Broader market events will generally have some corresponding impact on our results and the client portfolios managed in accordance with our strategy. For example, if US equity markets rise overall, that will frequently help the performance of portfolios with exposure to US equities, while declines in the overall US equity markets will frequently hurt the performance of portfolios with exposure to US equities. Similarly, increases or decreases in interest rates will have an inverse relationship on bond market prices (higher interest rates generally result in lower bond prices, and vice versa) and also some corresponding impact on the returns of fixed income investments. No investment approach can guarantee a positive return or prevent loss.
Performance results shown are not a guarantee of future results and are not a guarantee or prediction of how any client portfolio will perform.
The information contained in this presentation is provided for informational purposes only, is not complete, and does not contain certain material information about our strategy, including important disclosures relating to the risks, fees, and expenses. The information in this presentation does not take into account the particular investment objective or financial or other circumstances of any individual investor.
This presentation is strictly confidential and may not be reproduced or redistributed in whole or in part nor may its contents be disclosed to any other person without the express consent of Zorea and/or its managing partner.
Zorea Capital LP is a registered investment adviser domiciled in the state of New Jersey. We may not transact business in states where we are not appropriately registered, excluded, or exempt from registration. Individual responses to persons that involve either the effecting of transactions in securities or the rendering of personalized investment advice for compensation, will not be made without registration or exemption.