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Speakers: * Barry Schwarz: President and Chief Investment Officer at Baskin Wealth Management [00:00:01].
Ernest: Portfolio Manager at Baskin Wealth Management, who personally attended the 4-hour AGM [00:01:31].
Baskin Portfolio & Strategy Sales Pitch: Barry noted a recent portfolio pickup due to market rotation back to prudent businesses away from "AI nonsense and hype" [00:00:48]. He highlighted Baskin Wealth's model: diversifying equity assets, charging a single layer of fees, providing high-quality fixed income, and avoiding archaic or momentum-driven strategies [00:02:03].
The Macro Backdrop: The Software Drawdown
The 2025 Inflection: Starting in 2025, a massive market rotation penalized publicly traded software and proprietary data companies due to fears of AI disruption [00:04:33].
Market Casualties: Publicly traded entities like Adobe, Salesforce, Intuit, ServiceNow, Thomson Reuters, and Constellation Software saw stock prices fall [00:04:55].
CSU Pricing Impact: Constellation Software's stock fell from an all-time high of $5,300 down to a low of $2,100, before trading around $2,800 at the time of recording [00:40:24].
Fundamental Disconnect: These severe price drops occurred despite zero negative impact on current operational fundamentals or earnings results across these firms [00:05:09].
Leadership Transition & Evolution of Investor Relations
The Immediate Shock: Founder and CEO Mark Leonard stepped down from his executive role and the Board of Directors due to health reasons [00:03:17, 00:04:04]. He did not attend the meeting [00:03:23].
The New Era: Mark Miller, a veteran employee and the second person to work at the company, has assumed the role of CEO [00:03:30].
Communication Audit: The hosts note that CSU initially fumbled the communication surrounding Leonard's sudden departure, causing immediate stock pressure [00:06:54]. To stabilize stakeholder trust, Miller is actively increasing communications to the public [00:05:36]:
Hosting the first in-person AGM since 2019 (held on Friday, May 15, 2026, running from 8:30 AM to 1:00 PM, followed by lunch) [00:02:48, 00:07:46, 00:09:38].
Committing to host regular quarterly earnings calls to answer analyst questions [00:07:37].
Updating the corporate website to be more visually appealing [00:08:14].
Acommending a large community of X (formerly Twitter) investors who traveled to attend [00:09:24]. No famous US institutional figures like Bill Ackman were spotted [].
The AI Disruption Debate: Myth vs. Reality
Zero Hard Evidence: Chief Financial Officer Jamal Bakhesh stated explicitly that CSU rigorously tracks customer retention and revenue loss across all units, finding no evidence that AI has had any impact on their business yet [00:15:25]. Normal reasons for churn remain business failure, M&A consolidation, or missing niche features [00:15:57].
The Procurement Moat: Historically, over 50% of CSU's customer base resides in the public sector or government-adjacent industries [00:17:18]. These entities prioritize security, data privacy, legal compliance, and training over unproven AI infrastructure [00:17:29]. Cost is secondary to feature completeness and on-call developer support [00:16:08, 00:16:35].
Legitimate AI Casualties vs. VMS: The podcast contrasts CSU's Vertical Market Software (VMS) with highly exposed, consumer-facing software models that lack switching costs or proprietary data. They highlight online homework/tutor-matching services (such as Chegg, though the name wasn't fully recalled) and language learning applications as real casualties [00:18:25, 00:19:02].
The Switching Cost Anchor: Switching enterprise software is a multi-year, heavily regulated process involving formal Requests for Proposals (RFPs) and Requests for Information (RFIs) [00:11:39, 00:41:57]. As an anecdotal example, Barry highlights that their own asset custody bank still relies on underlying software built in the 1970s because the friction of migrating historical data outweighs any slicker, cheaper alternative [00:45:03].
Decentralized AI Execution & Verticalization
Anti-Microsoft Playbook: Ernest notes a conversation with an ex-Microsoft employee at the AGM, who observed that CSU's strategy is the exact polar opposite of Microsoft's top-down, brand-unified mandate [00:10:07]. CSU's head office sets capital incentives but delegates 100% of the operational strategy to local operators [00:10:16]. CEO Mark Miller is not personally meeting vertical clients [00:23:06]; instead, he focuses on ensuring the right leadership is in place for each company [00:23:37].
Dynamic Adaptation Case Studies: * High-Risk Sectors: A panel featuring a CSU-owned marketing automation firm acknowledged their vertical faces immediate AI risk [00:13:36]. They have established a specialized task force to actively launch AI-powered agents and rewrite support infrastructure to adapt [00:13:50].
Stable Sectors: In industries like forestry, pulp, and lumber, software parameters are highly localized and dependent on cyclical macro conditions; AI is simply utilized quietly behind the scenes to optimize workflows based on what the client explicitly requests [00:38:17, 00:38:55].
The Umbrella Framework (Verticalization): CSU is increasingly clustering its 1,500+ independent companies into coordinated, industry-specific portfolios [00:11:15, 00:20:09].
Example:Modaxo, their transportation umbrella, manages transit authorities and parking meters [00:20:26]. Modaxo has constructed an overarching AI layer that aggregates data across all underlying transit units to offer unified intelligence solutions to cities [00:20:58].
Example:Lumen (focusing on media and telecommunications) exists as a distinct publicly traded vehicle that leverages its brand to unlock complex, niche acquisitions [00:21:30, 00:32:43].
Capital Allocation, Public Equity (PMS), & Private Markets
Reinvestment Anomalies: While 2024 was an exceptional year for capital deployment, 2025 experienced a noticeable plateau in both small-scale and large-scale deals [00:25:50, 00:26:31]. Large deals are inherently erratic and rely primarily on regulatory capture (e.g., forced corporate divestitures during mega-mergers) or corporate carve-outs [00:27:04]. However, by mid-2026, CSU's M&A machine accelerated dramatically, fully meeting its capital deployment targets for the entire year by mid-year [00:26:09].
Hurdle Rates Unchanged: While the law of large numbers prevents CSU from maintaining its historical 30% Return on Invested Capital (ROIC) across the entire entity, management has refused to lower their hurdle rates [00:41:18, 00:41:26]. Though unconfirmed, industry estimates place their internal hurdle requirements at 15% to 18% for large transactions, and 25% to 30% for small-scale acquisitions [00:41:37].
Public Equity Strategy (PMS): To combat the friction of compounding massive cash flows, CSU is expanding its Public Market Strategy. They buy liquid, influential stakes in publicly traded software firms to enforce the CSU operational playbook via board representation [00:28:41]. Notable public investments include Saber and Topicus's acquisition of shares in the Polish firm Aco [00:29:13].
The Private vs. Public Arbitrage Disconnect: Management pointed out a sharp valuation disconnect. While public software multiples have collapsed, private market sellers and Private Equity (PE) firms backed by high debt loads are rigidly clinging to inflated historical valuations, temporarily stalling secondary PE-to-CSU transactions [00:30:06, 00:30:44].
Spin-Off Dynamics: Discussing past spin-offs like Topicus and Lumen (which combined stock to acquire WideOrbit out of thin air) [00:31:55, 00:32:43], the strategy serves as a strategic currency tool to purchase larger businesses via tax-deferred equity rolls instead of cash [00:33:07]. It is a tool in the toolkit rather than a mandatory break-up plan [00:33:37].
Portfolio Managers & Capital Allocators: Judged and bonused strictly on ROIC and growth, with a mandate requiring them to reinvest a portion of their bonuses directly into buying CSU shares in the open market [00:35:26, 00:35:57].
Software Business Unit Executives: Compensated strictly on organic revenue growth (which historically tracks between 3% and 7% tracking with CPI adjustments and module upsells) [00:36:04, 00:37:16]. Management explicitly rejected shifting VMS executives to acquired-growth incentives despite AI making software rewrites easier [00:36:11].
The Drive of Wealth Destruction: Responding to concerns that older CSU division managers have grown too wealthy and lost operational intensity [00:34:14], someone at the meeting quipped: "Nothing drives focus like the destruction of wealth," highlighting that recent stock pressure has re-energized personnel [00:34:51].
Absolute Refusal of Share Buybacks: Despite the stock trading at lower valuation multiples and the CFO issued a rare public comment calling the equity a "great buying opportunity" [00:34:38, 00:35:06], CSU explicitly reiterated they will not authorize corporate share buybacks [00:43:00]. They maintain that deploying free cash flow directly into software acquisitions yields a definitively higher return than buying back their own stock [00:43:09].
Red Flags to Watch For: Ernest outlines two key structural failure signals for the long-term thesis [00:39:30]:
A material drop in the pace of acquisitions, suggesting they are no longer trying or finding deals [00:39:39].
A material turn or exodus in the number of core division or business unit executives at the top who safeguard the corporate culture [00:39:46].
Baskin Wealth Management Action
Portfolio Execution: Citing asymmetric upside, the Baskin portfolio team heavily added to their core position in Constellation Software and maintained their large position in its European spin-off, Topicus, whose recent operational results were also noted as very strong [00:45:37, 00:46:18]. Both Barry and Ernest confirmed making additional personal open-market purchases [00:46:35].
Tax Optimization: To fund this expansion, they completely liquidated their position in Adobe, capitalizing on the trade to capture a strategic capital loss while shifting capital into their highest-conviction VMS play [00:45:44].
Legal Disclaimer Summary: The podcast ends with a standard legal mandate stating all information is for informational purposes only, shouldn't be viewed as specific investment advice or an offer to buy/sell securities, and highlights that clients or speakers may own shares in companies discussed [00:46:47].
Jul 11, 2026
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