Sabre (SABR)

But wait, there is more good news: Constellation’s capital deployment pipeline is becoming larger. This stems from a new strategy that the company will pursue named PMS: Permanent-Engaged Minority Shareholder.Sabre (SABR) was just the beginning of what might become a more prevalent strategy going forward:

_We’re calling a permanent engaged minority shareholder strategy, or PMS. Our investment in saber is the first meaningful expression of it, and I have to thank Mark Leonard, who’s helping us with this strategy and helped us, explicitly on this particular investment. But the logic is straightforward, permanent, meaning we’re long term shareholders, long term holders, not traders, and will work to ensure these companies endure as institutions. We’re engaged, which means we care about governance, management, incentives and capital allocation and will actively work to have influence where we think it creates value for the minority. We’re not acquiring these businesses outright. We want to partner with other shareholders and we hope many of them become engaged long term holders alongside us._

I found it particularly interesting that not only has this strategy originated (or at least to an extent) from Mark Leonard himself, but that he also drove the investment in Sabre (SABR) (I wrote about Sabre last week here). Even though they mentioned that the details of the strategy will depend on every specific investment, they did more or less lay out clearly that the objective is not to buy companies outright but to collaborate alongside them to improve the business (sort of like what Topicus is doing with Asseco).

It’s worth noting that the modelling used in PMS is the same one they use for private acquisitions (meaning same hurdle rates). This means that, for Sabre, Constellation is likely targeting a 20%+ IRR and probably assuming no multiple expansion whatsoever. In my article about Sabre, I explained what the real problem with Sabre is and how the company might help fix it.