Very interesting article. And not an easy article to write or read either. Although the author here is an exceptionally good writer. I know about as much about software as I know about a dog's hind leg. And my skills with accounting are only marginally better than that. But I do know a good companies habits when I see them. And Topicus seems to check all the boxes. Perhaps I will have to read this article(s) about 2 or 3 more times until it really resonates. I have a feeling I am not the only one either. Nonetheless, in a stock market like this (bubble) it pays to know more and more about the internal workings of a business. Topicus was already on my buy list. Now I just have to decide how much, and at what price. Buying foreign stocks is much more expensive with currency conversions, commissions, etc. Much of that is reduced if you use IBKR, however. Thanks for this comprehensive, exhaustive, and very detailed article. I will be reading it again for sure.
Thank you for your kind words. There is a part 2, which delves into valuation. I would advocate reading both together if you are contemplating investing.
The Constellation Software Group recently had an investor day. Both Topicus and Lumine participated.
This was a rare opportunity to hear directly from those running the business. Historically, aside from Mark Leonard's annual shareholder letter, this was a group that kept a very low pubic profile. They focused on business rather than public relations (which is to be commended).
The event threw up some interesting tid bits of information that I wanted to share:
- When asked if any of the Constellation Group would contemplate buy backs, they said that they think about any acquisition on the basis of opportunity cost using the same hurdle rates. They have always been able to acquire other companies at a valuation multiple far beneath where Constellation Group companies trade and so they can generate much higher returns by buying companies than they can by buying their own shares. Mark Miller, President of Constellation Group (successor to Mark Leonard): "I don't want to buy back shares."
- The management team was then pressed on whether AI had resulted in any customer attrition, to which Mark Miller stated, "We really haven’t seen any AI specific attrition at any point."
- In response to competitive threats it was said that software supplied by the group is typically mission critical for the customer and it is the reliability and dependibility of the Constellation Group that customers most value. There are often alternatives available and, in an age of AI, it is also possible to develop software in-house but both introduce unwelcome risk. This is also true when customers want to enhance the software that they currently use in order to meet ever changing commercial needs. It is all about using a vendor that they trust. David Nyland (Lumine): "... they’re going to want us to do it. They’re not going to want some new name company that they don’t know. So they will always give us the first chance..." he went on to say, "...we’ve got some big customers worldwide... we learn a lot by speaking to them by finding out what the problems are... they start to share with us ideas about what else we could acquire to help them... you have to kind of earn the position to have that conversation. It takes some time, but the power of that relationship is unbelievable." Mark Miller added that building code is one part of the solution, but having the ownership and the trust is more important. Many can deliver the first part, few can deliver the second.
- The management team were asked about how AI is improving product development within the Constellation Group. David Wilkes (CEO of a Constellation platform), "I [had] one question, which was simply how fast can we go? If you think of a cycle time from concept through to production software, typically for us, that was measured in months... we already started measuring that in weeks. And as we went through last year, we turned that from weeks into days. And today, our cycle time is measured in hours. We can cycle from concept through to production in hours. And that means a road map that might have taken, say, a whole year... that can be literally a week now... it’s fundamentally transformational in terms of what it means for our business... last year our growth was running at about 12% per annum. To date, it’s running at 23% per annum. Our vision is that we’ll double our revenues by 2029...[and] if there’s a big enough change in velocity you don’t just do the same thing faster, you do different things, you do more things and you create new value... we’ve literally rebuilt our product from scratch. We’ve, in effect, reimagined what a new category of product might be. If you think about our old product, it was a system of record. You created, read, updated, deleted data. Our new product is a system of action... it predicts, it gives you insights. It does really clever stuff for you. So that creates a huge value for our customers and with value comes new price points doesn’t it? And with that, we are driving growth, and we’re seeing the results of that already." Bill Delaney, (CEO of a Constellation Platform) added, " We’re focused on how to leverage this capacity because what you want to understand is we just have an enormous backlog of our customers wanting us to do things for them. Some of those things that just didn’t make business sense now do make business sense." Barry Symons (CEO of another Constellation Platform) hammered the point home stating that he did not need to grow his customer base to benefit from AI, "... there’s so much more we can do for our [existing] customers and AI just makes it so much easier." This hints at a huge shift in the amount of organic growth that the group is likely to see in future. This is front and centre of management thinking as was confirmed by Mark Miller: "I’d love to see more organic growth." When questioned about how this new wave of internal development would impact margins, Jamal Baksh (CFO) stated, "....we’re probably outpacing revenue with cost today because we’re investing a lot. But it’s not a material impact on margins."
- On the subject of culture, the senior management team are clearly all missionaries, not mercenaries (Steve Jobs parlance). It isn't about personal enrichment, instead it's about winning at a corporate level. As is the case at Berkshire Hathaway, senior management's fortunes move in lock step with those of its shareholders. They are all personally invested and do not seek huge pay checks or free equity grants. Mark Miller elected not to receive a salary or bonus as President of the group. This follows the example of his predecessor and company founder Mark Leonard who stopped taking a salary in 2014. Mark Miller: "I just carried on what Mark Leonard did. And I really care a lot about this company, and I took this job to help this company and the shareholders in it." These are the kinds of management teams to invest in. They are rare. Most CEOs pay lip service to alignment with shareholders, very few deliver. The Constellation Group ranks in the minority alongside the likes of Berkshire Hathaway.
- When asked about whether deployment of capital was becoming more difficult, Bernie Anzarouth (CIO) stated, "Our database of these software companies is still quite large, and it's still building... and if you think of what the software world is all about, especially now with AI tools that are out there that you can get more software businesses that are created on a regular basis, the number of acquisition targets that are here today will be multiplied several fold over the next 10 years or so." However, the company has recently embarked on making investments in public listed companies - Topicus taking a ~25% stake in Asseco is a prime example. It refers to its role in these as PEMS (Permanent Engaged Minority Shareholder). It is a strategic capital allocation initiative introduced to buy long-term minority stakes in larger software or technology companies that are too large or costly to acquire outright. Bernie Anzarouth (CIO), explained, "We're trying to invest capital, and it's a very tough slog. It's tough despite the number of VMS businesses that are out there... that's why we came up with the idea of PEMS." Mark Miller added, "[We] buy and hold forever, we’re in it for the long run, and [PEMS] is another tool. The other part of the [PEMS] thesis is that the companies we want to invest in have the potential to benefit from an engaged minority shareholder. We want our [PEMS] or public portfolio companies to be run by people we respect. We want their incentives aligned with those of long-term shareholders. We like the businesses to generate high returns on incremental invested capital, and to return any excess capital to their shareholders." Additionally it was said that it will only make a PEMS investment if it believes that despite being a minority holder, it is able to exert influence over the company to bring about a positive commercial benefit. The group was asked how it values these investments relative to acquiring private companies outright. Bernie Anzarouth (CIO): "If you think of the way that we've done acquisitions to date, we buy businesses lock, stock and barrel, and it takes 1, 2, sometimes 3 years to get them up to speed with the best practices that we use to run our businesses. And so if you think of a minority shareholder and how much influence you can have on a business that you do not own 100%, it will obviously take a little while longer in order to influence management to do the right thing. And so what we believe is that we have to get them at a lower price than the businesses that we are actually acquiring at 100%. And so you will see if we measure ourselves at the same IRR that we measure 100% ownership, we would have to get these businesses at a lower price." Given that public companies typically trade at a premium to their private SME peers, it is probably fair to conclude that these PEMS will be rare.
- The issue of the decline in stock market valuation of Constellation Group companies was raised, John Billowits stated that the decline was not specific to Constellation but driven by the 'AI will eat software' narrative. He made the point that since the Constellation Group is concerned with acquiring vertical market software companies, "We want valuations depressed as long as possible."
Asseco adopted a shareholder resolution for the distribution of a special dividend, to be paid out on May 22nd. The total to be paid will be the PLN 1,050m. As a large shareholder in Asseco, Topicus is set to receive PLN 243m.
Topicus reported 23% revenue growth in Q1 2026, yet net income and EPS declined, which explains the market’s negative reaction. But the weakness was largely accounting and timing related rather than operational.
There are three moving parts behind the disconnect.
First, acquisition front-loading. Topicus continues to acquire aggressively, and the costs associated with those deals are recognized immediately while the operational benefits take longer to emerge. That naturally creates pressure on near-term earnings even when the acquired assets are performing well.
Second, deal mix matters. Some acquisitions are inherently more dilutive upfront, particularly larger transactions or deals financed more heavily with cash.
Third, below-the-line items had a meaningful impact on reported net income. Financing costs, non-controlling interests, and exceptional items weighed on EPS even though the underlying operating performance remained solid.
One detail worth noting is that R&D staff costs grew faster than other personnel expenses. That aligns with continued investment in product development, particularly AI integration. Importantly though, total staff expenses declined as a percentage of revenue, suggesting the company is still scaling efficiently overall and this is anything but a drag on performance.
In short, the broader picture still looks healthy. Revenue growth continued to outpace expense growth, operating margins improved, and management reaffirmed strong cash generation. If revenue is compounding at 23% while operating margins expand, temporary pressure from acquisition accounting, financing effects, and one-off items is not especially concerning.
(1) 18th March 2026 is an Asseco EGM, where the special dividend from the sale of treasury shares may be approved. This would result in a cash windfall for Topicus (see note below).
(2) Asseco FY results then follow on 31st March. As a ~25% owner of that business, this also has the potential to move Topicus stock.
NOTE: When the Adam Góral Family Foundation and TSS Europe B.V. (Topicus) entered into a formal Shareholders' Agreement in February 2025 to facilitate TSS's investment, they specifically agreed on how the cash raised from the treasury shares would be handled. According to Regulatory Filing No. 03/2025, the Shareholders' Agreement includes a provision for joint action regarding: "voting on the payment, in the form of dividends directed to all shareholders of the Company, of the net proceeds from the sale of treasury shares in two tranches starting from 2026, in each case subject to applicable laws". Because the agreement stipulates that the cash will be distributed as standard dividends "directed to all shareholders", Topicus will receive a payout proportional to its current ownership stake. Following the finalization of the treasury share sale on October 1, 2025 (combined with a previous block of shares they bought from Cyfrowy Polsat), TSS Europe B.V. now holds 24.84% of Asseco Poland's total share capital. So, if approved, Topicus will effectively receive approximately 24.84% of those proceeds back in the form of these two planned dividend tranches starting in 2026. Essentially it receives 24.84% of the price it paid for its stake in Asseco back! Topicus paid ~80 zloty per share in Asseco, currently trading at ~ 176 zloty, so a pretty nice trade, but after the special dividend, the effective purchase price will be closer to 60 zloty per share making the return on investment that much better.
As we approach the Q4 and full year earnings release on Friday (February 13, 2026) Topicus is expected to report a quarter defined by robust operational scaling contrasted against a significant, one-time accounting distortion.
The headline consensus points to a record revenue of approximately €442.6 million for Q4, pushing the full-year 2025 revenue toward the €1.56 billion mark, representing roughly 20% annual growth.
Savvy investors will be looking past the topline to see if the company can maintain its healthy organic growth rate amidst its aggressive acquisition spree.
The "noise" in this report will stem from the massive non-cash revaluation charge of €221.7 million taken in the third quarter regarding the Asseco Poland investment. It was caused by a switch to equity method accounting and is a technicality that ought to be ignored.
Because of this, the GAAP net income for the full year will likely appear negative or near zero, which may trigger misleading headlines about "annual losses." However, the underlying business remains highly profitable; once these paper adjustments are stripped away, the "true" operational earnings are expected to show the company is actually performing at peak efficiency.
The most critical metric will be Free Cash Flow Available to Shareholders (FCFA2S). Analysts are targeting a Q4 contribution between €45 million and €50 million, which would bring the annual cash generation to a record high of nearly €195 million.
This cash flow is the lifeblood of the Topicus strategy, as it provides the "dry powder" necessary to continue acquiring European software firms without relying on expensive external debt or diluting current shareholders.
Looking ahead to 2026, the market is eager for details on the first full-year contribution from the Asseco Poland stake. Beyond the reported revenue, the focus will be on the anticipated €17 million cash dividend expected to flow into Topicus’s coffers this year. This high-margin dividend income, combined with the forecasted 16–20% annual growth in total revenue, suggests that the company is transitioning into a much larger, more diversified European software powerhouse.
Finally, while the company rarely provides explicit "guidance" numbers, any commentary on the "Keep Your Capital" policy will be vital for the 2026 outlook. If management indicates that sub-units are successfully finding more local deals to reinvest their own cash, it signals a compounding growth engine that is becoming less dependent on the central Constellation Software head office.
As the report drops this Friday, Topicus should show that despite messy accounting, the cash-generating machine is running faster than ever.
A fear has gripped the market based on the premise that AI will enable anyone and everyone to build their own applications cheaply and easily. People worry that enterprise software will be disrupted and displaced. This has impacted the valuation of vertical market software (VMS) businesses, as evidenced by the draw-down in their share price.
I totally understand the "democratization" argument, but it overlooks the fact that writing code is only about 10% of the software lifecycle
In an enterprise environment, the value of a platform isn't only the UI, it’s the infrastructure and accountability that come with it. Dedicated software suppliers don't merely create an app, they create a long-term liability. Without professional version control, security patching, and managed data storage, these DIY apps lacks the encryption, compliance, and disaster recovery protocols required to protect company data. Enterprise software provides a guaranteed service level that AI-generated code simply can't. When a mission-critical system fails, you need an SLA and a support team to ensure business continuity. You can't AI prompt your way out of a broken database or a security breach at 2:00 AM.
In any event, while AI may make it easy for others to write software, it also makes it easy for incumbents to upgrade entrenched software more easily. Given the very high switching costs, AI strengthens the moat of VMS players, it doesn't undermine it.
The TOPICUS sell off — A Technical Event and an Opportunity
Over the past two sessions, Topicus shares have fallen from ~$125 to $109, yet there is no fundamental catalyst for this move: no news, no results, no acquisitions.
Today is Friday, January 16, 2026, the third Friday of the month, which marks the standard monthly option expiration for most equity options. High volumes of trading in a stock just prior to option expiry suggests that large institutions were either forced to liquidate or were aggressively repositioning ahead of today's expiry.
For those unfamiliar with option trading, because Topicus fell so rapidly from $127 to $109 in just two sessions, a massive amount of "Put" options that were "Out-of-the-Money" (at $115, $120, and $125) are now deeply "In-the-Money."
Market makers are forced to delta-hedge their options books, meaning that they sell more of the underlying stock as these puts gain value and option sellers anticipate being required to buy the stock at the strike price at expiry. This likely accelerated the sell-off we saw over the last 48 hours.
Short-term volatility is to be expected. If the stock fails to hold $108.77 (yesterday’s low), those market makers may have to sell even more to remain hedged, potentially creating a "flush" toward $105. However, if the stock bounces in early trade, the "buy-back" of these hedges at the could lead to an amplification of that bounce (a "gamma squeeze").
In other words, the sell off appears to be a technical event rather than a fundamental event. Topicus has not changed in quality or substance. These technical events often present very attractive trading opportunities for long-term value investors.
Either way, if my assumptions are correct (and they may not be so caveat emptor), next week should see a normalization in the Topicus share price.
The approximately 83 million shares outstanding already excludes NCI, so your 4.725 EV seems to be incorrect (subtracting NCI twice). Did you make a mistake here or did I?
I was drawn to Topicus because it seems to be running the Constellation Software model in Europe. We know how successful that has been. The Asseco Poland deal is also a huge catalyst for future gains which I found exciting. Hence the deep research on Topicus.
Lumine is more narrowly focused, primarily on communication, broadcasting and media based software, including ad-tech. This is an area which is hugely competitive and likely to be significantly disrupted by AI. There are just too many unknowns and too much uncertainty here for me. So I haven't done much research into Lumine and have no immediate plans to do so (I am willing to be convinced to change my mind, so would love to hear your thoughts).
I always prefer cleaner investments and vertical software at Topicus just makes me feel more comfortable.
Great write-up! I’m a big fan of Topicus, especially at recent prices. I think the less straightforward earnings and capital structures of serial acquirers often lead to misunderstandings of their true value. I’m also interested to see whether they can drive higher organic growth, as the original Topicus business was quite strong in that area.
I would slightly push back on a few points relating to PE firms. From my experience with SaaS PE, firms often cultivate multi-year relationships with company owners and tend to be more long-term oriented than many give them credit for. While fund cycles can sometimes prevent a firm from purchasing a company when it becomes available, those cycles are often tighter than people assume and don’t necessarily discourage long-term thinking. The BDs are also constantly working to build and maintain their pipelines, with a similar “maintain-or-lose” relationship policy as CSU. Also, $10–20M acquisitions are not out of range for SaaS middle-market PE firms if the business can be integrated into an existing platform. Perhaps my experience is with PE firms that are outliers rather than the norm, but that’s just my perspective on the topic.
That said, the permanent holdco model of Topicus offers a myriad of advantages and differing incentives versus PE. Topicus doesn’t need high-growth companies, it seeks cash flow to reinvest in new acquisitions. This contrasts sharply with SaaS PE firms, which typically pursue high growth and aim to build large platform companies from each acquisition. This also means PE firms won’t engage in attractive add-on acquisitions if they want to sell that platform soon, so fund cycles do come into play there. Valuation approaches also diverge meaningfully, underwriting the intrinsic value of a company into perpetuity can produce a very different result than PE valuations, which are often driven (to a surprising extent) by entry and exit multiples.
Thanks for your comment. The Constellation group tends not to chase organic growth. Companies without growth attract less competition when they are for sale, meaning Topicus can acquire them more cheaply. If it pays 4x EV/EBITDA, it's essentially generating 25% return on investment before tax. That can simply be swept up and redeployed into future acquisitions generating similar returns. Who needs organic growth in these circumstances? If course, if it comes then it's cream on the cake, but it isn't necessary. Bear in mind that Topicus is not a serial acquirer - it isn't rolling up and integrating acquisitions to achieve synergies (which is good because this is where most M&A fails). Instead, it buys companies and allows them to operate autonomously exactly as it did previously. The Constellation group actually encourages it's subsidiaries in the same industry to complete with each other on the basis that it drives them harder (the opposite of synergistic integration) - so it is a programmatic acquirer (district forum a serial acquirer). Most people don't understand the distinction and confuse the terminology, but it is of critical importance in understanding the quality of the model.
The annualised FCF2AS assumption is bit wrong. Usually if you see Topicus books 65% of OCF in H1 and about 35% gets booked in H2. So FCF2AS cannot be just annualised by 2x amount. I think the base business FCF (total) would be circa $350M and then Asseco would add another $100M). So somewhere between $400-$450M FCF Topicus would do at end of the year. This implies it is near 20x fwd. P/FCF. Nevertheless, this FCF can compound at 15-18% and some rerating in perception can lead to 20-25% compounding in share price over next 2-3 years.
FCFA2S isn't a perfect measure anyway. The part that is not technically available to shareholders, but which is retained and reinvested for the long term benefit of the company, will ultimately benefit shareholders, particularly where Topicus subsequently increases it's stake in the subsidiary. FCF captures a snap shot in time and doesn't factor in where the benefit of that cash flow ultimately accrues. So FCFA2S actually understates the benefit received by shareholders.
Non-controlling interests, both at Topicus and in respect of Asseco make these calculations challenging. I tried to address some of these issues in my earlier comments in this thread made in response to another readers comments. Hopefully you have seen those.
You suggest that Topicus is trading at 20x free cash flows on a look through basis. For a business like this - that is not a stretched valuation.
Very few businesses are able to compound at strong double digits for the long term. The Constellation group is different. They have structural advantages over other programmatic acquirers:
- In relation to working capital, they don't carry inventory and enjoy the benefits of upfront subscription fees, so generate negative working capital that funds growth at zero cost.
- Cash conversion exceeds 100% as cash flows before earnings accrue. That cash flow is then used to reinvest in growth and, augmented with prudent levels of debt, reinvestment also exceeds 100%, which means that the company is growing at a faster rate than its return on invested capital.
- The marginal cost of supplying software to a new customer is almost zero (excluding the customer acquisition cost), so operating leverage is very high.
- They have a very small tangible asset base and so scaling the business requires little additional capital - that organic growth will be accelerated through the Asseco JV, offering a plethora of cross selling opportunities in new geographic locations.
- They are able to acquire businesses more cheaply than most other acquirers because of their unique Salesforce driven process and avoidance of M&A brokers and auctions.
- They don't squander capital on stock based compensation, but instead reinvest capital in growth.
Long story short, as I wrote in my piece on valuing these businesses (link above), the multiples can often be misleading. I used Berkshire Hathaway as an example and referenced its acquisition of See's Candy to make the point.
If you are a long-term investor willing to buy and hold for the next decade, I think you will be hard pushed to find a better home for your money than a company such as Topicus.
Constellation, its parent, compounded at 37% annually for 19 years and Topicus is the European clone of Constellation, but only 4 years old. It has a huge growth runway ahead and the Asseco deal only strengthens its structural advantages.
IMPORTANT NOTE TO READERS - THE PROBLEMS VALUING ASSECO
Several readers have either direct messaged me, emailed me or posted in comments, all correctly pointing out something I glossed over in this analysis. While I made adjustments for non-controlling interests in the financials of Topicus, I failed to account for non-controlling interests relating to Asseco itself.
They're right, but it wasn't so much an oversight on my part. It was an effort to simplify a genuinely complex accounting situation. But let me explain what's actually going on, because it matters and I owe you all an explanation.
First, you need to understand how Asseco structures its acquisition deals.
Take a recent example: on January 14, 2025, Asseco Poland bought 50.83% of Infocomp. But they didn't buy all of it. For the remainder, they put in place a put/call structure: the minority holders have the right to sell to Asseco (the put), while Asseco has the right to acquire those same shares (the call). The important part to keep in mind is that the strike price is fixed.
Here's where it gets complicated.
Under IFRS consolidation rules, when put/call options guarantee the transfer of remaining shares at a fixed price or formula, the parent effectively controls 100% of the subsidiary's economic benefits. This means Asseco consolidates the entire business on day one, even though they don't own all of it yet. There's no separate recognition of non-controlling interest on the balance sheet. All of the subsidiary's profits and net assets are attributed to Asseco, with zero carve-out for minority shareholders.
This is a distortion of economic reality, but adjusting for it is far from easy. To make matters more complicated, this is no isolated situation. Most of Asseco's acquisitions work this way.
You might think: okay, fine, we just reverse-engineer the consolidation. We isolate the subsidiary's results, apply the non-owned percentage, and calculate what belongs to the minority.
Not so fast.
Here's the issue: the acquired company in which Asseco has a majority stake generates earnings, and the minority shareholders are beneficially entitled to their share of those earnings. But what if they only receive part of it as a dividend and the rest gets reinvested in the subsidiary for a long-term benefit that will accrue only after the minority shareholders have exited the business?
By virtue of the retained earnings, the acquired company grows. Future cash flows will increase. The value of the business rises.
But the put/call option structure has already locked in a fixed acquisition price. So who benefits from that reinvestment and growth?
Not the exiting minority shareholder. That's for sure.
Asseco's payout ratio hovers around 50%. That means 50% of earnings get retained and reinvested in the subsidiary. On paper, those retained earnings belong to the non-controlling party, but because of the put/call structure, they don't. They benefit Asseco.
Think about that. Asseco is harvesting crops from seeds sown at the expense of a third party.
How does an analyst account for that? Good question. The short answer is: they don't. Because the accounting system makes it nearly impossible.
As of June 30, 2025, Asseco accounts for liabilities on the future acquisition of non-controlling interests via the option structure at 751.4 million PLN (roughly $205 million USD). This is their fixed cost of acquisition. They state that the fair values of these financial liabilities aren't significantly different from their book values.
But here's the problem: how accurate are those book values?
The fair values are based on the fixed acquisition price, but the true value of those businesses is arguably significantly higher than book value because of exactly what we just discussed.
The book values are understated because they are not calculated based on present values of future cash flows after the third-party reinvestment.
To complicate matters further, Topicus's recent 25% stake in Asseco adds yet another layer of minority interest to the group. But this one is different.
Topicus isn't an exiting minority shareholder getting squeezed out through a put/call structure. It's a strategic minority partner in an Asseco-Topicus joint venture. It's all about synergies, cross-selling opportunities, and geographic expansion.
Accounting for that interaction? That's not easy either.
We're working with an imperfect man-made accounting framework. That's the real issue here.
So while you could make a downward adjustment for minority interests based on simple percentages - that would not capture the economic reality of this situation. Asseco doesn't have 100% ownership of many of its subsidiaries today, but it will have tomorrow and that's so important. So, if you're minded to make adjustments, you'd also need to make balancing upward adjustments for all the accrued benefits that will flow to Asseco which don't appear in the numbers. Those benefits are real. They're economic. They're just invisible in the financials.
The true value of the business may be significantly higher or lower than it appears to be. You can't really tell from the numbers alone. This creates genuine blind spots for investors trying to understand what's actually happening.
This is the issue with quantitative analysis. It's all about looking for precision where none exists. However, on a qualitative basis, we know that the Asseco playbook works. We know that it compounds value and is a master of Acquisition-as-a-Business. We also know that Topicus bought in to that business at a very favourable price - they acquired ~25% of Asseco at a share price that is one-third of where it trades in the market today. We also know that there are many synergistic benefits that will flow from their alliance. Perhaps that is all we really need to know.
This is why I chose to make no adjustments for Asseco non-controlling interests in my analysis. I could have taken a pencil to the numbers and made educated guesses about what belongs to minorities and what doesn't. But that would have been false precision dressed up as analysis. I would have been pretending to know things I don't actually know. Better to acknowledge the imperfection than to paper over it with calculations that create the illusion of certainty. That's what I considered to be the most honest approach.
Share of revenue and EBITDA on an ex-post basis is not the same as share of value on an ex-ante basis. One is a short-term approximation looking in the rear view mirror, the other is a long-term valuation looking at the road ahead. It's dangerous to confuse the two. When valuing Topicus with reference to its recent investment in Asseco, it is the future compound returns that we are most interested in.
I acknowledge that every investor and analyst will have their own opinion and methodology, each yielding a different outcome. I guess that's what makes a market dynamic - different views and valuations.
My aim in writing this analysis was, as always, to lay the foundations for others to build upon. I don't have all of the answers - nobody does. The important thing is being able to ask the right questions.
The question you ask Noah is important and I am grateful for that. I have responded to your questoin and readers are now better informed than before to make an investment decision in relation to Topicus, whatever approach to Asseco's non-controlling interests they decide to take.
Too few of my readers engage in posting comments, which is a shame because my primary objective is to create an investment community where debate and discussion benefits us all. This was a high value discussion. Please keep commenting and hopefully others will follow suit!
Noah, thank you for your comment. You are not the only subscriber to have made a similar comment. I have pinned my response to the top of this thread for the benefit of everyone. I hope this helps. However, I'm not sure where 18% came from - Asseco takes majority stakes in businesses and owns many of its subsidiaries in their entirety. That implies it has a holding greater than 50% in its portfolio companies. (18% would make it a minority holder)
Very interesting article. And not an easy article to write or read either. Although the author here is an exceptionally good writer. I know about as much about software as I know about a dog's hind leg. And my skills with accounting are only marginally better than that. But I do know a good companies habits when I see them. And Topicus seems to check all the boxes. Perhaps I will have to read this article(s) about 2 or 3 more times until it really resonates. I have a feeling I am not the only one either. Nonetheless, in a stock market like this (bubble) it pays to know more and more about the internal workings of a business. Topicus was already on my buy list. Now I just have to decide how much, and at what price. Buying foreign stocks is much more expensive with currency conversions, commissions, etc. Much of that is reduced if you use IBKR, however. Thanks for this comprehensive, exhaustive, and very detailed article. I will be reading it again for sure.
Thank you for your kind words. There is a part 2, which delves into valuation. I would advocate reading both together if you are contemplating investing.
Yes, I read that one also. Very good work.
The Constellation Software Group recently had an investor day. Both Topicus and Lumine participated.
This was a rare opportunity to hear directly from those running the business. Historically, aside from Mark Leonard's annual shareholder letter, this was a group that kept a very low pubic profile. They focused on business rather than public relations (which is to be commended).
The event threw up some interesting tid bits of information that I wanted to share:
- When asked if any of the Constellation Group would contemplate buy backs, they said that they think about any acquisition on the basis of opportunity cost using the same hurdle rates. They have always been able to acquire other companies at a valuation multiple far beneath where Constellation Group companies trade and so they can generate much higher returns by buying companies than they can by buying their own shares. Mark Miller, President of Constellation Group (successor to Mark Leonard): "I don't want to buy back shares."
- The management team was then pressed on whether AI had resulted in any customer attrition, to which Mark Miller stated, "We really haven’t seen any AI specific attrition at any point."
- In response to competitive threats it was said that software supplied by the group is typically mission critical for the customer and it is the reliability and dependibility of the Constellation Group that customers most value. There are often alternatives available and, in an age of AI, it is also possible to develop software in-house but both introduce unwelcome risk. This is also true when customers want to enhance the software that they currently use in order to meet ever changing commercial needs. It is all about using a vendor that they trust. David Nyland (Lumine): "... they’re going to want us to do it. They’re not going to want some new name company that they don’t know. So they will always give us the first chance..." he went on to say, "...we’ve got some big customers worldwide... we learn a lot by speaking to them by finding out what the problems are... they start to share with us ideas about what else we could acquire to help them... you have to kind of earn the position to have that conversation. It takes some time, but the power of that relationship is unbelievable." Mark Miller added that building code is one part of the solution, but having the ownership and the trust is more important. Many can deliver the first part, few can deliver the second.
- The management team were asked about how AI is improving product development within the Constellation Group. David Wilkes (CEO of a Constellation platform), "I [had] one question, which was simply how fast can we go? If you think of a cycle time from concept through to production software, typically for us, that was measured in months... we already started measuring that in weeks. And as we went through last year, we turned that from weeks into days. And today, our cycle time is measured in hours. We can cycle from concept through to production in hours. And that means a road map that might have taken, say, a whole year... that can be literally a week now... it’s fundamentally transformational in terms of what it means for our business... last year our growth was running at about 12% per annum. To date, it’s running at 23% per annum. Our vision is that we’ll double our revenues by 2029...[and] if there’s a big enough change in velocity you don’t just do the same thing faster, you do different things, you do more things and you create new value... we’ve literally rebuilt our product from scratch. We’ve, in effect, reimagined what a new category of product might be. If you think about our old product, it was a system of record. You created, read, updated, deleted data. Our new product is a system of action... it predicts, it gives you insights. It does really clever stuff for you. So that creates a huge value for our customers and with value comes new price points doesn’t it? And with that, we are driving growth, and we’re seeing the results of that already." Bill Delaney, (CEO of a Constellation Platform) added, " We’re focused on how to leverage this capacity because what you want to understand is we just have an enormous backlog of our customers wanting us to do things for them. Some of those things that just didn’t make business sense now do make business sense." Barry Symons (CEO of another Constellation Platform) hammered the point home stating that he did not need to grow his customer base to benefit from AI, "... there’s so much more we can do for our [existing] customers and AI just makes it so much easier." This hints at a huge shift in the amount of organic growth that the group is likely to see in future. This is front and centre of management thinking as was confirmed by Mark Miller: "I’d love to see more organic growth." When questioned about how this new wave of internal development would impact margins, Jamal Baksh (CFO) stated, "....we’re probably outpacing revenue with cost today because we’re investing a lot. But it’s not a material impact on margins."
- On the subject of culture, the senior management team are clearly all missionaries, not mercenaries (Steve Jobs parlance). It isn't about personal enrichment, instead it's about winning at a corporate level. As is the case at Berkshire Hathaway, senior management's fortunes move in lock step with those of its shareholders. They are all personally invested and do not seek huge pay checks or free equity grants. Mark Miller elected not to receive a salary or bonus as President of the group. This follows the example of his predecessor and company founder Mark Leonard who stopped taking a salary in 2014. Mark Miller: "I just carried on what Mark Leonard did. And I really care a lot about this company, and I took this job to help this company and the shareholders in it." These are the kinds of management teams to invest in. They are rare. Most CEOs pay lip service to alignment with shareholders, very few deliver. The Constellation Group ranks in the minority alongside the likes of Berkshire Hathaway.
- When asked about whether deployment of capital was becoming more difficult, Bernie Anzarouth (CIO) stated, "Our database of these software companies is still quite large, and it's still building... and if you think of what the software world is all about, especially now with AI tools that are out there that you can get more software businesses that are created on a regular basis, the number of acquisition targets that are here today will be multiplied several fold over the next 10 years or so." However, the company has recently embarked on making investments in public listed companies - Topicus taking a ~25% stake in Asseco is a prime example. It refers to its role in these as PEMS (Permanent Engaged Minority Shareholder). It is a strategic capital allocation initiative introduced to buy long-term minority stakes in larger software or technology companies that are too large or costly to acquire outright. Bernie Anzarouth (CIO), explained, "We're trying to invest capital, and it's a very tough slog. It's tough despite the number of VMS businesses that are out there... that's why we came up with the idea of PEMS." Mark Miller added, "[We] buy and hold forever, we’re in it for the long run, and [PEMS] is another tool. The other part of the [PEMS] thesis is that the companies we want to invest in have the potential to benefit from an engaged minority shareholder. We want our [PEMS] or public portfolio companies to be run by people we respect. We want their incentives aligned with those of long-term shareholders. We like the businesses to generate high returns on incremental invested capital, and to return any excess capital to their shareholders." Additionally it was said that it will only make a PEMS investment if it believes that despite being a minority holder, it is able to exert influence over the company to bring about a positive commercial benefit. The group was asked how it values these investments relative to acquiring private companies outright. Bernie Anzarouth (CIO): "If you think of the way that we've done acquisitions to date, we buy businesses lock, stock and barrel, and it takes 1, 2, sometimes 3 years to get them up to speed with the best practices that we use to run our businesses. And so if you think of a minority shareholder and how much influence you can have on a business that you do not own 100%, it will obviously take a little while longer in order to influence management to do the right thing. And so what we believe is that we have to get them at a lower price than the businesses that we are actually acquiring at 100%. And so you will see if we measure ourselves at the same IRR that we measure 100% ownership, we would have to get these businesses at a lower price." Given that public companies typically trade at a premium to their private SME peers, it is probably fair to conclude that these PEMS will be rare.
- The issue of the decline in stock market valuation of Constellation Group companies was raised, John Billowits stated that the decline was not specific to Constellation but driven by the 'AI will eat software' narrative. He made the point that since the Constellation Group is concerned with acquiring vertical market software companies, "We want valuations depressed as long as possible."
To watch the full meeting (over 4 hours), please follow this link: https://www.csisoftware.com/corporate-material/constellation-software-inc-2026-annual-general-meeting/
Asseco adopted a shareholder resolution for the distribution of a special dividend, to be paid out on May 22nd. The total to be paid will be the PLN 1,050m. As a large shareholder in Asseco, Topicus is set to receive PLN 243m.
https://substack.com/@rockandturner/note/c-255568970?r=1owuoe&utm_source=notes-share-action&utm_medium=web
Topicus (TOI) Q1 2026 earnings
Topicus reported 23% revenue growth in Q1 2026, yet net income and EPS declined, which explains the market’s negative reaction. But the weakness was largely accounting and timing related rather than operational.
There are three moving parts behind the disconnect.
First, acquisition front-loading. Topicus continues to acquire aggressively, and the costs associated with those deals are recognized immediately while the operational benefits take longer to emerge. That naturally creates pressure on near-term earnings even when the acquired assets are performing well.
Second, deal mix matters. Some acquisitions are inherently more dilutive upfront, particularly larger transactions or deals financed more heavily with cash.
Third, below-the-line items had a meaningful impact on reported net income. Financing costs, non-controlling interests, and exceptional items weighed on EPS even though the underlying operating performance remained solid.
One detail worth noting is that R&D staff costs grew faster than other personnel expenses. That aligns with continued investment in product development, particularly AI integration. Importantly though, total staff expenses declined as a percentage of revenue, suggesting the company is still scaling efficiently overall and this is anything but a drag on performance.
In short, the broader picture still looks healthy. Revenue growth continued to outpace expense growth, operating margins improved, and management reaffirmed strong cash generation. If revenue is compounding at 23% while operating margins expand, temporary pressure from acquisition accounting, financing effects, and one-off items is not especially concerning.
TOPICUS (TOI). forthcoming dates to watch:
(1) 18th March 2026 is an Asseco EGM, where the special dividend from the sale of treasury shares may be approved. This would result in a cash windfall for Topicus (see note below).
(2) Asseco FY results then follow on 31st March. As a ~25% owner of that business, this also has the potential to move Topicus stock.
NOTE: When the Adam Góral Family Foundation and TSS Europe B.V. (Topicus) entered into a formal Shareholders' Agreement in February 2025 to facilitate TSS's investment, they specifically agreed on how the cash raised from the treasury shares would be handled. According to Regulatory Filing No. 03/2025, the Shareholders' Agreement includes a provision for joint action regarding: "voting on the payment, in the form of dividends directed to all shareholders of the Company, of the net proceeds from the sale of treasury shares in two tranches starting from 2026, in each case subject to applicable laws". Because the agreement stipulates that the cash will be distributed as standard dividends "directed to all shareholders", Topicus will receive a payout proportional to its current ownership stake. Following the finalization of the treasury share sale on October 1, 2025 (combined with a previous block of shares they bought from Cyfrowy Polsat), TSS Europe B.V. now holds 24.84% of Asseco Poland's total share capital. So, if approved, Topicus will effectively receive approximately 24.84% of those proceeds back in the form of these two planned dividend tranches starting in 2026. Essentially it receives 24.84% of the price it paid for its stake in Asseco back! Topicus paid ~80 zloty per share in Asseco, currently trading at ~ 176 zloty, so a pretty nice trade, but after the special dividend, the effective purchase price will be closer to 60 zloty per share making the return on investment that much better.
TOPICUS Q4 and FY 2025 results
As we approach the Q4 and full year earnings release on Friday (February 13, 2026) Topicus is expected to report a quarter defined by robust operational scaling contrasted against a significant, one-time accounting distortion.
The headline consensus points to a record revenue of approximately €442.6 million for Q4, pushing the full-year 2025 revenue toward the €1.56 billion mark, representing roughly 20% annual growth.
Savvy investors will be looking past the topline to see if the company can maintain its healthy organic growth rate amidst its aggressive acquisition spree.
The "noise" in this report will stem from the massive non-cash revaluation charge of €221.7 million taken in the third quarter regarding the Asseco Poland investment. It was caused by a switch to equity method accounting and is a technicality that ought to be ignored.
Because of this, the GAAP net income for the full year will likely appear negative or near zero, which may trigger misleading headlines about "annual losses." However, the underlying business remains highly profitable; once these paper adjustments are stripped away, the "true" operational earnings are expected to show the company is actually performing at peak efficiency.
The most critical metric will be Free Cash Flow Available to Shareholders (FCFA2S). Analysts are targeting a Q4 contribution between €45 million and €50 million, which would bring the annual cash generation to a record high of nearly €195 million.
This cash flow is the lifeblood of the Topicus strategy, as it provides the "dry powder" necessary to continue acquiring European software firms without relying on expensive external debt or diluting current shareholders.
Looking ahead to 2026, the market is eager for details on the first full-year contribution from the Asseco Poland stake. Beyond the reported revenue, the focus will be on the anticipated €17 million cash dividend expected to flow into Topicus’s coffers this year. This high-margin dividend income, combined with the forecasted 16–20% annual growth in total revenue, suggests that the company is transitioning into a much larger, more diversified European software powerhouse.
Finally, while the company rarely provides explicit "guidance" numbers, any commentary on the "Keep Your Capital" policy will be vital for the 2026 outlook. If management indicates that sub-units are successfully finding more local deals to reinvest their own cash, it signals a compounding growth engine that is becoming less dependent on the central Constellation Software head office.
As the report drops this Friday, Topicus should show that despite messy accounting, the cash-generating machine is running faster than ever.
A fear has gripped the market based on the premise that AI will enable anyone and everyone to build their own applications cheaply and easily. People worry that enterprise software will be disrupted and displaced. This has impacted the valuation of vertical market software (VMS) businesses, as evidenced by the draw-down in their share price.
I totally understand the "democratization" argument, but it overlooks the fact that writing code is only about 10% of the software lifecycle
In an enterprise environment, the value of a platform isn't only the UI, it’s the infrastructure and accountability that come with it. Dedicated software suppliers don't merely create an app, they create a long-term liability. Without professional version control, security patching, and managed data storage, these DIY apps lacks the encryption, compliance, and disaster recovery protocols required to protect company data. Enterprise software provides a guaranteed service level that AI-generated code simply can't. When a mission-critical system fails, you need an SLA and a support team to ensure business continuity. You can't AI prompt your way out of a broken database or a security breach at 2:00 AM.
In any event, while AI may make it easy for others to write software, it also makes it easy for incumbents to upgrade entrenched software more easily. Given the very high switching costs, AI strengthens the moat of VMS players, it doesn't undermine it.
Just my opinion.
The TOPICUS sell off — A Technical Event and an Opportunity
Over the past two sessions, Topicus shares have fallen from ~$125 to $109, yet there is no fundamental catalyst for this move: no news, no results, no acquisitions.
Today is Friday, January 16, 2026, the third Friday of the month, which marks the standard monthly option expiration for most equity options. High volumes of trading in a stock just prior to option expiry suggests that large institutions were either forced to liquidate or were aggressively repositioning ahead of today's expiry.
For those unfamiliar with option trading, because Topicus fell so rapidly from $127 to $109 in just two sessions, a massive amount of "Put" options that were "Out-of-the-Money" (at $115, $120, and $125) are now deeply "In-the-Money."
Market makers are forced to delta-hedge their options books, meaning that they sell more of the underlying stock as these puts gain value and option sellers anticipate being required to buy the stock at the strike price at expiry. This likely accelerated the sell-off we saw over the last 48 hours.
Short-term volatility is to be expected. If the stock fails to hold $108.77 (yesterday’s low), those market makers may have to sell even more to remain hedged, potentially creating a "flush" toward $105. However, if the stock bounces in early trade, the "buy-back" of these hedges at the could lead to an amplification of that bounce (a "gamma squeeze").
In other words, the sell off appears to be a technical event rather than a fundamental event. Topicus has not changed in quality or substance. These technical events often present very attractive trading opportunities for long-term value investors.
Either way, if my assumptions are correct (and they may not be so caveat emptor), next week should see a normalization in the Topicus share price.
The approximately 83 million shares outstanding already excludes NCI, so your 4.725 EV seems to be incorrect (subtracting NCI twice). Did you make a mistake here or did I?
You were correct. Thank you for pointing this out. I have made changes to the body of the analysis.
Thanks for the insights, this is very helpful! Have you also researched Lumine? I would love to see what you can find on Lumine.
Thank you for your comments.
I was drawn to Topicus because it seems to be running the Constellation Software model in Europe. We know how successful that has been. The Asseco Poland deal is also a huge catalyst for future gains which I found exciting. Hence the deep research on Topicus.
Lumine is more narrowly focused, primarily on communication, broadcasting and media based software, including ad-tech. This is an area which is hugely competitive and likely to be significantly disrupted by AI. There are just too many unknowns and too much uncertainty here for me. So I haven't done much research into Lumine and have no immediate plans to do so (I am willing to be convinced to change my mind, so would love to hear your thoughts).
I always prefer cleaner investments and vertical software at Topicus just makes me feel more comfortable.
Great write-up! I’m a big fan of Topicus, especially at recent prices. I think the less straightforward earnings and capital structures of serial acquirers often lead to misunderstandings of their true value. I’m also interested to see whether they can drive higher organic growth, as the original Topicus business was quite strong in that area.
I would slightly push back on a few points relating to PE firms. From my experience with SaaS PE, firms often cultivate multi-year relationships with company owners and tend to be more long-term oriented than many give them credit for. While fund cycles can sometimes prevent a firm from purchasing a company when it becomes available, those cycles are often tighter than people assume and don’t necessarily discourage long-term thinking. The BDs are also constantly working to build and maintain their pipelines, with a similar “maintain-or-lose” relationship policy as CSU. Also, $10–20M acquisitions are not out of range for SaaS middle-market PE firms if the business can be integrated into an existing platform. Perhaps my experience is with PE firms that are outliers rather than the norm, but that’s just my perspective on the topic.
That said, the permanent holdco model of Topicus offers a myriad of advantages and differing incentives versus PE. Topicus doesn’t need high-growth companies, it seeks cash flow to reinvest in new acquisitions. This contrasts sharply with SaaS PE firms, which typically pursue high growth and aim to build large platform companies from each acquisition. This also means PE firms won’t engage in attractive add-on acquisitions if they want to sell that platform soon, so fund cycles do come into play there. Valuation approaches also diverge meaningfully, underwriting the intrinsic value of a company into perpetuity can produce a very different result than PE valuations, which are often driven (to a surprising extent) by entry and exit multiples.
Thanks for your comment. The Constellation group tends not to chase organic growth. Companies without growth attract less competition when they are for sale, meaning Topicus can acquire them more cheaply. If it pays 4x EV/EBITDA, it's essentially generating 25% return on investment before tax. That can simply be swept up and redeployed into future acquisitions generating similar returns. Who needs organic growth in these circumstances? If course, if it comes then it's cream on the cake, but it isn't necessary. Bear in mind that Topicus is not a serial acquirer - it isn't rolling up and integrating acquisitions to achieve synergies (which is good because this is where most M&A fails). Instead, it buys companies and allows them to operate autonomously exactly as it did previously. The Constellation group actually encourages it's subsidiaries in the same industry to complete with each other on the basis that it drives them harder (the opposite of synergistic integration) - so it is a programmatic acquirer (district forum a serial acquirer). Most people don't understand the distinction and confuse the terminology, but it is of critical importance in understanding the quality of the model.
What an enjoyable read.
The annualised FCF2AS assumption is bit wrong. Usually if you see Topicus books 65% of OCF in H1 and about 35% gets booked in H2. So FCF2AS cannot be just annualised by 2x amount. I think the base business FCF (total) would be circa $350M and then Asseco would add another $100M). So somewhere between $400-$450M FCF Topicus would do at end of the year. This implies it is near 20x fwd. P/FCF. Nevertheless, this FCF can compound at 15-18% and some rerating in perception can lead to 20-25% compounding in share price over next 2-3 years.
FCFA2S isn't a perfect measure anyway. The part that is not technically available to shareholders, but which is retained and reinvested for the long term benefit of the company, will ultimately benefit shareholders, particularly where Topicus subsequently increases it's stake in the subsidiary. FCF captures a snap shot in time and doesn't factor in where the benefit of that cash flow ultimately accrues. So FCFA2S actually understates the benefit received by shareholders.
Non-controlling interests, both at Topicus and in respect of Asseco make these calculations challenging. I tried to address some of these issues in my earlier comments in this thread made in response to another readers comments. Hopefully you have seen those.
You suggest that Topicus is trading at 20x free cash flows on a look through basis. For a business like this - that is not a stretched valuation.
Valuing programmatic acquirers is not easy. In fact, I just wrote a piece focused on the nuance of that process. If you haven't read it, I would encourage you to do so: https://rockandturner.substack.com/p/haunted-by-valuing-programmatic-acquirers
Very few businesses are able to compound at strong double digits for the long term. The Constellation group is different. They have structural advantages over other programmatic acquirers:
- In relation to working capital, they don't carry inventory and enjoy the benefits of upfront subscription fees, so generate negative working capital that funds growth at zero cost.
- Cash conversion exceeds 100% as cash flows before earnings accrue. That cash flow is then used to reinvest in growth and, augmented with prudent levels of debt, reinvestment also exceeds 100%, which means that the company is growing at a faster rate than its return on invested capital.
- The marginal cost of supplying software to a new customer is almost zero (excluding the customer acquisition cost), so operating leverage is very high.
- They have a very small tangible asset base and so scaling the business requires little additional capital - that organic growth will be accelerated through the Asseco JV, offering a plethora of cross selling opportunities in new geographic locations.
- They are able to acquire businesses more cheaply than most other acquirers because of their unique Salesforce driven process and avoidance of M&A brokers and auctions.
- They don't squander capital on stock based compensation, but instead reinvest capital in growth.
- Dividends are small when paid - I don't think they should be paid at all, but that's a discussion for another day (see also: https://rockandturner.substack.com/p/how-dividends-destroy-shareholder-value).
Long story short, as I wrote in my piece on valuing these businesses (link above), the multiples can often be misleading. I used Berkshire Hathaway as an example and referenced its acquisition of See's Candy to make the point.
If you are a long-term investor willing to buy and hold for the next decade, I think you will be hard pushed to find a better home for your money than a company such as Topicus.
Constellation, its parent, compounded at 37% annually for 19 years and Topicus is the European clone of Constellation, but only 4 years old. It has a huge growth runway ahead and the Asseco deal only strengthens its structural advantages.
IMPORTANT NOTE TO READERS - THE PROBLEMS VALUING ASSECO
Several readers have either direct messaged me, emailed me or posted in comments, all correctly pointing out something I glossed over in this analysis. While I made adjustments for non-controlling interests in the financials of Topicus, I failed to account for non-controlling interests relating to Asseco itself.
They're right, but it wasn't so much an oversight on my part. It was an effort to simplify a genuinely complex accounting situation. But let me explain what's actually going on, because it matters and I owe you all an explanation.
First, you need to understand how Asseco structures its acquisition deals.
Take a recent example: on January 14, 2025, Asseco Poland bought 50.83% of Infocomp. But they didn't buy all of it. For the remainder, they put in place a put/call structure: the minority holders have the right to sell to Asseco (the put), while Asseco has the right to acquire those same shares (the call). The important part to keep in mind is that the strike price is fixed.
Here's where it gets complicated.
Under IFRS consolidation rules, when put/call options guarantee the transfer of remaining shares at a fixed price or formula, the parent effectively controls 100% of the subsidiary's economic benefits. This means Asseco consolidates the entire business on day one, even though they don't own all of it yet. There's no separate recognition of non-controlling interest on the balance sheet. All of the subsidiary's profits and net assets are attributed to Asseco, with zero carve-out for minority shareholders.
This is a distortion of economic reality, but adjusting for it is far from easy. To make matters more complicated, this is no isolated situation. Most of Asseco's acquisitions work this way.
You might think: okay, fine, we just reverse-engineer the consolidation. We isolate the subsidiary's results, apply the non-owned percentage, and calculate what belongs to the minority.
Not so fast.
Here's the issue: the acquired company in which Asseco has a majority stake generates earnings, and the minority shareholders are beneficially entitled to their share of those earnings. But what if they only receive part of it as a dividend and the rest gets reinvested in the subsidiary for a long-term benefit that will accrue only after the minority shareholders have exited the business?
By virtue of the retained earnings, the acquired company grows. Future cash flows will increase. The value of the business rises.
But the put/call option structure has already locked in a fixed acquisition price. So who benefits from that reinvestment and growth?
Not the exiting minority shareholder. That's for sure.
Asseco's payout ratio hovers around 50%. That means 50% of earnings get retained and reinvested in the subsidiary. On paper, those retained earnings belong to the non-controlling party, but because of the put/call structure, they don't. They benefit Asseco.
Think about that. Asseco is harvesting crops from seeds sown at the expense of a third party.
How does an analyst account for that? Good question. The short answer is: they don't. Because the accounting system makes it nearly impossible.
As of June 30, 2025, Asseco accounts for liabilities on the future acquisition of non-controlling interests via the option structure at 751.4 million PLN (roughly $205 million USD). This is their fixed cost of acquisition. They state that the fair values of these financial liabilities aren't significantly different from their book values.
But here's the problem: how accurate are those book values?
The fair values are based on the fixed acquisition price, but the true value of those businesses is arguably significantly higher than book value because of exactly what we just discussed.
The book values are understated because they are not calculated based on present values of future cash flows after the third-party reinvestment.
To complicate matters further, Topicus's recent 25% stake in Asseco adds yet another layer of minority interest to the group. But this one is different.
Topicus isn't an exiting minority shareholder getting squeezed out through a put/call structure. It's a strategic minority partner in an Asseco-Topicus joint venture. It's all about synergies, cross-selling opportunities, and geographic expansion.
Accounting for that interaction? That's not easy either.
We're working with an imperfect man-made accounting framework. That's the real issue here.
So while you could make a downward adjustment for minority interests based on simple percentages - that would not capture the economic reality of this situation. Asseco doesn't have 100% ownership of many of its subsidiaries today, but it will have tomorrow and that's so important. So, if you're minded to make adjustments, you'd also need to make balancing upward adjustments for all the accrued benefits that will flow to Asseco which don't appear in the numbers. Those benefits are real. They're economic. They're just invisible in the financials.
The true value of the business may be significantly higher or lower than it appears to be. You can't really tell from the numbers alone. This creates genuine blind spots for investors trying to understand what's actually happening.
This is the issue with quantitative analysis. It's all about looking for precision where none exists. However, on a qualitative basis, we know that the Asseco playbook works. We know that it compounds value and is a master of Acquisition-as-a-Business. We also know that Topicus bought in to that business at a very favourable price - they acquired ~25% of Asseco at a share price that is one-third of where it trades in the market today. We also know that there are many synergistic benefits that will flow from their alliance. Perhaps that is all we really need to know.
This is why I chose to make no adjustments for Asseco non-controlling interests in my analysis. I could have taken a pencil to the numbers and made educated guesses about what belongs to minorities and what doesn't. But that would have been false precision dressed up as analysis. I would have been pretending to know things I don't actually know. Better to acknowledge the imperfection than to paper over it with calculations that create the illusion of certainty. That's what I considered to be the most honest approach.
I hope that this explanation helps.
They report revenue and EBITDA on a proportionate basis. It’s not difficult to figure out their share of the value in these companies.
Share of revenue and EBITDA on an ex-post basis is not the same as share of value on an ex-ante basis. One is a short-term approximation looking in the rear view mirror, the other is a long-term valuation looking at the road ahead. It's dangerous to confuse the two. When valuing Topicus with reference to its recent investment in Asseco, it is the future compound returns that we are most interested in.
I acknowledge that every investor and analyst will have their own opinion and methodology, each yielding a different outcome. I guess that's what makes a market dynamic - different views and valuations.
My aim in writing this analysis was, as always, to lay the foundations for others to build upon. I don't have all of the answers - nobody does. The important thing is being able to ask the right questions.
The question you ask Noah is important and I am grateful for that. I have responded to your questoin and readers are now better informed than before to make an investment decision in relation to Topicus, whatever approach to Asseco's non-controlling interests they decide to take.
Too few of my readers engage in posting comments, which is a shame because my primary objective is to create an investment community where debate and discussion benefits us all. This was a high value discussion. Please keep commenting and hopefully others will follow suit!
Asseco group is only entitled to ~18% of reported EBITDA on a proportional basis.
Noah, thank you for your comment. You are not the only subscriber to have made a similar comment. I have pinned my response to the top of this thread for the benefit of everyone. I hope this helps. However, I'm not sure where 18% came from - Asseco takes majority stakes in businesses and owns many of its subsidiaries in their entirety. That implies it has a holding greater than 50% in its portfolio companies. (18% would make it a minority holder)
Excellent discussion. I'm a long term Topicus owner.