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Topicus.com (TOI) Stock | TSXV: TOI.TO

Acquiring VMS for Vertical Growth

Following in the footsteps of Constellation Software Inc (“Constellation” or “CSI”), Topicus.com (“Topicus”) is a successful vertical market software (“VMS”) aggregator. Topicus acquires, manages, and builds European VMS companies to provide “mission critical solutions” to customers that seek specific software for granular processes and business needs. The company owns and manages about 85 of these independently run companies. 

Topicus empowers business unit managers to leverage their niche expertise of these VMS businesses to scale organically, locate new targets within the vertical market of a particular business, and generate vast amounts of cash flow in the process. The aid of CSI, and Topicus’s decentralized management and acquisition strategy allow Topicus to execute on its strategy repeatedly with Constellation-like consistency.


Adrian Iwanicki

Equity Analyst






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Where Are We Now

Updated on: 11/11/2021

Conviction Score


This up-and-coming serial acquirer is still undiscovered by much of the investing public. However, it seems to be following in the footsteps of its older brother, Constellation Software, by consolidating the highly fragmented vertical market software ecosystem. We think the company today is a “reset” of Constellation Software and is worth a fraction of its true potential today.

  • Topicus is growing well organically. Total revenues are up 46% but organic growth was still 5%, a good chunk for a serial consolidator.

  • Despite a relatively slow quarter of acquisitions, Topicus is shooting for the moon with €165 million worth of combined acquisitions in 2021. In contrast, by this time last year, only €46 million of acquisitions were conducted. Opportunity in the VMS space is still ripe.

Investment Thesis

  1. Topicus focuses on acquiring, managing, and building niche VMS businesses that have outstanding management, profitability and cash flow, and ample organic growth opportunities. These businesses generate strong returns on invested capital, avoiding the need for Topicus to issue debt to finance growth or investment into new acquisitions.

  2. Like CSI, Topicus’s decentralized management strategy is among the world’s best – these foster a culture that promotes strong customer relationships and deep market knowledge and is agile when it comes to responding to new market trends, customer needs, and other changes.

  3. Topicus will make sure that each acquired company will thrive in its ecosystem. It offers and shares financial security, strategic guidance, and best practices with these companies while they are operated independently by managers who know the businesses best.

  4. CSI has substantial “skin in the game” when it comes to the performance of Topicus. CSI banks on its experience in VMS and conducting bigger acquisitions to steer Topicus towards prosperity.

  5. The global VMS market is highly fragmented, opening up a plethora of acquisition targets that Topicus can acquire and build. As the Topicus ecosystem of VMS businesses grows, independent business unit managers can cross-sell software products, integrate offerings, and leverage other business units’ knowledge to add value to their current customer accounts.

The Basics

Topicus is an aggregator of European VMS businesses that provide “mission critical solutions” to customers operating in niche vertical markets. Providing VMS is inherently a niche business in and of itself, as these software offerings typically serve a narrow purpose to a limited number of customers.

An example of VMS would be point-of-sale software for a retailer. Horizontal market software (“HMS”), on the other hand, is software with broad use cases across many industries. An example of HMS would be Microsoft Office applications, which can be used in thousands of different ways by thousands of different types of users. VMS is specific, HMS is broad.

The business units of Topicus serve over 100,000 customers throughout 40 different vertical markets, including accounting, agriculture, associations, automotive, central government, education, facility management, finance, healthcare, hospitality, legal, local government, manufacturing, mobility, real estate, and retail.

According to the Topicus prospectus, 85 such business units operate under the Topicus umbrella. These businesses are scattered throughout 14 countries in Europe, including the Netherlands, Germany, France, Belgium, Italy, Spain, United Kingdom, Denmark, Sweden, Finland, Poland, Iceland, Romania, and Switzerland.

Topicus operates as two decentralized enterprises with separate CEOs. Total Specific Solutions (“TSS”) is led by co-CEOs Han Knooren and Ramon Zanders, and the Topicus Operating Group is led by CEO Daan Dijkhuizen.

The TSS enterprise can be further broken down into TSS Blue and TSS Public. TSS Public focuses on the public and healthcare sectors in the Netherlands and Central Europe, and TSS Blue targets private companies in the Netherlands, Germany, and Scandinavia.

The Topicus Operating Group operates solely in the Netherlands and focuses primarily on opportunities in finance, healthcare, government, and education.

The company has extensive knowledge and expertise in VMS and integrating such businesses with other high-quality VMS companies. The Topicus strategy mirrors CSI’s methodology – identify, acquire, manage, and build attractive VMS businesses. 

Historically, most managers of acquired businesses have been retained, allowing Topicus to benefit from a slew of experienced managers building Topicus business units organically and via acquisitions in the same vertical market.

These VMS businesses typically earn very high returns on invested capital and cash flows that are reinvested into expanding existing businesses and acquiring new ones – acquire, build, repeat.

CSU Acquisition Diagram

Topicus generates its revenues from four main sources:

  • Software License Fees

  • Maintenance and Other Recurring Revenues

  • Professional Services

  • Hardware and Other Revenues

Topicus Revenue Sources (Q3 2021)

Source: Topicus Investor Relations

Topicus has grown its consolidated revenues from about €100 million to about €180 million in the span of two years between Q3 2019 and Q2 2021. The company’s long-term financial history is not disclosed beyond Q3 2019 and these figures include inorganic growth (i.e., growth via business acquisitions), but we are encouraged by Topicus’s recent organic growth figures.

Topicus Total Revenue (Millions of Euros) (Q3 2021)

Despite relatively flat year-over-year (“YoY”) organic growth between Q3 2018 and Q2 2021, Topicus has recorded two straight quarters of organic revenue growth at high single-digit rates as total revenues for each quarter surged upwards into the €180 million mark.


Topicus’s history starts with CSI, a best-in-class capital allocator and serial acquirer. CSI’s TSS unit acquired Topicus.com BV to form a unit that would later be spun off and operate under the consolidated group name Topicus.com. Topicus.com (i.e., consolidated Topicus) became an independent publicly traded company on the TSX Venture exchange in February 2021.

The two major groups of Topicus.com – TSS and Topicus – both have histories that date back several decades.

Topicus.com BV – an independent platform developer for software solutions in finance, healthcare, social services, and education – was born in 1998 after two of its founders sold their stakes in a company called Utopics. After reorganizing some letters and refreshing the strategy, Topicus.com BV became the new, revitalized version of Utopics operating in the Netherlands.

Topicus.com BV made major strides across a few different industries. In 2003, Topicus introduced the first common workspace solution in the education field. In 2005, the company ventured into the healthcare market with software offerings catered to general practitioners. In 2010, Topicus delivered the first major first mortgages software solution to a large financial institution in the Netherlands.

TSS was acquired by CSI in 2013 for a total purchase price of about €240 million. TSS is the largest vertical market software business operating in the Netherlands, and it has operations around other European countries as well.

Combined, TSS and Topicus create a powerful vehicle for integrating high-quality companies using the “Constellation way”. CSI can be considered the “big brother” of Topicus as it also acquires, manages, and builds vertical market software businesses that serve other niche organizations in various vertical markets at a large scale. After all, Constellation is the integrator that brought TSS and Topicus together to form Topicus.com.

Competitive Advantages

Sticky Software Services

Customers of Topicus’s business units face high switching costs – they are contractually bound for years to these services and would waste lots of time and money by seeking other niche alternatives.

Software license revenues are charged for the use of Topicus software products, which are typically licensed under contractual provisions of multi-year or indefinite terms. Customers could face substantial break fees to get out of such contracts that would not justify switching to a competing software provider to save a few bucks.

Niche VMS offerings often do not have a viable alternative, especially when the software serves to modernize an obscure process in a “boring” industry, like government, education, or healthcare. In a fragmented market like vertical software, small nuances between software products may make a world of difference to a customer who is looking to fill an extremely specific need.

Even if there are alternatives available for a particular field, these vertical software products generally represent an insignificant portion of customers’ expenses. All in all, customers face major disincentives to switch vertical software providers.

Decentralized Operations and Capital Allocation

In a similar fashion to CSI, Topicus places decision-making responsibilities for its business units on levels of management that are closer to each business unit. 

The autonomous, decentralized structure allows higher levels of management to focus on the big picture – effective capital allocation – while lower levels of management focus on managing business units and customers, executing on their long-term goals, growing organically, and identifying acquisition targets within their verticals.

Network Effects

The buy-and-build strategy at Topicus creates network effects within its ecosystem of business units. With each new bolted-on business, Topicus gains opportunities to expand current customer accounts by creating new links between software products and cross-selling.

Customers who are satisfied with their current suite of products from Topicus-owned businesses and are looking to obtain additional services for their expanding operations can leverage this growing network of well-managed VMS offerings to add on more to their account. Rest assured, these customers would know what to expect as each business unit is managed with the utmost diligence and with a long-term focus that places the customer first.

Prudent Capital Allocation

In most respects, Topicus operates like a “mini-CSI”. On the capital allocation front, Topicus is essentially identical to CSI, the only difference being its European focus.

Topicus targets VMS businesses with growth potential that can be managed and built under the Topicus umbrella. Particularly, the business is always looking for ways to learn more about emerging and obscure VMS products by seeking targets with attractive historical and expected returns that can add to Topicus’s sustainable competitive advantages and ability to mobilize capital on new deals and other expansionary efforts.

Like CSI, Topicus’s focus is on small, niche players that are generally purchased at or below the $20 million mark. These small acquisitions allow for lean integration, quick payback periods, and higher likelihood of success in the Topicus ecosystem.

For many investors and serial acquirers today, price does not matter. For Topicus, valuation matters – it seeks an internal rate of return above a certain minimum hurdle rate to ensure that each target will create value for shareholders. Under this approach, Topicus investors get first-hand access to having their money “managed” by some of the best capital allocators on the planet.

Unlike competitors, Topicus does not use debt to fuel its acquisitions, nor does it engage in private-equity-like practices – buying a company only to flip it for a profit about 5 years later. Topicus invests in target companies on a perpetual basis with the aim to allow each business unit to flourish under its wing.

Constellation's Younger Brother

Topicus may have been spun off from Constellation, but it was certainly not left to fend for itself. Its “Big Brother”, CSI, has got its back.

On a fully-diluted basis, CSI owns just over 30% of Topicus shares and 50.1% of votes via CSI’s one super voting share. Additionally, CSI will maintain the right to nominate six of ten directors for the Topicus board of directors as long as CSI holds 15% of fully-diluted Topicus shares.

Topicus Organizational StructureSource: Topicus.com Prospectus

CSI has significant voting rights and skin in the game when it comes to Topicus and its performance. If history is any indicator of how any of CSI’s investments would be treated, Topicus will likely be held by CSI forever with the aim to create as much shareholder value as humanly possible. Topicus winning means CSI wins too, and CSI’s management is making sure of that by holding majority voting shares to guide it using the “Constellation way”.

This close brotherhood between CSI and Topicus also means Topicus will benefit from managerial advice, strategic direction, and financial help (especially for larger deals) from CSI. Not to mention, CSI’s track record and experience with bigger deals within the VMS space are knowledge “databases” into which Topicus has exclusive access.

Directors of CSI’s board of directors also have a heavy presence on Topicus’s board – Robin van Poelje, Stephen Scotchmer, Donna Parr, John Billowits, and most notably, Mark Leonard. 

This internal connection to CSI should steer Topicus in the right direction. In fact, we believe Topicus is in great hands. If Topicus were to fall to its knees, we would expect CSI to swoop in to get it back on its feet.

To close out our discussion on Topicus’s competitive advantages, we will leave you with an excerpt from Mark Leonard’s April 2018 President’s Letter to CSI shareholders:

“Our current policy is to invest all of our retained investor’s capital (and then some) when we think we can achieve our targeted hurdle rates. When we can’t find enough attractive investments, we plan to maintain our hurdle rates and build cash for as long as our shareholders and board will allow. We believe that long-term shareholders and boards should set those policies, which segues nicely into discussing shareholder democracy and the role of boards.”

Trash or Treasure?

The vertical software market is highly fragmented with thousands of market players with valuations at sub-$20 million levels. The kicker here is that big tech is not really interested in scooping up these companies, either. Vertical software companies are too small, focused on a narrow set of customers, and would consume vast amounts of resources to scale to any meaningful level.

While big tech can purchase a plethora of these vertical software companies, they will not do that for the aforementioned reasons. This is where Topicus comes in to use fragmentation to its own advantage.

With fewer eyes on these smaller companies, Topicus can acquire and integrate vertical software companies rapidly and at reasonable valuations, leading to a growing product portfolio that provides increasing value to customers through newfound cross-selling opportunities and consequently, high returns on invested capital. For reference, CSI has generated a ~30% ROIC throughout most of the last decade.

The European vertical software market hosts thousands of companies that can offer even greater return potential. The European market is more fragmented than the North American market due to the nuances in the regulatory, cultural, and business environments found in a higher number of smaller countries. 

Research from Raymond James in 2016 indicates that there are about 40,000 vertical market software vendors that penetrate more than 12 vertical markets. Today, this amount is probably greater, as CSI looked at a database of over 30,000 targets in 2016 that had about 4,000 potential targets added each year.

The European market is smaller than this database, but the opportunity remains the same – Topicus operates in an environment plagued by fragmentation and growth due to COVID-accelerated digitalization, which is exactly what it needs to grow and generate returns at CSI-like rates.

Topicus’s small size and its long-term focus through decentralized management and centralized capital allocation practices, as well as its vast acquisition runway sets the company up for performance that could mirror CSI’s performance from the early 2010s until today. Between 2013 and today, CSI shares have increased 10x.

The Domino Effect

Stemming from our point earlier about network effects, Topicus expands its vertical-adjacent opportunities with every bolt-on acquisition. Management seeks opportunities to learn about new industries and verticals through organic expansion and new acquisitions, which is catalyzed by every incremental acquisition. 

Topicus has a track record in this regard as well. In 2017, they expanded into wealth management markets through an acquisition in that same year. Today, they are applying their knowledge and experience in wealth management to penetrate the pension market, which has many similarities to wealth management.

Topicus can also engage in other value-added efforts, like the “land-and-expand” strategy. A business unit can provide its customers with core, fundamental services that later expand throughout other processes in the organization. For example, Topicus started in the back-office operations of some educational institutions and is now moving to student tracking and adaptive learning systems as well. 

With its portfolio of about 85 companies and counting, we believe there are an infinite number of opportunities ripe for vertical expansion. The digital world continues to grow in complexity as organizations seek niche software products to meet each specific digital modernization and automation effort. 

Topicus hosts an ecosystem of technology companies that can intertwine with each other and exercise optionality within their own niches to meet these needs. We are encouraged by management’s track record in this regard and the focused culture at CSI and Topicus that fosters this type of thinking at the business unit management levels.

International Expansion

Although Topicus operates solely in Europe today across 14 nations, that does not preclude the company from expanding to other markets in the future.

Topicus has spoken of “selected internationalization”, a concept that starts and moves with the customer. For instance, if Topicus acquires a software company that operates only for Dutch companies in the Netherlands, that software company will typically only expand to other regional markets if one or more of these Dutch companies expand to say, Germany or Denmark. Therefore, Topicus goes where its customers go.

We believe this also implies that Topicus’s international opportunities stretch further than continental Europe. As its business unit and product portfolio expands, the law of averages suggests Topicus will follow some of its customers to markets beyond Europe as they penetrate new geographic markets themselves.

Like CSI, the world is Topicus’s oyster. The company is mainly focused on growing organically within the markets it currently serves and acquiring vertical market software companies with world-class return and financial profiles, but the cherry on top is its openness to international expansion via its customer base.


Shrinking Target Base

As with any serial acquirer, the biggest risk posed is a shrinking target company base. Companies that generate or can generate superior returns are few and far between. Although there are almost 40,000 target vertical software companies in the world, only a small fraction of these would meet Topicus’s strict criteria. 

Poor Ability to Scale

Some niche industries can be so narrow that serve such a small base of customers that would make it difficult to scale beyond what acquired targets already capture. It may be difficult to scale businesses within these niche areas and limit the future growth potential and return profile of them, harming Topicus as a whole. Organic growth tends to be slow for many of these software services.

Misidentified Market Opportunities

Management at Topicus is constantly targeting new vertical markets and niche software businesses that, prior to integrating the business into Topicus, may be beyond their circle of competence. Topicus has had a lot of success integrating a myriad of different businesses across many industries, but there is still a risk that as the digital world gets complicated, growth opportunities are misidentified (i.e., overstated) or integration is more time consuming and resource-heavy than expected.

Bottom Line

Topicus is carrying on the legacy of Constellation, which is supreme capital allocation and the world-class ability to acquire, integrate, and manage VMS businesses. The VMS target pipeline is flush with tens of thousands of opportunities around the world – the market is fragmented, and Topicus could be the home to several hundreds of these businesses in the not-so-distant future.

Topicus generates high returns on invested capital, which frees up tons of cash flow that could be reinvested in virtually any way the company wants. Acquire, build, repeat – that is the name of the game.

Although Topicus’s business units tend to grow slowly on an organic basis, we believe the fragmented nature of VMS markets present ample opportunities to grow without the need for debt. Absent any organic growth, Topicus can continue to create tons of shareholder value if cash flows can be reinvested at reasonable valuations to acquire high-yielding, cash-generating VMS businesses.

Topicus is a name to consider if one is looking for a private equity-type stock that consistently executes on acquisitions while adhering to strict purchase criteria and maintaining a long-term mindset. Through thick and thin, a long-term mindset is top of mind at Topicus.

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