Rating Outlook Upgrade
S&P Global Ratings revised Constellation Software Inc.'s (TSX:CSU) outlook to positive from stable on 28 August 2026 and affirmed the company's BBB issuer credit rating. The agency highlighted the firm’s significant deleveraging despite a series of sizable acquisitions.
Financial Metrics
- Adjusted net leverage, measured on an EBITDA basis, stood at 1.1× for the twelve‑month period ending 30 June 2026 and improved to 1.0× in 2025, down from 1.7× in 2023.
- Free operating cash flow (FOCF) increased to $2.5 billion in 2025, up from $1.6 billion in 2023. S&P projects FOCF of $2.8 billion for 2026, while acquisition spending is expected to be $2.6 billion, keeping leverage stable around 1.0×.
Acquisition Activity
- Through the second quarter of 2026, Constellation completed four acquisitions each exceeding $100 million, notably Derby Soft and Synchronoss.
- The company retains a 24.8% ownership stake in Assecco and a 12.7% stake in Sabre.
Revenue Profile and Customer Base
- Constellation operates in over 100 vertical markets, with no single customer contributing more than 2% of total revenue.
- Maintenance and recurring revenue now represent nearly 75% of consolidated revenue, up from 70% two years earlier.
- Customer retention rates exceed 90%.
- Maintenance revenue is expected to grow at an average 5% annually, driven by yearly price increases and new maintenance revenue from add‑on products.
Rating Outlook Conditions
- S&P indicated that the rating could be upgraded within the next 12‑24 months if Constellation maintains adjusted leverage at or below 1.5× after any debt‑financed acquisitions, or if the company’s scale and EBITDA margins improve markedly.
- Conversely, the outlook may revert to stable if leverage rises above 1.5× due to more aggressive acquisition activity or operational underperformance.