Kelly Partners Group share (ASX:KPG) fundamentals, overview
Kelly Partners Group (ASX:KPG) is an Australian-based, publicly traded professional services firm that provides accounting, tax, business advisory and compliance services primarily to small and medium-sized businesses. The firm is headquartered in Sydney and operates in Australia, but has expanded its operations in the United States and the United Kingdom in recent years. The firm employs approximately 700 people globally, typically highly qualified accountants and consultants.
The company's founder and CEO is Brett Kelly, who consistently advocates a growth strategy based on a partnership model: Kelly Partners Group (ASX:KPG) is acquiring smaller, well-performing accounting firms while retaining ownership interests in local partners. One of the company's greatest strengths is its business model based on recurring revenue, high customer retention, and disciplined capital allocation, which enables stable cash flow and predictable value creation in the long term.
Market capitalization: AUD 363 million (USD 242 million)
Investor relations: https://www.kellypartnersgroup.com.au/
iO Charts share subpage: KPG.AU
📒Table of Contents📒
I have created a table of contents to make it easier for you to navigate the longer articles:
- Kelly Partners Group (ASX:KPG) Specialties
- How does Kelly Partners Group (ASX:KPG) make money and what market advantages does it have?
- Kelly Partners Group (ASX:KPG) metrics
- Kelly Partners Group (ASX:KPG) acquisitions
- Kelly Partners Group (ASX:KPG) management
- Competitors: Kelly Partners Group (ASX:KPG) opponents
- What risks does Kelly Partners Group (ASX:KPG) face?
- Kelly Partners Group (ASX:KPG) valuation
- Major news and the last quarter
- Summary
〽️Market segment analysis〽️
In this section, I examine the dynamics of the market segment, how it operates, who the main players are, and what tailwinds or headwinds the players in the given market have to deal with. I will not analyze companies in depth, but I will touch on the market share of individual companies.
Kelly Partners Group (ASX:KPG) is a serial acquirer accounting firm that operates in a decentralized system and partially absorbs other accounting firms, and improves their operational operations after the acquisition. I have previously talked a lot about the operation of serial acquirers in connection with Constellation Software (CSU). That company specializes in vertical market software, while KPG is strong in the accounting niche. Therefore, let's first review the accounting market to understand how it works.
ðŸ '© â € ðŸ'¼This is how an accounting firm works
The backbone of a typical accounting firm's revenue is recurring revenue: monthly or annual accounting, tax returns, reports, payroll, audits, due diligence, and compliance with laws and internal regulations. Clients very rarely change their accountant because switching is risky, time-consuming, and full of potential for error. Anyone who has ever tried to change accountants knows that it is a real pain in the ass, very tricky, you have to explain everything to the new accountant again, hand over the papers, talk everything over, there is a high risk of whether the new one will work or not, and I could list the problems that can arise. I have changed once in my life, and then because I disagreed with the previous one, due to certain accounting errors, but it was not a girl's dream to transfer things. And I was only a sole proprietor, transferring an entire company is an order of magnitude more complicated task.
Accounting work is highly labor-intensive, requires licensing, and the key resource is the qualified professional himself, which is called Certified Public Accountant in the USA, while in England, Australia, Canada and New Zealand it is called Chartered Accountant, hence the abbreviations CPA and CA. Due to the highly trained professionals, margins are not extreme, but cash flow is predictable, customer retention is high, churn is low, and demand is stable across cycles or growing, at roughly 3-4% per year. Why? Because with the growing population and number of companies, more and more people are looking for accountants, because everyone is required to pay taxes.
Another supportive trend is that tax regulations are becoming increasingly complex, and furthermore, there are as many different ways to tax as there are markets, and there are no uniform rules. Of course, the American GAAP and the international IFRS accounting frameworks provide a certain framework for accounting settlements, but they only determine how a company's financial reports should be prepared, but even so, countless specialties and differences can be seen in them. International companies listed on the stock exchange all use one of the above two frameworks for their reporting, you can find these in the form of quarterly and annual reports in online databases, but countless other documents are also based on them.
🧾The structure of the accounting market
The accounting market is highly fragmented. There are thousands of small and medium-sized offices in most countries, often in a founder-led, partnership structure. The reason for this is simple: the profession is historically local, relationship-based, and has not been easy to scale for a long time. However, it is precisely this fragmentation that creates the opportunity for consolidation. Aging partners, a shortage of new talent, and increasingly complex regulations create ongoing sales pressure for smaller offices.
From there, it is only a short jump to connect the accounting industry with serial acquisitions, as there are many market players in the segment who can be integrated into a larger structure while maintaining decentralization, since the relationship-based, trust-based client relationship is the primary one. Since the size of accounting firms shows a fairly large variance in size, the market should be viewed as if it consisted of layers stacked on top of each other: For very large companies, such as the Big Four, accounting firms with revenues of less than USD 100 million are too small, so multiple models can exist side by side. Some acquirers go for tiny companies, some go for much larger ones. This reinforces the exact same logic I mentioned in the case of Constellation Software (CSU): Company size fundamentally determines who each acquirer has to compete with in the market.
📈A major player in the accounting marketi
At the top of the pyramid are the non-listed Big Four: Deloitte, PwC, Ernst&Young and KPMG. They are global audit, tax and advisory firms, with a focus on large corporations, in a partnership structure. Below them are regional networks and larger international platforms, and then in the lower segment are the thousands of independent small offices. Listed players are rare, which is why companies that are trying to industrialize accounting in the public market are interesting.
This also means that there are many small, private companies on the market, where personal contact is very important. They are practically invisible to large players, so the majority of mergers and acquisitions also involve private companies. This pattern is also echoed by the example of Constellation Software (CSU), but I could also mention Topicus (TSX:TOI). The number of such tiny companies is incredibly high, even tens of thousands per country, as you can see in the attached image, so the time horizon for acquisition, if not infinite, can be measured in many tens of years. This market is incredibly difficult to consolidate, but there is also brutal room for size growth.
The market is clearly in a consolidation phase today. Acquisitions are typically aimed at small, established practices with a stable client base, where the buyer provides core systems, IT, financing and management support in exchange for scalable cash flow. This model also operates in Australia, the US and the UK.
🗝️The key to success is not rapid growth, but the quality of integration and maintaining partner incentives, as the accounting industry is fundamentally a model built on trust.
🖥️How is artificial intelligence changing the industry?
It is often mentioned in connection with artificial intelligence that one of the most endangered professions is one that is easy to automate, and accounting is one such example. In fact, AI will primarily replace low-value-added jobs. I think we can all imagine that AI will enter a number into a rubric faster than an accounting assistant, However, only people can inspire trust, take responsibility, and comply with laws. The trend shows that accounting software can also be expected to have a high degree of automation, which speeds up processes, but we are very far from it replacing high-value-added, expert jobs. However, I can name a few companies from the public market that have systems that have been operating with machine learning or artificial intelligence for years:
- 🏢Intuit (INTU) QuickBooks: has been using machine learning to automatically categorize transactions, reconcile bank accounts, and recognize accounts for years. Now, the system can predict cash flow problems, tax positions, and incorrect accounting patterns. Their message is clear: accountants' time is not for data entry, these people are not administrators. AI has driven down the price of basic accounting while consulting hourly rates have risen.
- (I.e.Automatic Data Processing (ADP) and Paychex (PAYX) use AI-based systems to automatically handle tax rate changes, legal updates and error detection. The client does not have an account, but rather submits a tax return at risk. Companies communicate openly: the goal of AI is not to replace HR or accountants, but to reduce errors and fines to zero. This is a classic example of the value being in the responsibility, not the action.
- (I.e.Deloitte, PwC, EY and KPMG have all introduced AI-based audit platforms. These do not take samples, but analyze entire data sets. The Big Four's unanimous position is that the auditor's role is changing from that of a controller to that of a judgment maker. Less junior data work, more senior professional decisions.
🤔The above trend was also confirmed by Mark Leonard, founder and former CEO of CSU, using the example of radiologists as a very consciously provocative thought experiment, not a technological prediction.
Mark Leonard said roughly the following in several investor letters and conversations, paraphrasing:
- 🤖“If an AI were to come out tomorrow that could analyze radiological images with 99,9% accuracy, radiologists wouldn’t disappear. They would just be more expensive.”
Why? Because the system is not a responsible entity, it cannot comply with the legal and social norms chosen by society. AI does not sign a report, does not go to court, and does not bear the legal and reputational risk. The role of the radiologist would shift:
- 🧠less manual analysis,
- ✨multiple validations,
- 📡more, final verdict given by the doctor,
- ⚙️more legal responsibilities.
AI would do 80–90% of the work, but the last 10% becomes the most valuable. This is the point where responsibility is concentrated and I think this is perfectly true for the accounting industry as well. Slusszpoén: Since the introduction of AI tools in medicine, the number of radiologists in England has increased by 40%, while the same number in the United States is projected to increase by 25-40% between 2023 and 2035.
🌍What is the size of the accounting market?
The market size is difficult to determine because it includes related market segments such as accounting, tax consulting, auditing, payroll, and outsourced services, so the result also depends on what each market research company puts into its hat. That's why I've seen quite a variety of numbers, but here are a few:
- 📊Grand View Research (total market, accounting services): It was ~688 billion USD in 2025 and could grow to ~1276 billion USD by 2033, a CAGR of 8,1% per year.
- 📈Benchmark International (full market, accounting services): USD 652 billion (2023), USD 677 billion (2024), USD 804 billion (2028), which represents a much more conservative growth of 3,7-4,4%.
- 💰IBISWorld Australian market (accounting services): AUD 33 billion (2024-25), AUD 34 billion (2025-26), which means 154,000 people and 36,717 companies, meaning there are a lot of micro accounting firms and the growth is small, about 1,2% CAGR. This market segment is interesting primarily because of Kelly Partners Group (ASX:KPG). According to KPG's own statement, the size of the Australian market they can reach is at least AUD 12,5 billion.
- 🧮The Business Research Company (tax return market): USD 33 billion (2024), USD 35 billion (2025), USD 46 billion (2029), that's a 7,2% CAGR.
- (I.e.Global Industry Analysts / MarketResearch.com (tax return market): USD 37 billion (2024), USD 46 billion (2030), also a relatively conservative 3,7% CAGR.
The USA accounts for roughly 38% of the above figures. I think I'm not far off the mark when I say that the global market is somewhere around 650 billion USD, and a realistic growth rate of 3-4% per year. The number of accounting firms is incredibly high, as we are talking about a terribly fragmented industry, so companies are constantly buying each other up.
Summarizing what has been said so far, let's summarize the main characteristics of the accounting industry, in which Kelly Partners Group (ASX:KPG) operates:
- 🧩 extreme fragmentation,
- 👥 highly human capital-intensive industry,
- 📜 license and regulation-driven entry barrier (CPA, CA).
- 🔗 integration sensitive business: Acquisition is easy, integration is hard. Culture, partner incentives, customer relationships. This is where bad roll-ups fail, and that's why specialized acquirers like Kelly Partners Group (ASX:KPG) are better.
- ⚖️ non-linear pricing power: Basic accounting is price sensitive, complex taxation and consulting are not. The profit is in complexity, not in volume. Good companies move up the value chain.
- 🔒 high customer lifetime value (LTV), low customer acquisition cost (CAC): Customers stay for decades, often acquired through referrals. A rare combination, a stable source of income.
- 🗺️ It's quite easy to scale within a given market, but significantly more difficult globally due to different regulations,
- 💸 low capital cost, no need to spend the cash generated on large investments or developments,
- 🧲 high switching cost, sticky business, low churn rate due to high trust level,
- 🏘️ many small-market companies, typically private,
- 🎯 there are many small, private companies on the market that are ideal acquisition targets,
- 🤖 technology is not a disruptor, but a margin reallocator: the industry is shifting towards higher value-added jobs, the lower ones are being replaced by IT,
- 📆 It is not a cyclical industry due to the legal obligation to pay taxes, but it is highly seasonal. This is often misunderstood by short-term investors, for example, this was clearly visible in the price of H&R Block between 2020 and 2022. The strongest quarter is usually Q2 due to the closing of annual reports, which is when many premium awards appear. Q3 is also strong, as in many countries this is when the cost of filing personal income tax returns hits the revenue side.
🙋♂️Kelly Partners Group (ASX:KPG) Specialties🙋♂️
In this section, I examine what specialties the analyzed company has, what its position is in the market, and whether it does anything differently than its competitors. If so, what and how, and what impact does this have on their operations.
Kelly Partners Group (ASX:KPG) is a serial acquirer accounting firm that acquires other accounting firms with revenues of $1-10 million at somewhere around 5-6x EBITDA. It is a specialized, or rather, an accumulation acquirer, not a roll-up, so its portfolio consists exclusively of accounting firms, unlike, say, an Exor NV or a Berkshire Hathaway. This is important because their focus is exclusively on this industry.
Because this industry is extremely trust-driven, Kelly Partners Group (ASX:KPG) founder and CEO Brett Kelly is completely intertwined with the company. You could say he is the company itself, with all the knowledge of KPG and the science of accounting in his DNA. Brett Kelly is a true self-made man, You can read lots of good stories about him. A few interesting facts about him:
- 👤 Brett Kelly was born in Australia, is 50 years old, has a CPA qualification, and his wife is also an accountant.
- 🌍 He has a very strong internal motivation to make the world a better place.
- 📚 He basically follows the investment principles of Benjamin Graham, Charlie Munger, and Warren Buffett, but he is also close to the thinking of Mark Leonard and Chris W. Mayer, and he often mentions the head of LVMH, Bernard Arnault.
- 🎙️ He has a show, Be Better Off, where he talks to celebrities, such as Shaquille O'Neal, about the big questions in life.
- ✍️ He wrote 5 books; the first at the age of 22. In it, he interviewed hundreds of famous Australians, including the then Prime Minister, and then published the conversations in book form with his own money.
- 📨 Writes investor letters regularly, in which he often quotes the teachings of Charlie Munger, Warren Buffett, Chris W. Mayer, or Mark Leonard, all known for long-term value creation.
- 📘 He wrote a manual for Kelly Partners Group. Yes, for his own company; he is constantly updating it, currently at version 4.0.
- 💎 Owners are called Quality shareholders: for investors who think in terms of an infinite holding period, not buying KPG shares for trading purposes.
- ♾️ KPG is operated as a perpetual owner by: They never sell acquired companies, leaving the original CEOs in place.
- 🔍 He runs the company in an extremely transparent manner, he produces a lot of material about KPG himself, so analyzing the company from this perspective is unusually easy.
- 📊 Brett Kelly is the largest shareholder, with approximately 46,5%. It has indicated several times that it would reduce its stake to 35% in the event of an ADR listing on the US stock exchange in order to increase the public share. No share dilution has taken place since KPG was founded.
If you would like to learn more about Brett Kelly's work or access Kelly Partners Group (ASX:KPG) investor materials, please visit the following links:
- (I.e.all KPG materials in one place,
- 🎙️Brett Kelly Podcast,
- ????Brett Kelly's books,
- 🌐Brett Kelly's website.
I recommend the following InPractise interview to everyone, which perfectly illustrates Brett Kelly's mentality: Kelly Partners Group (KPG) & Accountancy Roll-Ups.
Kelly Partners Group (ASX:KPG) was founded by Brett Kelly in 2006 in Sydney, Australia, making it an 18-year-old company. It went public on the Australian Stock Exchange in 2017, Since then, its price has been able to achieve an annual CAGR of 23%, so that the price fell by 41% from a peak of 13,43 AUD to around 7-8 AUD at the time of the analysis. As a serial acquirer, they currently have 41 offices, 40 operating units in 6 countries around the world, employing around 700 people. Their revenue at the end of 2025 was AUD 134 million, a typical small cap company with great growth potential.
Their offices are mostly focused on countries with a high Australian diaspora population, and they also have offices in major markets. This includes:
- 🇦🇺 Australia: 25 accounting firms, the 11th largest accounting firm on the continent (a few years ago it was only 14th),
- ???????? United States: 7 accounting office,
- (I.e. Philippines: 6 accounting office,
- 🇮🇳 India: 1 accounting office,
- 🇬🇧🇮🇪 England and Ireland: 1 accounting firm (this is counted as two countries).
Their number of clients is 25,000, and the distribution of their services is as follows:
- 🧾 95% taxation and accounting, average annual growth of 4,7%,
- ⭐ very high net promoter score (NPS): 72 in the USA, 79 in Australia (extremely high), while the industry average is -18,
- 📈 annual revenue growth: 29,8%,
- 💰 Cash conversion rate: 99,8% (extremely high).
Brett Kelly used to say that their commitment is, to double their income every 5 years, which usually works out, in many cases in a shorter time. This basic idea can be found in other companies, such as the Swedish Bergman&Beving, which is a 690 bagger (that's how many times it achieved a 100% price increase), is also a serial acquirer and has now completed five spin-offs, so Brett Kelly had something to draw from.
⭐What is net promoter score?
Net Promoter Score (NPS) is a customer satisfaction and loyalty metric that measures how likely customers are to recommend a company to others. It is based on a single question: “On a scale of 0-10, how likely are you to recommend the company to a friend?” Respondents are divided into three groups:
- 😍 promoters (9–10 points), who are enthusiastic recommenders;
- 😐 the passive ones (7–8 points), who are satisfied but not committed;
- 😡 critics (0–6 points) who can even harm the brand.
NPS is calculated by subtracting the proportion of detractors from the proportion of promoters, so the value ranges between -100 and +100.
Example: An accounting firm surveys 100 customers. 55 give 9–10 points (promoters), 25 give 7–8 points (passives), and 20 give 0–6 points (critics). NPS = 55% – 20% = +35. This is considered a good value and indicates that the company has strong customer relationships, the service is “sticky,” and referrals are a real source of growth. The power of NPS lies not in its accuracy, but in the fact that it directly measures trust, which is especially important in industries such as accounting or consulting.
📌In practice: I first encountered NPS in connection with my startup portfolio, and it is primarily used in industries where trust plays a prominent role for some reason. For example, the food industry is like this, but of course so is accounting. An NPS above 50% is considered high simply because the top 20% of the 10-point scale is considered only recommendable, while the bottom 60% drags down the metric, so you can see that it's a pretty skewed metric that favors negative judgments. What is the average NPS in some industries? Surprisingly low:
- 🏦banks: often around 0 or negative,
- 📡telecom: Between –10 and +10,
- 💻SaaS B2B companies: Between +30 and +50,
- 🧾bookkeeping: +20 and +60 between, but it is accompanied by low dropout rates.
Kelly Partners Group (ASX:KPG) has a customer recommendation rate of 70+, which is measured regularly among their 25,000 clients, meaning they have an extremely high number of satisfied customers. It is no coincidence that Brett Kelly is a follower of the Be Better Off philosophy, the essence of which I could roughly describe as “getting into a better position.” This philosophy of making the world a better place permeates the entire company, which at first I interpreted as side talk, but in fact the entire organizational structure is defined by a higher level of customer service.
But where did Kelly Partners Group's (ASX:KPG) special, decentralized structure and philosophy of compound interest on capital generated come from? Anyone who has read the company's investor letters and handbook will know that Brett Kelly was most inspired by the following individuals:
- 💰Warren Buffett: I think everyone knows him, he is one of the best investors in the world, a master of capital allocation, he is generally considered one of the 5 richest people in the world, and he is one of the owners of Berkshire Hathaway.
- 🧠Charlie Munger: He was Warren Buffett's mentor and partner at Berkshire Hathaway until his death in 2023.
- 🏗️Mark Leonard: az iO Charts blogI have written a lot about him, I consider him one of the Top 10 best capital allocators in the world - along with Buffett -, the founder of Constellation Software, the father of decentralized philosophy and serial acquisition companies. You can read more about him here: Constellation Software Stock Analysis (CSU) – In Series.
- (I.e.Chris W. Mayer: author of 100 Bagger and a few other books, portfolio manager at Woodlock House Family Capital, who manages a concentrated portfolio of 8-10 names, most of the companies are serial acquirers. He is an incredibly likeable figure who I have followed for years.
- 🎓Lawrence A. Cunningham: Vice President of the Board of Directors of Constellation Software, Markel Group (MKL) and was also a director of Kelly Partners Group (ASX:KPG) until March 2025, when he joined The Chapters Group (CHG.DE). He is a professor at George Washington University and a renowned investment writer known for his study of Warren Buffett and Berkshire Hathaway, which was published in book form: The Essays of Warren Buffett.
- ????William Thorndike: founder of Housatonic Partners, best known as the author of The Outsiders, which I think should be required reading for every investor. As far as I know, Thorndike has no official connection with KPG, but he was a guest speaker at their place. Interesting fact: Thorndike owns and operates The Chapters Group (CHG.DE), another serial acquirer. but it is not a specialized company, but a roll-up acquirer.
There is one more thing connected to Lawrence A. Cunningham, a philosophical association called the Quality Shareholders Group. The Quality Shareholders Group is a think tank and educational community founded by the professor. Its goal is not to manage capital, but to promote a quality shareholder approach, consciously going against short-term, price and narrative-driven investing. Where does this fit in with the philosophy of Kelly Partners Group (ASX:KPG)? There, in investor letters, Brett Kelly calls the company's owners Quality Shareholders and encourages them to hold their shares for "infinite" periods.
💡I also have an extra corporate culture thought: Lawrence A. Cunningham wrote the book on the Buffett letters and has studied the work of the two greats extensively, as has Mark Leonard at Constellation Software. Since Cunningham is closely associated with both of these and was also a director of Kelly Partners Group (ASX:KPG), it is inevitable that the CSU philosophy will be very strong at KPG.
🤔Thought experiment: I invite everyone to a little mental exercise, which will be a kind of theoretical brainstorming. There is no evidence for it, it is almost impossible to measure, but it is important from a qualitative point of view and this is one of the most difficult parts of company analysis. If you look at Kelly Partners Group's (ASX:KPG) current market capitalization of AUD 363 million as a mini Constellation Software, operating in the accounting segment rather than VMS, you can go back to a moment in time when CSU was only that big. This amounts to 320 million CAD, or 230 million USD.
In 2006, Constellation Software had a market capitalization of CAD$662 million, or USD$476 million, roughly double the size of Kelly Partners Group (ASX:KPG). If you recall, I mentioned earlier that Brett Kelly was looking to list his company on the US stock exchanges as an ADR. That's why he's willing to give up part of his own stake, which will be listed as floating shares on an American stock exchange. KPG's philosophy and growth, as you'll see shortly, is similar to CSU. If its valuation doubles, it could follow a similar path to Constellation Software, which has seen a roughly 30% price increase this year.
💡I'm not saying that KPG will perform similarly, the past is no indicator of the future, a thousand things can happen, and these are basically two different companies, but I think the parallel I generously drew between Constellation Software (TSX:CSU) and Kelly Partners Group (ASX:KPG) is understandable.
🧑🍼Kelly Partners Group (ASX:KPG) recruitment system
In one of the interviews, the name WorkPod came up, which is a recruitment company in the Philippines. Essentially, it is an outsourced service that looks for talented employees on behalf of Kelly Partners Group (ASX:KPG), but outside of the company., since it is owned by KPG. First of all, they examine whether the person would fit into the company culture or not. They assess their knowledge and soft skills and based on these, they make an offer to the accountants in question. This does not mean cheap hired labor, but extra capacity hired for the long term and at the same time the continuation of the company philosophy.
The essence of the model is that the employment contract is concluded with the local (Philippines) entity of WorkPod, so WorkPod is: the employer, the payer, the HR agency, the payroll accountant, but they also perform other activities, but the labor is included in the total production of KPG. However, the accounting teams are not salaried employees, they deal exclusively with the affairs of Kelly Partners Group (ASX:KPG), and the work schedule, tasks, and performance expectations are determined by KPG.
The advantage of the solution is that it reduces country-specific risks, as Kelly Partners Group (ASX:KPG) does not have to deal with this in a foreign market. in return, it costs extra money. It is also important that this way you can achieve a significant salary difference, since a Filipino accountant works cheaper than an Australian or an American and it is easier to scale the business. However, these accountants are mostly:
- 🗂️ for back-office accounting tasks,
- ⚙️ for processing and preparatory work,
- 🧾 They can be used for standardized processes, such as preparing accounting, recording data, reconciliations, etc. (for relatively low-value-added, mechanical work), so they do not play a partner role like the managers of the acquired offices.
Kelly Partners Group (ASX:KPG) not only works exclusively with WorkPod, but it is a good example of outsourcing lower value-added processes.
📌In practice: It was important to clarify the above, because many companies outsource various business-related activities to other entities precisely to improve their metrics. This is a big deal around AI companies right now, where sunk costs are brutal and it wouldn't do the numbers any good if investors tried to balance huge R&D costs with unearned profits that may never materialize. Fortunately, that's not the case here.
💰How does Kelly Partners Group (ASX:KPG) make money and what market advantages does it have?💰
In this section, we examine what exactly the company does to generate revenue, what products and services it has, how indispensable they are. Does it have any competitive advantage (economic moat), how defensible is it, and whether the trend is decreasing or increasing, and what is likely to happen in the long term.
Kelly Partners Group (ASX:KPG) is a serial acquirer that acquires companies with revenues between $2 million and $10 million, but unlike other specialized acquirers, it does not buy 100% of the companies, but shares ownership with the original owners in a ratio of 51-49%, or in rare cases 50.1/49.9%. This means that the majority, controlling ownership goes to KPG, while the original owner remains with a sufficient stake in the company to be motivated. As a result,:
- 💼 Kelly Partners Group (ASX:KPG) typically pays for only 51%, which it finances with cash and debt (this is a kind of partial exit option for the owners, which involves a cash payment),
- ♾️ holds companies until the end of time, never sells them,
- 🤝 calls members partners, the process as partner building and not acquisition; this use of the term is not accidental, Brett Kelly talks about this a lot in interviews,
- 📉 debt is deliberately kept low and repaid as quickly as possible, typically within 5 years (in this model, debt acts as leverage),
- 🏢 owners remain at the helm of the company with 49% within a decentralized organization, but they make a 10-year commitment to running their own office,
- 🧪 Brett Kelly consciously reduces his own personal risk: he used to take 16 weeks off every year, when his team had to run the company without him; and in 2023 he moved to the USA, leaving the Australian operation virtually alone, which has been developing smoothly ever since,
- 📈 Kelly Partners Group (ASX:KPG) is committed to doubling the company's revenue in about 5 years, so the owner will essentially get back the value he "lost" by transferring 50,1%,
- 🧱 companies are organized into operating units (OB = Operating Businesses), which is functionally the same as BUs (Business Units) in the case of Constellation Software,
- 💡 the owner pays 9% of the company's revenue back to the KPG parent company for development, in exchange for the parent company taking over IT, back office, HR and other costs through a centralized platform that all KPG Partners access (actually 9% is 6,5%+2,5%, the former is the cost of HR, IT, etc., the other number is the license fee for the KPG brand name and methodology),
- 🔁 The KPG share of the revenues of the acquired companies is channeled into the parent company, which uses it to finance subsequent acquisitions.
The entire operating model was named the Partner-Owner-Driver model and was even patented. I think POD is quite telling, the parent company treats the acquired companies as partners and not as subordinate companies, there is a strong ownership incentive that drives the entire consortium forward.
(I.e.What is Kelly Partners Group's (ASX:KPG) holdco-opco model?
First of all, if anyone is interested in learning more about the types of serial acquirers, read the stock analysis below: Constellation Software Stock Analysis (CSU) – In Series.
Kelly Partners Group (ASX:KPG) is a programmatic/accumulator company. A programmatic serial acquirer is a company that acquires companies according to a predefined, repeatable system. Acquisition becomes an operational process, not a strategic event. A classic example of this is Constellation Software or, on the accounting side, Kelly Partners Group (ASX:KPG). Accumulator serial acquirer, on the other hand, is more of a results-based concept. (used a lot by Chris W. Mayer): a company that accumulates free cash flow sustainably and at a high rate of return, then reinvests it again and again, often into acquisitions.
Anyone who has read Constellation Software's stock analysis knows that it operates in a holdco-opco structure, just like KPG. This is an abbreviation for holding company-operating company, which means that it doesn't matter whether a company is purchased 100% or only 51%, control goes to the parent company. What does the parent company do? It provides, through a centralized platform, the following:
- 🏢 back office operations,
- 💻 Operation and development of IT systems,
- 📜 compliance, enforcement of laws and regulations,
- 🌏 HR / offshore workforce (e.g. WorkPod),
- 📣 marketing (in a secondary role in the accounting industry),
- 🧭 corporate governance, strategic decision-making,
- 💰 capital placement, financing of acquisitions,
- ✈️implements efficiency plans (Flight plan) with Partner Offices,
- 👑 and owns 51% of the property.
The above is often referred to as “synergy”, a word I hate, because the partner company responsible for the operation does not have to perform these activities, but only has to focus on what is its job: accounting. As you can see, this item is not even included in the holding company’s responsibilities. However, with scaling, the above items become increasingly efficient, which can be a significant cost advantage in the long run.
In contrast, the operating company, in the terminology of KPG, the Partner, provides:
- 📊accounting and professional compliance,
- 🤝keeps in touch with customers,
- 🧑💼owns 49% of the ownership, which is typically owned by the CEO,
- 🔁Channels 9% back to the holding company in exchange for the above services, in proportion to the 49% ownership.
So the operating company runs the core business and tries to perform the tasks at the highest level professionally, focusing only on customers and growth. This actually hides the background processes from the customers and strengthens the development of trust. Since the Partner offices are completely decentralized and independent of each other, the owner CEO is typically responsible for the operational work, but the parent company can also cross-sell and drive customers to the Partners.
💯Why does Kelly Partners Group (ASX:KPG) use the 51/49% model?
Most serial acquirers, especially non-specialized holdco acquirers, buy minority stakes in other companies, such as Berkshire Hathaway. Specialized, accumulator acquirers typically buy 100% of the ownership and integrate the companies into their own system in some way, such as CSU or Judges Scientific. However, Kelly Partners Group (ASX:KPG) has chosen a third option, buying a 51/49% majority ownership. Why? Because tax advisors sell their time as a service, and this cannot be scaled like, say, CSU's software business, since a professional will always only have a unit of time available to perform the activity. This is true for all industries where the time of highly qualified professionals is the "product", so lawyers, coaches, psychologists, etc. are in the same situation. That is why the parent company relieves Partners of all kinds of time-consuming activities so that they only have to focus on what is their actual profession.
????Of course, only operational efficiency can be improved, but this requires strong incentives, which is why the original owners can retain a minority share of their business, or the parent company supports them by taking over the background processes.
🤔Thought experiment: The former owners will repay 9% of the revenue they own to the parent company of KPG. A big problem in the industry is that accounting firms are typically undercapitalized, leaving no resources for IT, HR and other developments, but the parent company of Kelly Partners Group (ASX:KPG) is taking on this. This is one of the catalysts for partner offices to grow organically, generating more revenue, and as revenue increases, more goes to the 49%. This way, partners only have to focus on what they really know, while the parent company receives funds back from the partners.
Now that we've clarified the model, I think it's clear, that Kelly Partners Group (ASX:KPG)'s two biggest economic advantages may be its excellent corporate culture and strong management, and in the longer term, I see the advantage of economies of scale and special know-how that can be combined with accounting in the company, but I think this does not exist yet. What could be the catalyst for this? Mostly if the current number of 41 offices and 25,000 customers will increase dynamically. This is relatively easy to verify, as the numbers can be traced back for years:
- (I.e. 2022: 2 countries, 20 offices, 371 employees (KPG was the 21st largest accounting firm in Australia, not counting the Big4),
- (I.e. 2023: 5 countries, 32 offices, 23,000 clients, 400 employees,
- (I.e. 2024: 5 countries, 35 offices, 23,000 clients, 600 employees,
- (I.e. 2025: 5 (6) countries, 41 offices, 25,000 clients, 700 employees (11th largest accounting firm in Australia, excluding the Big4).
💪One of Kelly Partners Group's (ASX:KPG) most interesting 2024 acquisitions, FRSCPA, concerns a Partner office in the US that handles the accounting for 700 McDonald's franchises, representing about 5% of MCD.
🗂️Kelly Partner Group (ASX:KPG) Catalyst Eventi
Kelly Partners Group (ASX:KPG) paid a dividend until February 2024, but then cut it to zero to free up cash for acquisitions. This pattern was echoed by another Constellation family company that followed this philosophy, Computer Modelling Group (TSX:CMG), which cut its dividend by 90% for similar reasons. You can read its analysis here: Computer Modelling Group Stock Analysis (TSX:CMG).
Brett Kelly moved to the US in 2023 to oversee expansion there. This has paid off, with KPG now having 7 US accounting offices and their ADR listing in the works. With Kelly Partners Group (ASX:KPG)'s (ASX:KPG) largest market being the United States and their revenue growing at a CAGR of 30% per year, the future looks promising.
🏰Economic moat🏰
In this segment, I examined whether the company has any economic competitive advantage, which Warren Buffett referred to as the “economic moat,” which deters competitors from besieging the company’s fortress, i.e. its business, and taking its market. In this case, these could be the following:
- 🫸Cost/scale advantage: there is none, Kelly Partners Group (ASX:KPG) is simply too small for this, with this market capitalization it is not possible to judge this yet. However, I do not rule out that in the future there will be cost-cutting factors resulting from the much larger size.
- 🫸Switching cost: van, every accounting firm has this, especially those that treat their clients very well, which is why a high Net Promoter Score is interesting.
- 🫸Network effect: maybe there is. It is an interesting question whether an accounting firm is capable of doing something like this, this is more typical of companies with a platform, but KPG has such a common system with its Partner Offices. However, it is very difficult to judge the strength of this, and since an outsider cannot look into this for obvious reasons, I cannot say how strong it can be. I assume that if instead of 35 offices, 350 will be channeled to the platform, then we can say that the network effect is working, which could bring efficiency improvements for further, future partners as well.
- 🫸Brand strength: there is none, although it seems to me that Brett Kelly has built a pretty strong personal brand and a methodology that he is trying to sell as unique. I have no doubt that this will be worth something, but I think it would require a much larger company size.
- 🫸Company culture: van, I think this is the biggest competitive advantage of this serial acquirer. The capital allocation is incredibly smart, the system is decentralized, and the operation is efficient, for example, they operate with a very low staffing level. It echoes countless principles that I have seen from previous legendary capital allocators.
- 🫸Intangible assets, know-how, trademark: there is none, although the POD method has been protected, I don't think this is a huge economic competitive advantage yet. I find it difficult to see know-how developing in this industry, since accounting is carried out within a strictly regulated legal framework. What could be a methodological advantage, however, is that a lot of accounting firms specialize in the legal environment of only one country, while Kelly Partners Group (ASX:KPG) is present in 5 countries at the same time, It's true that these are largely Anglo-Saxon countries with similar laws.
- 🫸Barriers to entry: medium, but it is not the capital barrier that is decisive, but rather the knowledge barrier. Anyone can start an accounting firm as long as they have a certified public accountant (CA or CPA) qualification. However, these are highly qualified people with high added value, and that is why there are not one of them running around on every corner. Thus, the most important limiting factors are education and trust, as well as the difficulty of acquiring customers, because companies and entrepreneurs are reluctant to change their accountant. I also find it difficult to see which other accounting firm will build a centralized platform, which Kelly Partners Group (ASX:KPG) currently has, while remaining decentralized in its organizational operations. However, this is not as good as creating, say, a processor factory or avoiding natural monopolies, such as the rail network of railway companies. But, this market is still much more difficult to enter than the clothing industry or the FMCG sector.
The above shows that Kelly Partners Group (ASX:KPG) does not yet have a wide moat, because it is difficult to adequately justify this with such a small market capitalization. What I think is already clear is what the founder wants and the growth in size may result in cost efficiency, network effect, brand power, and possibly some know-how, which can strengthen their competitive advantage, so KPG is typically a company that can be classified as a developing competitive advantage.
(I.e.What is certain is that every accounting firm has switching costs, KPG has a distinctive corporate culture and excellent capital allocation. But, to me, this is still a very thin economic moat, which is constantly widening, which is supported by numbers that are much better than industry metrics.
🎢Kelly Partners Group (ASX:KPG) metrics🎢
In this section, I examined what metrics characterize the company, how it stands on the revenue side, what margins it operates with, whether it has debt, what the balance sheet shows. I look for items that are extreme – too high debt, high goodwill, etc. - what return on capital the company works with, what its cost of capital is, how the revenue and cost sides are structured. I also examine trends, owner value creation, and how the company uses the cash generated.
📈What is the S&P 500 yield?📉
Compared to previous analyses, I have introduced a new section to compare the metrics below. Since many people use the US stock market index as a benchmark and also buy S&P 500 ETFs, it is worth looking at what companies are doing in aggregate (of course, you should be happy if the company you are analyzing is outperforming these values).
S&P 500 2024 data:
- 📈 SP&500 revenue growth: + 7 %
- 💹 SP&500 Profit Growth: + 10 %
- 📊 SP&500 gross margin: 45%
- 💼 SP&500 net margin: 13%
- 🔁 SP&500 ROE: 15%
- 🏗️ SP&500 ROIC: 12%
- ⚙️ SP&500 ROCE: 11%
As usual, I tried to find average metrics for the accounting segment and luckily, Kelly Partners Group (ASX:KPG)'s filings have some clues that might help. The rest of the numbers look something like this:
- 📈 revenue growth: +3-4% growth (which is the average growth of the accounting market),
- 💹profit growth: +5-7%,
- 📊 gross margin: 45-60% (labor-intensive, but not capital-intensive business),
- 💼 EBITDA margin: 18% (we know this from Kelly Partners Group (ASX:KPG) reports),
- 🔁 ROE: 15-30%,
- 🏗️ ROIC: 12-20%,
- ⚙️ ROCE: 15-25%.
The above numbers are unfortunately quite shocking, as the 4 largest accounting/auditing companies are private, which is usually a good thing because they don't have to raise capital from the markets. IKEA? Private home furnishing store. Redbull? Private energy drink company, none of which need external sources to run their business profitably. Smaller firms are probably a bit worse, while the largest publicly traded players like Paychex (PAYX), Intuit (INTU) and H&R Block (HRB) have similar or better metrics, but these are billion USD market cap companies, so you wouldn't expect Kelly Partners Group (ASX:KPG) to have such good metrics, even if they are not far behind.
💡I would also like to point out that this is a small-cap company, so there is very little financial data available for analysis. That is why I do not use the iO Charts blogI usually analyze these types of companies, but I found Kelly Partners Group (ASX:KPG) so interesting that I made an exception.
The company reports the numbers in Australian dollars, which is why they are shown in the pictures. Let's start with the usual revenue data. KPG has produced exceptional growth in some places, but as you can see in the picture below, major dips are not uncommon. This is not unusual for a serial acquirer; Constellation Software (TSX:CSU) also has years when it cannot deploy 100% of its operating income. That's why it's worth looking at the multi-year average, based on which revenue growth is accelerating, which is usually a good thing:
- 📊 10-year average income: 20,8%
- 📈 5-year average income: 24,2%
- 🚀 3-year average income: 27,6%
It is also interesting to look at the revenue breakdown, as Kelly Partners Group (ASX:KPG) has been out of Australia for some time now. However, this is not a significant item at this time, nor is the non-booking revenue, which is reported as “other”. The breakdown is as follows:
Territorially:
- 🇦🇺 Australia: 84,7%, AUD 113,6 million,
- ???? Other countries: 15,6%, AUD 21 million.
Distributed by sources:
- 🧾 Accounting: 95,4%, AUD 127,9 million,
- ️ Other services: 4,6%, AUD 6,7 million.
The image below shows how Kelly Partners Group (ASX:KPG)’s operating income is broken down. As you can see, COGS, which is the most significant item needed to keep the business running, is what makes up the gross margin. SG&A includes items like the salaries of its 700 employees, advertising costs, office rent and other administrative costs, which are negligible in this case. The question is why? KPG does not really spend on marketing, it operates in a fairly diversified and decentralized system to keep its costs down and autonomy in the operating units. But the trick is not here, but rather that I think they also record payroll costs, office rent and administration in SG&A, as if they were a kind of productive workforce, since an accounting firm has no real product. And the cost of maintaining the service is close to zero, in the traditional sense.
But then why is there an other expenses line? Because the previously mentioned 9% revenue distribution, IT costs, and acquisition-related items are also recorded here. The 9% item is designated as a kind of partnership benefit, that's why the amount is included in this line.
Having unpacked the above, let's look at the margins, which are quite typical. As you can see, the largest item is COGS, from which comes the gross margin, which fluctuates around 50%. Brett Kelly usually refers to the EBITDA margin, which is around 30% in Australia, while around 28% in other countries, which is why the difference in the picture is that only the half-year figures are shown here. What is also interesting is the FCF margin, because in the case of serial acquirers, one of the most important data is how much cash is generated. This can be channeled back to the parent company because Kelly Partners Group (ASX:KPG) operates in a parent company format.
The above is complemented by a special indicator, also used by Kelly Partners Group (ASX:KPG), this is NPATA, Net Profit After Tax Attributable, that is, the net profit after tax attributable to shareholders. NPATA does nothing more than:
- 🧮 starts from the net profit after tax, then
- 📊 splits it into majority/minority ownership, this is the certain 51/49% ownership ratio (since the company can only count on the profit that falls on its own share),
- 🤝 also subtracts partner benefits from it, this is the certain 9% (actually 6,5 + 2,5%) that partners can spend on business development,
- 🧹 does not include accounting noise resulting from acquisitions (e.g. goodwill).
Anyone who has read the Constellation Software analysis iO Charts blogon, you know that they also use a similar indicator called FCFA2S, which is nothing more than free cash flow to owners. It's pretty much the same as NPATA. But why doesn't KPG use the usual indicators, like net profit? It's because majority and minority ownership are consolidated differently on a company's balance sheet, but to do that you first need to understand the difference between minority and majority ownership.
🤏What is minority ownership?
Minority ownership is the share that the parent company acquires in another company, but its size does not reach 50%. Typically, these are significant ownership stakes, e.g. 20-40%, which allows the parent company to have a say in the operations of the other company, for example, it can put pressure on the management, delegate a board member, but it cannot control the entire company's activities. Typically, companies buy minority ownership in a company because they see it as undervalued, but do not want to merge it or have a deeper say in the management. For example, Constellation Software spin-off Topicus (TSX:TOI) acquired a ~25% stake in Asseco Poland, but most roll-over acquirers, such as Berkshire Hathaway.
👆Companies do not show minority ownership in their own balance sheets, so they do not consolidate their numbers, they only show the profit from it in their books.
🦣What is majority ownership?
Majority ownership is the share that the parent company acquires in another company, but the amount exceeds 50%. This also means that you will acquire a controlling stake in the company, meaning you will have full control over it, so you will need to display all of the company's numbers on your own balance sheet.
????Kelly Partners Group (ASX:KPG) includes all income, expenses, assets, liabilities, and everything of its partner companies on its own balance sheet, in accordance with IFRS rules, because it is the majority owner.
This distorts the balance sheet, so this must be corrected in some way for investors, otherwise people will not understand what the real value creation indicators are. The first and most important thing is to remove the very significant minority ownership from the numbers, which will be almost half of the profit, otherwise all indicators will be brutally distorted. A good example of this is the chart below, where you can see the EPS values, which appear unchanged, as all partners have been consolidated, but only about half of the revenue will count towards Kelly Partners Group's (ASX:KPG) cash generation capacity, as the other half remains with the partners.
source: Alphaspread, EPS of Kelly Partners Group (ASX:KPG), on paper
What can be done? Somehow, we need to remove the minority interest figures from the balance sheet, and for lack of a better idea, operating cash flow/share seems to be the most suitable. I'm not saying it's perfect, but I haven't found a better one, and it doesn't include the minority interest income, only the cash that was actually generated. The picture above shows that even though the price falls, the EPS remains almost the same, with a very small spread, between 0.1-0.08.
In contrast, the OCF/share increased from 0.1 to 0.7, so seven times, and if you look at the orange graph, you can also see that the price has halved. This is not worth talking about here anymore, it will be important later on the valuation, what you need to take with you is that Kelly Partners Group (ASX:KPG) is almost unanalyzable with the metrics I have used so far, which I have used in previous stock analyses: Stock analyses.
The beauty of it is that NPATA is not a “classic” accounting metric, so you won’t find it in data sources like EBIT or net profit. Fortunately, Kelly Partners Group (ASX:KPG) is here to help investors by reporting these figures in both its quarterly and annual reports, as shown in the image above. Note that there are footnotes for many of the metrics, as traditional ROIC, ROCE and ROE are also distorted, so the company has recalculated these to adjust for majority ownership, debt and a few other things.
💡The numbers above are excellent, I have one problem with them: it is almost impossible to calculate their accuracy, you simply have to calculate them. correct And I think that in the case of Kelly Partners Group (ASX:KPG), you have to have a lot of conviction to hold the stock. If this is not the case, you can reduce the risk of KPG exposure by using more conservative position sizing.
🧮What do ROIC and ROCE metrics show?🧮
ROIC – Return on Invested Capital – shows how efficiently the company uses its total invested capital to generate profit. Read more here.
- It shows the company's fundamental value creation capability.
- It filters out the impact of the financing structure.
- If ROIC exceeds the cost of capital (WACC), the company is creating value.
ROCE – Return on Capital Employed – shows how efficiently the company uses its long-term financing sources. Read more here.
- It measures the profitability of business activities.
- It does not take into account tax effects.
- A good basis for comparison between different industry players.
| Indicator | What does it measure? | Who is it useful for? | When is it considered good? |
|---|---|---|---|
| ROCE | Total return on capital | Long-term investors | If higher than the industry average |
| ROIC | Return on invested capital | Equity investors | If higher than WACC |
| ROE | Return on equity | Shareholders | If stable and sustainably high |
Kelly Partners Group (ASX:KPG) Ownership Value Creation
On the owner value side, I usually look at what the company uses the free cash generated. Basically, a company can do the following things with cash:
- 🔄 puts it back into business
- 📉 reduced debt
- 💵 pays dividends
- 📊 buys back shares
- 🏢 acquires other companies
In the case of Kelly Partners Group (ASX:KPG), I have already presented the difficulties of analysis above, but it is worth talking a little more about value creation. KPG has not paid a dividend since 2024 and does not plan to bring it back in the near future, leaving more capital for share buybacks and acquisitions. Although the number of shares fluctuates minimally, around 45,3 million, shares have never been truly diluted, and they don't have a stock option program, so you can tick these two questions, but otherwise the number of shares has decreased by 0,5% since the IPO. Mostly Brett Kelly gave up some of his own shares so that others could also participate in KPG. These are basically creedal items, Brett Kelly talks a lot about proper capital allocation, so I took both as positives.
The basic business requires very little capital, as accounting is not a capital-intensive business. Their internal, most important value creation indicator is ROIC+organic growth, just like in the case of Constellation Group, where the Mark Leonard effect is also felt. This typically ranges around 25-30%, which is the level of top serial acquirers.
What is particularly interesting is that internal, organic growth is around 4-5%, which is much higher than CSU's, where low single-digit declines are not uncommon, with a slightly higher ROIC. However, it is a company with a market capitalization of many billions of USD, while Kelly Partners Group (ASX:KPG) is dwarfed, so it can take full advantage of its small size.
This is most evident in the fact that they are using the cash generated to acquire other accounting firms, which they are partly financing with debt. This was also not easy to sort out, but fortunately the quarterly reports help with this as well. The debt structure looks like this (their reports have USD, but the books have AUD, I have summarized this for clarity):
- (I.e. Gross debt: 65,3 million USD,
- 💵 Cash: 6,8 million USD,
- (I.e. Net debt: 58,5 million USD,
- (I.e. Total budget: 82,2 million USD,
- 🢢 Remaining available credit limit (cash + facility): USD 23,7 million, or approximately 36% of the credit line, is still available.
Not much else follows from this, as we don't know the cash-generating ability of Kelly Partners Group (ASX:KPG):
- 📊 Income: AUD 134 million, USD 92,4 million,
- 📈 EBITDA: AUD 35,6 million, USD 24,5 million,
- 💵 Operating cash flow: AUD 31,7 million, USD 21,9 million,
- ???? Free cash flow: AUD 25,5 million, USD 17,6 million.
There are a few important things in the picture above, one of which is the WIP and Debtors section, this is called the lockup period. This is nothing more than the amount of money that the accounting firm has already invoiced, but has not yet collected, so the work is already in, but has not yet been realized on the company's side. I would like to quote from an In Practice article:
- "The accountancy industry average is around 80 lock up days; 25 WIP days and 55 debtor days. KPG is ~55 lock up days with only 9 WIP days."
In other words, KPG collects these items in just 64 days, significantly more efficiently than the average 80 days.
The numbers in the image above represent the pending, unbilled revenues and the debtors' debts, which is ~22 million USD, compared to 7.7 million USD of operating debt. If you subtract the two, you get a positive number, so you don't really need to worry about that. Acquisition costs amount to 54 million USD, which is how much is spent on acquiring companies, This is in contrast to the free cash flow, which is roughly $17.6 million. In Kelly Partners Group (ASX:KPG) letters, Brett Kelly consistently communicates that the acquisition debt will be repaid in 5 years, and this is roughly what the cash flow chart shows.
The “scheduled debt. reduction” line is 11.6 million USD, calculated over 5 years, this means 58 million USD, which is essentially the same as the net debt. It is also worth looking at the “distributions to non controlling interests” line, this is the cash flow that the owners who own 49% receive back. Essentially, all the data is available to interpret the debt, let's put them together:
- (I.e. net debt / EBITDA: 1.64, conservative (a value below 2 is generally considered safe, net debt/underlying EBITDA is called the gearing ratio. KPG uses this, which is a bit lower than what I wrote),
- 💵 net debt / OCF: 1.85 (calculated using leverage, from the product of OCF/share and the number of shares),
- 🔒 net debt / FCF: 2.3, also in a conservative range.
What happens if they can't acquire more companies, revenue falls, or an economic crisis occurs? On the one hand, this is not a cyclical industry, so if there are no acquisitions, 82% of the total debt will not be generated again in the future, the company will pay it off in 5 years, unless a complete collapse occurs. On the other hand, if cash generation is not drastically damaged, then in 2,3 years the debt will be zero and KPG will start generating net cash. In other words, the company uses debt as leverage and not for reckless acquisitions, as fashion companies have done in the past:
Debt is a much better capital allocation solution than equity dilution, it directly destroys the owner's value, but too much debt is also not good. The cyclicality shown in the picture above shows that sometimes the shareholder yield is positive, sometimes negative, so the average comes out to roughly 0%. In other words, overall, KPG neither creates nor destroys value by taking on and repaying debt, but debt always carries the risk that if the revenue figures are damaged, it can drag the company down with it. But, as serial acquirers grow, the ratio of debt to cash generation may decrease as the company scales. I quickly looked at what this looked like 20 years ago for Constellation Software, and as you can see, they were much more conservative with their drawdowns, their debt increased as capitalization and free cash flow increased:
So, Kelly Partners Group (ASX:KPG) uses more borrowed capital than this, so it is definitely worth monitoring its development in the longer term, but so far, there's nothing dramatic about this metric either. The good news is that as long as revenue and cash flow are growing at 20+% per year, they'll always outperform previous revenue. This is so true that the numbers have doubled roughly every 5 years.
💰One last important thought: the debt is not with the parent company, but with the partners, where the debt is offset by operating profit. For this reason, the partner offices have an interest in using as little capital as possible for operations, and in addition, the debt is dispersed among the partners, which is an additional motivational factor in addition to operating as efficiently as possible.
💵Kelly Partners Group (ASX:KPG) acquisitions💵
In this section, I examine how acquisitive the nature of the company is and what impact each acquisition had on the life of the company, if any.
In the case of Kelly Partners Group (ASX:KPG), the core business is acquisitions, so I won't go into detail about these, although this could be listed in the case of the current 41 offices. The point is how much capital KPG is able to deploy and at what rate. Since the revenue of each office is between 2-10 million USD, a single office does not have a very large impact on the parent company, especially since they only own 51% of these companies. But it is worth asking a few questions:
- 💰 At what valuation is KPG buying?
- 💵 How much accounting profit actually turns into cash (CCR, cash conversion rate)?
Let's start with the first one, valuation. I've read a lot, but most places mention 4-5x EBITDA, which is the acquisition price of Kelly Partners Group (ASX:KPG), meaning that's how much they're acquiring the partner companies for.
🫰Constellation Software usually gives a 1-1,5x P/S as an acquisition price, and assuming that accounting firms work with an average EBITDA margin of 18%, this means roughly 0,8-1 P/S, so the amount that KPG has to pay for its partner companies is similar or even lower.
This is a fairly typical valuation among successful serial acquirers, and since valuation plays a significant role in the returns on investments, it is in KPG's interest to keep it low. It is important to note that this valuation applies to the entire company, not just 51%!
The other important thing is that 51% of the Partners' revenues are channeled to the parent company, so the cash conversion rate must also be looked at, as this is the amount of money that can be allocated later. The cash conversion rate (CCR) measures how much of the company's accounting profit is converted into actual cash. The image above shows that this is close to 100, or more precisely 99,8%, which is extremely high. It should be added that KPG does not compare net profit with EBITDA, but rather operating cash flow. However, only the money that a company previously generated can be reinvested in the business, which is called the reinvestment rate.
????As the book The Compounders says, if you can reinvest 80% of your cash over the long term, you can truly harness the power of compound interest. Kelly Partners Group (ASX:KPG)'s 99,8% cash conversion ratio is a great starting point, and only time will tell how much of that is reinvested back into the business.
🎯How many targets does Kelly Partners Group (ASX:KPG) have and how many companies does it acquire per year?
In the case of Constellation Software, but even more so in the case of Berkshire, the problem is that as they grow in size, they find it increasingly difficult to deploy their capital. The problem is not only whether there are enough targets, but also that in the case of large-cap companies, they have to acquire more and more of the tiny targets or switch to much larger targets. In the latter case, however, returns start to fall, and less and less capital is being turned over because the cost of acquisitions increases. One of the big advantages of Kelly Partners Group (ASX:KPG) is that it is a small-cap company, so you can find plenty of acquisition targets who could become Partners. The question is, roughly how many such companies can there be?
The title of the image was TAM, or total addressable market, and Kelly Partners Group (ASX:KPG) expects that roughly half of the company’s management will want to retire in some form within 5 years. Interestingly, the above image shows 87,000 such companies, while the world-famous Constellation Software VMS database contains roughly 40-50,000 companies. This does not mean that this is the SAM, or serviceable market size, since we do not know what kind of companies these are. Kelly Partners Group (ASX:KPG), however, only listed countries that are culturally similar to Australia and the legal environment is not radically different from it. Obviously, there are many more companies in the market in other countries, but let’s stick with the number 87,000 for now. I think 10-25% of these fit into the philosophy that KPG represents, so the set is narrowed down to 9-22,000 companies. Let's take a very pessimistic case, 90% will be acquired by someone else, so only every 10th company will become a KPG Partner, so the set is narrowed down to 900-2200 companies.
Since its IPO in 2017, Kelly Partners Group (ASX:KPG) has acquired 5-10 accounting firms, but this number is likely to increase as KPG scales. Let's look at an extreme case where KPG:
- acquires 10 companies in the first year,
- the number of acquired companies increases by 10% every year,
- then in 20 years it will hold for 563 companies, which is still only 62,5% of the lower limit of the set.
Here I did not take into account that over time they can acquire larger companies, enter other markets, and I also stretched the growth to an extreme extent. So, if not indefinitely, then at least within a very difficult to predict period, the targets will run out. Constellation Software is a good example of this, they have acquired 1400 companies in 30 years and have not run out of targets yet, I think the shareholders of Kelly Partners Group (ASX:KPG) would also agree with this.
🤵Kelly Partners Group (ASX:KPG) management🤵
In this section, I examine who runs the company and how. What is the bonus system, how much risk – skin in the game – do the managers take on while running the company? Is there a family connection, or perhaps a special “heritage” factor?
Kelly Partners Group (ASX:KPG) does not list its management on its official website, only the board members. This is surprisingly unusual if you have only analyzed American and European companies so far. Where is the trick? There is no separate management, but a board, and these people also carry out operational tasks. This is not unusual for Australian companies, but it also means that it poses a very high risk, as a key person can be removed for any reason. In return, the management costs are very low, this is called the lean model, which is acceptable for a company of this size.
🦹Brett Kelly
- 📍Position: CEO, founder, owner, chairman of the board, I've already written everything about him, but he is a brilliant capital allocator who was raised on the principles of Buffett, Munger, Chris Mayer and Mark Leonard and follows this philosophy.
- ⏳Experience: more than 20 years of experience, chartered accountant qualification, which is roughly the European equivalent of a certified public accountant.
- 💰Reward: 1,6 million AUD. Previous interesting fact: Brett Kelly's salary was 360,000 AUD (certified public accountants earn three times as much as an employee per year in Australia) until 2022, which was calculated by the board of directors in 2017, when the company had revenue of 36 million AUD, so his salary, 1% of revenue, was 360,000 AUD. Between 2017 and 2022, so it remained the same for 5 years and he was not given a raise. The logic remains, but since then it has been modified as follows: “The total fixed annual remuneration is based on 1% of Kelly Partners Group’s actual, audited revenue.”– 2025 KPG Annual Report.
- 📈Capital in the company: He owns 46,5% of the company, which is currently worth AUD 210,8 million and 21,1 million shares. He is expected to release 11% of his capital if Kelly Partners Group (ASX:KPG) is listed as an ADR on the US stock exchange.
📌In practice: in the case of Kelly Partners Group (ASX:KPG), almost the entire headquarters is run by Brett Kelly, which in itself carries personal risk, but the partner offices are completely decentralized, which is the essence of the company. In light of this, Brett Kelly's salary is high, 1% of revenues, in return, the other board members essentially only have nominal salaries, even at this tiny capitalization, these are not significant amounts. Theoretically, the annual report includes short- and long-term incentives, which may have been known as STI and LTI from other companies' statements, but currently their value is zero. Since there is no real management, and based on the CSU philosophy, it is unlikely that there will be, since the head office there also consists of a few dozen people (I read 36 at KPG), even though it is a 50 billion USD company, so the salaries should be looked at at the Partner level. Since everyone there is a 49% owner, the increase in value for them actually comes from the increase in the price of their share.
Kenneth Ko
- 📍Position: CFO, founder of KPG Hong Kong office, head of Partner office
- ⏳Experience: Kenneth is a Chartered Accountant with over 18 years of experience in auditing and commercial accounting. He started his career in 2007 at BDO, a major competitor, before joining Chandler Macleod in 2011 in a commercial accounting role. In 2013 he moved to Coca-Cola Amatil where he was responsible for leading the financial accounting team. In 2015 he joined Kelly Partners as a Finance Manager in the North Sydney headquarters. He subsequently founded the Hong Kong office of Kelly Partners in 2016 and has served as Chief Financial Officer (CFO) of Kelly+Partners Group since October 2020. He is not a board member, but he is always there with Brett Kelly at the semi-annual and annual meetings.
- 💰Reward: not known.
- 📈Capital in the company: does not have a significant stake in the company.
🤵Stephen S. Rouvray
- (I.e.Position: Independent Deputy Chairman of the Board, non-executive director
- ⏳Experience: Mr Rouvray has over 50 years of experience in the financial services sector, in a number of senior management roles. Within this 20-year period, Stephen has held the position of Company Secretary, which included subsidiaries in the life and general insurance, investment management, fund management and banking sectors. He began his career in accounting from 1971 to 1984. Since retiring as Chief Financial Officer (CFO), Stephen continues to represent AUB Group as a director on the boards of two associated companies. He is the Chairman of the Risk Management Committee.
- 💰Remuneration: 40,000 AUD.
- 📈Capital is in company: owns 0,33% of the company, which is worth AUD 1,25 million and 150,000 shares at current value.
🤵Paul Kuchta
- (I.e.Position: managing partner, member of the board of directors of KPG, founding member of Kelly Partners Norwest
- ⏳Experience: more than 20 years of experience, chartered accountant qualification, which is roughly the European equivalent of a certified public accountant.
- 💰Remuneration: 40,000 AUD.
- 📈Capital is in company: He owns 0,4% of the company, which is worth AUD 1,7 million and 181,300 shares at current value.
🤵Ada Poon (Full name: Ada Wing Tak Poon)
- (I.e.Position: Managing Director, Senior Partner
- ⏳Experience: has over 20 years of professional accounting experience. He is a Chartered Accountant and SMSF expert advisor with expertise in outsourced financial services, personal business compliance, taxation and self-managed superannuation funds.
- 💰Remuneration: 40,000 AUD.
- 📈Capital is in company: 0,9%, AUD 3,4 million, 409,000 shares.
🤵Ryan MacNamee
- (I.e.Position: independent, non-executive chairman
- ⏳Experience: I couldn't find any clear information.
- 💰Remuneration: 40,000 AUD.
- 📈Capital is in company: He owns 0,22% of the company, which is worth AUD 213,000 and 100,000 shares at current value.
Total remuneration of the board members:
📌In practice: I have several thoughts on the above, on the one hand, the management data is terribly incomplete, and the board of directors is essentially the same as the management. How normal this is is a matter of perspective, the head office department of companies with a decentralized structure always consists of terribly few people. This is a bit of a characteristic of companies with such a small market capitalization, but since Brett Kelly could make the decision almost alone anyway if he wanted to (but that's not the case), it is not particularly significant. It is much more because the Partners, i.e. the managers of the separate offices, are very loosely connected, but run the offices themselves. For this reason, you can see the managers in two places:
👤Lawrence A. Cunningham
He has also been mentioned before, he has not been a member of the Kelly Partners Group (ASX:KPG) board since March 2025. The official narrative in this regard was that he resigned for personal reasons, while rumors said that he had completed his duties at KPG and, since he is also on other boards, is focusing on them. What exactly this means is shown in the list below:
- 🚀Constellation Software (CSI): Board Member (Canada).
- 📈Markel Group: Board Member (USA).
- ????The Chapters Group: Member of the Board of Directors (Germany) – from May 2024.
- 🤝Kelly Partners Group (KPG): Board Member (Australia) – until March 2025.
In fact, he does the same thing at The Chapters Group as he did at Kelly Partners Group (ASX:KPG), helping to build a decentralized structure and implement a “quality investor” culture. As you can see, he is a permanent director at both CSU and Markel, so he cannot participate in endless boards, especially since they were spread across 3 continents.
- Brett Kelly: look, it was an amazing privilege to have Lawrence on the board for three years. He contributed then; he's contributing now. He's introduced us to great people, who have helped us level up our understanding of what's possible. For instance, Lawrence introduced us to the senior team at Constellation Software and allowed Ken and I to attend the conference in Toronto last October, which was unbelievable in terms of a life experience. I participated in an interview with Mark Leonard, and it was well received. That's given us a lot of confidence that we're on the right track. You know, when someone like Mark looks at the business and thinks it's okay, that's, on a personal level, very helpful.” – 2025 H1 KPG report
- "He simply said to me (LA Cunningham):"Brett, you know, I can't keep doing everything, and I can't do the thing that pays me the least." I respect that. He's been a huge friend to the business and is continuing to support what we do." – 2025 H1 KPG report
Other owners with significant capital
Another interesting fact is that in the case of Kelly Partners Group (ASX:KPG), in addition to the usual financial funds, private individuals also largely own significant capital in the company:
- 🤵Craig Bullock: 0,58%, worth AUD 2,2 million, 264,000 shares.
- 👥3 more individuals: ~0,18%, for AUD 681,000, 82,000 shares.
🆚Competitors: Kelly Partners Group (ASX:KPG) opponents🆚
In this section, I examine who the competitors of the analyzed company are, what is their market position, whether they are in a subordinate, secondary or superior role. What is their market share and what is their specialty? Are they losing or gaining market share to their competitors?
In the case of Kelly Partners Group (ASX:KPG), I think competitors should be divided into two categories. We can view competitors as simple accounting firms, or we can view them as serial acquisition companies that buy accounting firms. Let's start with the first one, because specific data on this is available in Kelly Partners Group's investor letters, as well as in its semi-annual and annual reports:
In the list above, you can see that they have a 3% market share in Australia and are the 11th largest accounting firm, excluding the Big 4 audit firms. If you go back a few years in the various reports, you will notice that in 2022 they were the 22nd largest on the list. This is good in that the company still has plenty of time to grow in its home market, and my guess is that in 1-2 years they will be in the top 10 companies in terms of revenue. The bad thing is that there are a lot of competitors, but as I mentioned earlier, the accounting market is extremely fragmented.
I will highlight a few interesting facts about the Australian market:
- Index: is not a listed company, essentially financed by private equity funds, but they also integrate accounting firms into themselves, in a "family-office" manner, but they do not have a special motivational system like KPG's Partner-Owner Model. KKR owned 40% of the company, but they recently sold it to Mercury Capital. It is much larger than Kelly Partners Group (ASX: KPG) in revenue, it was 500 million AUD in 2025, but their targets are similar, second on the list.
- William Buck: It targets a similar clientele as KPG, but they are active not only in Australia but also in New Zealand, but it is also not a publicly traded company, so we don't know much about its metrics.
- Count (formerly CountPlus, ASX:CUP): They were recently left by KPG, which also deals in acquisitions and partnerships. In terms of metrics, Kelly Partners Group (ASX:KPG) beats them to death.
Another interesting fact about the list above: after the big 4, the 5th largest company in the world is BDO (they also certify Kelly Partners Group's annual reports), and the 6th is RSM, these are real giants, they have nothing in common with KPG because they are shooting at much bigger targets. However, I have not found another serial acquisition company in Australia that is absorbing accounting firms.
Let's look a little further afield and see how many companies similar to Kelly Partners Group (ASX:KPG) exist in other markets:
- (I.e.Azets / CogitalGroup (UK): One of Europe's fastest growing accountancy aggregators, acquiring offices in the UK and the Nordics. Private equity backed, unlisted, with annual revenues of £700m and over 90 offices acquired.
- (I.e.EisnerAmper (Private equity investment, USA): In the US, several large accounting firms have been acquired by private equity groups to use them as platforms to acquire smaller firms. TowerBrook Capital Partners, also a private equity fund, is the majority owner in the US market.
- (I.e.TaxAssist Accountants (UK): a network operating in a franchise model (UK, Australia, Ireland), which similarly specializes in small and medium-sized businesses, although they prefer to build a franchise, not necessarily a 51/49 ownership model.
The common feature of the above is that they are not really competitors of Kelly Partners Group (ASX:KPG), which is because private equity funds typically do not want to become permanent owners of a merged company and do not want to leave it independent. The permanent home nature does not apply to these types of companies at all, KPG has a completely different value proposition compared to these companies. Nevertheless, it cannot be said that they do not compete with each other in any way, because not all owners want to find a new home for their company, where only price matters, venture/private equity funds will prevail, because there it is not a philosophical question what will happen to the company.
⚡What are the risks of Kelly Partners Group (ASX:KPG)?⚡
In this section, I examine all the risks that could affect the company's long-term future. Currency, regulatory, market disruption, and so on.
In the case of Kelly Partners Group (ASX:KPG), there are a couple of very clearly identifiable risks, but many typical problems can be eliminated from the picture. KPG is not a cyclical company, it is not affected by customs restrictions, as it does not manufacture products, there is very little regulatory risk (the laws may change, but they will not restrict or break up), it is extremely diversified due to its many offices, it does not dilute shareholders, and I could list more. However, what you need to pay attention to is the following:
👤Key Person Risk – Brett Kelly
- 🎯 The engine of the vision: Brett Kelly is not only the founder, but also the sole face of the strategy. The company's success is built on his personal ambitions and the "Quality Shareholder" philosophy that Cunningham taught him. As was evident from the composition of the management/board, he is the most important person.
- (I.e. Elimination: if he were to leave for any reason, market confidence would be shaken, as there is currently no successor of comparable caliber appointed.
- ️ Control: Due to its nearly 47% ownership, small investors have practically no say in decisions, but I think this is not a problem at our level for now.
📌In practice: The owner-operator model is always a double-edged sword. Since his personal influence is enormous, the question is whether people will believe that what he says will continue to be true in the future and that he will not deviate from the designated path, because then KPG will also deviate. On the other hand, and in my experience this is much more likely, since his interests are completely aligned with Kelly Partners Group (ASX:KPG), he will manage the company excellently as long as he knows how. What is good for Kelly is good for KPG.
How would they replace Brett Kelly as CEO if something were to happen to the company? KPG is constantly looking for talented accountants and accounting firms. They have a task force for this, which they call the “Eagle Scout Group” internally, which, according to the 2025 half-year report, included 12 experienced Partners who have been in business for more than 10 years. Their task is to find potential future targets and instill in them the Partner-Owner-Driver mentality, so that the company becomes less and less dependent on Brett. Where does this sound familiar? Of course, from Constellation Software, they have a database of 40-50,000 companies: Constellation Software Stock Analysis (CSU) – In Series.
📉The historic failure of the “roll-up” model
- 🏗️ Bad examples: A few have already failed with the serial acquisition model, such as Stockford or Dentist Health, which tried to grow too quickly without integration.
- 🧩 Integration difficulty: Each new office brings its own culture. If the central “Kelly Partners Way” cannot unify them, the system could fall apart, but so far, the opposite has been the case.
- 🤝 Motivation: If, despite the 51/49 model, the local partners “get tired” after the payment, profitability will plummet. This is also not very likely, since KPG undertakes to double revenues within 5 years, so essentially the original owner will get back the entire company revenue. This is, among other things, the guarantee of the operation of the model.
📌In practice: Dental Health Group was a company that acquired dental practices, but it did not reward the previous owners with extra capital and rapid growth, they became employees rather than Partners. No wonder they were not interested in running the aggregator company.
I heard about Stockford Ltd. in an In Practise article, I'll quote what was described verbatim: „Stockford Ltd was a major Australian bankruptcy in the early 2000's which, on the surface, followed the same strategy as KPG. Stockford and Kelly are quite different; Kelly is probably much better aligned. Stockford bought 100% of the businesses, with some buy back entitlements for some of the people, for equity in Stockford. They were paying a little bit of cash out, but it was mostly in stock and they acquired 100% of the organization. The incentives were great while Stockford's share price was going up. As soon as it turned around, the incentives were appealing, because everyone wanted to own their own business again."
The above shows what the problem was: the former executives of the companies acquired by Stockford were not interested in adding much to the new company, but it was a roll-up company, not a programmatic acquirer like Kelly Partners Group (ASX:KPG). And that's the point: the corporate culture and motivational factors are what make KPG work, which in itself is not that easy to copy.
💰Valuation and equity arbitrage
- 📈 Overpricing: if KPG shares become too expensive, the market will have irrational expectations for growth (we are very far from that at the moment).
- (I.e. Purchase prices: If competitors (e.g. Private Equity funds) raise the prices of accounting firms, KPG can no longer buy new partners cheaply, thus slowing down the growth engine.
📌In practice: The above risk is actually the Constellation Software problem. Both CSU and KPG acquire companies at around 5x EBITDA. Since the average EBITDA of accounting firms is 18%, they buy offices at roughly a P/S=1 valuation, while CSU is at around P/S=1-1,5x, which is a similar value. However, it can be seen that above a certain company size, this low valuation is simply unsustainable, because the large amount of cash can only be invested in much larger targets, which in turn attracts more competitors and drives up prices. As a result, either the return falls due to the higher price or the company cannot find a sufficient number of targets. Assuming that Constellation invests 1500-2000 million USD annually, while KPG invests 15-20 million AUD annually, which is 10-14 million USD, the ratio of the invested cash is a thousand times. This growth was achieved by CSU over 20 years, so you'll first have to worry about it around 2045, assuming the accounting market and VMS software market are similar in size and that Kelly Partners Group (ASX:KPG) never spins off any companies. Read more here: Constellation Software Stock Analysis (CSU) – In Series.
🌎Geographic (FX) and focus risk
- 🗺️ Too many fronts: the company is simultaneously trying to dominate Australia, break into the USA and gain a foothold in the UK.
- 🛡️ Local knowledge: The American tax system and business culture are radically different; there, KPG is just “one of many” and management attention can be fatally divided.
📌In practice: This is a very interesting risk and I think it needs to be given much more attention than it might seem at first glance. First of all, currency risk can distort revenue figures in the sense that right now the Australian market, i.e. AUD/USD, is the focus, but I would be surprised if the European or US operations did not outgrow their domestic markets in the coming years.
The other is the cultural differences, although Brett Kelly covered this quite well by first embedding themselves in the Australian diaspora and providing services to them. Of course, we don't know how successful this will be, as there has been substantial work in the US market for about 2 years, while in England it hasn't been that long. However, given the national connection and the discipline of Kelly Partners Group (ASX:KPG), I think this is a feasible strategy.
➕Other critical factors
- 🇧🇷 Labor shortage: Retaining talented staff is becoming increasingly expensive, which is narrowing profit margins.
- 💻 Technological debt: The integration of IT systems (cybersecurity, data management) of many offices acquired from different sources is a huge and risky expense.
- (I.e. Credit Encumbrance: Although cash flow is strong, capital is needed for continued acquisitions. In a high interest rate environment, growing from debt can become a dangerous game.
📌In practice: The answer to the first is that they are already recruiting labor from abroad, such as WorkPod. If labor costs become expensive and KPG has a strong enough competitive advantage, I think it can pass these costs on to its customers, but for example, AI is a great tool to replace low-value-added work. A software can fill out forms, write numbers in fields, etc. I think this is primarily IT development.
This brings me to the second issue, data management. Since each office is essentially autonomous, but uses a common platform (The Kelly+Partners Business System), which is a cloud-based CRM platform that all offices access, it could theoretically be a victim of a cyber attack. The headquarters is located in the North Sydney office, and accountants typically have very sensitive client data.
When it comes to borrowing, debt has the unfortunate property of having to pay interest even when revenue and profits fall. Because Kelly Partners Group (ASX:KPG) is financing its acquisitions with debt rather than through share dilution, a rising interest rate environment means more expensive financing for them. However, because the cash flow of the acquired Partners offsets the borrowings for the acquisition, it is actually not as much of a risk as it might first appear. Even if the higher interest rate environment will weigh on returns, it will indirectly make it more expensive to acquire companies.
I made a self-check list that confirms the thesis about the company:
- low or zero debt: YES/PART/NOT
- significant economic advantage that can be protected in the long term: YES/PARTLY/NO
- excellent management: YES/PARTLY/NO
- excellent indicators, significant owner value creation: YES/PARTLY/NO
- The majority of the total return comes from reinvesting the cash generated, not from dividends: YES/PARTLY/NO
- appropriate company valuation: YES/PARTLY/NO
I was being quite generous with the above rating, as I also gave a YES to excellent management, but in reality that means one person, Brett Kelly, even though the organization is decentralized. I highlighted the debt risk as a potential issue, while I couldn't really connect with the other points. Plus, the valuation is fine, as you'll see below, so there's very little reason not to take a position with this company.
💡However, it takes a lot of faith to hold Kelly Partners Group (ASX:KPG) because it is a small company, significantly more volatile than the bigger names and the ASX:KPG ticker also has low liquidity. This is likely to change in the future with the introduction of US ADRs.
👛Kelly Partners Group (ASX:KPG) valuation👛
In this section, I will examine the company's current valuation compared to historical values and consensus fair values.
Rating metrics
In the two rows below you can see valuation metrics. The first row shows the current valuation, the second row shows the historical valuation. Although I don't think these metrics are particularly good - they hide a lot - they can be used as a benchmark.
- Share price (2025-04-01) 6.65 AUD; EV/EBITDA: 11.68; P/FCF: 10.39 (Based on Gurufocus)
- Historical median valuation (10-year average): EV/EBITDA: 11.33; P/FCF: 12.01 (Based on Gurufocus)
Why don't you see a DCF model in this segment? Because each input data produces a huge variance in the output, and most of the data is an estimated value. Therefore, the valuation will never actually be a single exact number, but rather a range can be defined where the current valuation falls.
You should apply a margin of safety to this price range, according to your risk appetite.
So don't expect an exact price, no one can say this for a stock. However, there are fair value prediction services, almost every major stock screening site has one, I've aggregated them below. However, if you want a good stock support service, subscribe to The Falcon Method (The Falcon Method), entry prices are given for the stocks analyzed there.
Rating (ASX:KPG, no ADR)
- Wall street estimates: 5.78-8.95 = ~7,4 AUD (I took into account the Alphaspread, the average of the two extreme values:)
- Peter Lynch median: 2.79 AUD
- Morningstar: N/A
- Gurufocus: 11.22 AUD
- AlphaSpread: 6.86 AUD (% overvaluation compared to base case)
- SimplyWallst: 20.49 AUD
- Substack analytics: 12.24 AUD, 10 AUD, 9 AUD
Average (based on 6 reviews): 10 AUD (33,5% undervalued, but range 2.79-20.49 AUD)
How should you interpret the numbers? The above “margin of safety” rule should be applied according to your convictions, so if you really believe in the company, you can even buy it at fair value. Why is there no standard 10% Margin of Safety list here, which I use in all stock analysis? Because such a small-cap company is incredibly difficult to value, and a serial acquirer in particular. It is no coincidence that Kelly Partners Group (ASX:KPG) essentially does not use the standard metrics, instead EPS is replaced with NPATA (net profit after tax adjusted to exclude the amortisation of intangible assets), while instead of EBITDA they use an adjusted EBITDA. Then there is the 51/49 model, so in fact only 51% of the free cash generated can be counted.
| 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | |
|---|---|---|---|---|---|---|
| 11,33 | 13,99 | 12,01 | 17,84 | 20,19 | 20,19 | Australian cent |
| 442 | 449 | 492 | 1050 | 810 | 665 | Australian cent |
| 39,01 | 32,09 | 40,97 | 58,86 | 40,12 | 32,94 | P/NPATA |
| 42,209 | 5Y AVG | |||||
| 46,647 | 3Y AVG |
I've read quite a few articles about how to value Kelly Partners Group (ASX:KPG) and I've come to the conclusion that the closest thing to reality is the P/NPATA value. But screener sites don't publish this, so you have to calculate it back to an average from KPG's reports. This isn't so simple anymore, because NPATA per share is for a given period, while the price is for a given moment. Is it comparable? Not really, maybe you could average the price per day, but that's really just brute force. However, as you can see in the table above, NPATA per share is constantly increasing, so if the price falls in the meantime, the share can't be worth the same.
I also looked at the other metrics that fiscal.ai, as a data source, can provide and added them to the price chart. The stock last traded at its current price of AUD 6,65 in March 2024, when it generated significantly less NOPAT and free cash, but unfortunately both are skewed in the case of Kelly Partners Group (ASX:KPG). One thing you can accept is that in the current situation, these numbers are much higher than the previous price.
However, based on price movements, this is a particularly volatile stock, I have seen a 10% drop or rise within a day, so I wouldn't be surprised if the market couldn't properly value Kelly Partners Group (ASX:KPG). This is because I don't think anyone can properly calculate the fair value of the company, even if it seems undervalued based on traditional metrics and community knowledge puts this value at somewhere around AUD 10.
🌗Significant news and the last quarter🌗
In this section, I will examine what happened in the last quarter, whether there were any significant news/events. If the company reports semi-annually, we examined this period.
Kelly Partners Group (ASX:KPG) has organized two events in the past six months, one is the annual general meeting (AGM) in November, and the other is the 2025 H2 report, which was held in August 2025. I have aggregated the numbers from the two events because many things were said twice:
📊 Key financial indicators (2025)
- 💰 Revenue: AUD 135 million in the 2025 financial year, a 24,5% increase over the previous year (current run rate, meaning if we multiply the last months' revenue by 1 year, it would be 150 million AUD).
- ???? Organic growth: 4,5% (6,2% for smaller offices).
- (I.e. Operational EBITDA margin: 30,8% (for the Australian business).
- 💵 Underlying NPATE (parent company): AUD 9,1 million, a 13% increase (NPATE is the same as NPATA, except it does not include depreciation).
- ???? Operating cash flow: It increased by 23,3% to $24,9 million.
- 🌊 Free cash flow (FCF): After planned debt repayments, it increased by 7,2%.
- (I.e. Cash conversion (cash conversion rate): 99,8%, which is in line with the target of 85–100%.
- 🏛️ Parent company return on equity (ROE): 30,5% (five-year average).
- 👥 Group-level return on equity (ROE): 38,8%.
- ️ Net debt / underlying EBITDA: A multiple of 1,42x, indicating a conservative balance sheet structure and significant mobilizable capital (previously 1,28x).
- 🏆 Total shareholder return (TSR) since IPO: More than 1000%.
- (I.e. Share number: It has declined since the IPO, despite revenue increasing 4,5 times.
In 2025, Kelly Partners Group (ASX:KPG) acquired WorkPod, a staffing company that is expected to grow to 10,000 people over the next 5 years, supporting internal processes and customer service globally. The company has over AUD 300 million worth of potential partnership opportunities, and favors the use of internal capital for acquisitions over share buybacks due to the abundance of high-yield growth opportunities.
Regarding AI, the following was said: Management sees artificial intelligence (AI) as a “bicycle for accountants,” enabling a broader range of services and providing a competitive advantage, especially for larger firms like KPG, while smaller offices may struggle to adapt.
Although Kelly Partners Group (ASX:KPG) does not typically provide forecasts, it has rightly set a target of AUD 500 million in annualized revenue by 2031. This ambition is supported by a 35% annual book value growth target over 20 years (currently 35,4% after 19 years). If you multiply that out, you get roughly that value. While the company is open to raising capital at the right price, the immediate focus is on long-term debt structures, similar to Constellation Software’s model, to fund their acquisition strategy and global expansion.
A strategic review of the capital structure is underway: a significant Westpac bond issue and new generation debt financing options are being explored to accelerate growth while strictly avoiding equity dilution. International expansion accelerated: the American business reached the size it had taken in Australia for eleven years in just two and a half years. Part of the expansion includes entering the Irish and British markets through the QDOS network (60 companies in 48 countries). Significant amounts have been spent on PCAOB audits over the past two years, indicating serious consideration of a potential US or other (non-ASX) listing.
📌In practice: The PCAOB (Public Company Accounting Oversight Board) is a non-profit body created by the US Congress under the Sarbanes-Oxley Act (SOX) of 2002. Its purpose was to restore investor confidence after major accounting scandals such as Enron and WorldCom. Its task is to oversee accounting firms that audit publicly traded companies (Public Companies).
Why is this interesting for KPG? Because if they acquire accounting firms with PCAOB certification, on the one hand they can also audit listed companies, which means a higher quality, and on the other hand if they ever want to list Kelly Partners Group (ASX:KPG) as an ADR, then PCAOB compliance will be essential. This is another sign of efforts in this direction.
Another interesting fact is that Kelly Partners Group (ASX:KPG) replaced its previous auditor, Australian William Buck, in December 2024 and appointed American BDO as its external auditor. For this reason, if you read KPG's annual or semi-annual reports, you may have noticed that several members of BDO are present at these events to certify the financial statements and to answer questions.
KPG management comments:
Brett Kelly, CEO:
- "The business, again this year, has grown its revenue by 25%, as you can see on that front slide, which is consistent with an average revenue CAGR of approximately 30% over the 19-year history of the firm since 2006."
- "In terms of locations, there are 35 businesses located across Australia, the United States, Philippines, Hong Kong, India, UK, and Ireland. To think that our small four-person team started in June 2006 has been able to continue to grow in this way to a team of 700 people across these locations is gratifying, but we haven't finished yet, and we're not easily satisfied souls, so we're very excited about where we are and what lies ahead.”
- "That's recurring income streams with strong, you know, 4.7. We're targeting 5% organic growth. Our historic average growth rate is 4.7% and a very strong NPS. For shareholders, there has been 29.8% revenue growth per annum since 2007. Parent return on equity is 30.5%, a strong five-year average. Cash conversion is nearly 100% at 99.8%, and a more than 1,000% TSR since IPO.” (note: this kind of growth doubles revenue in less than 4 years)
- "In terms of capital allocation, we share this slide to demonstrate that we understand what capital allocation is and how to do it and do it effectively, and we think that it's a scorecard for our shareholders to really understand and think through." (note: therefore they do not dilute and pay dividends)
- "Our first and best use of our very limited capital is to buy into firms and partner with them where that opportunity exists. We are, frankly, overwhelmed with opportunity at the moment, so we haven't undertaken any buybacks. If we were to do that, these are the sorts of the company is trading at a share price today, that if we had excess capital, we would certainly be buying our shares back, and we would do that with a great deal of enthusiasm and on a large scale. Unfortunately, we're not in the position to do both at the moment, and so that's an opportunity for someone else. (note: the response to the lack of share buybacks, at a price of AUD 8,62, I read from this that he thinks the company is undervalued)
- “Over the last decade, there has been about a 50% decrease in the number of people studying accounting. It is very, very difficult to find high-quality people who have studied accounting and want to be accountants in public practice. The supply of accountants is very, very restricted and has been for many years now.”
- "There are 82 things that an accountant should do as a minimum for a private business owning a complex family group. Our study demonstrates that on average, an accountant in Sydney does about eight of those things. Accountants do about 10% of really what the client would want. That means that there is a huge amount of additional service that clients would happily take on if they were offered it. AI is going to allow us to do that.” (note: the answer to the question of how the company stands with AI).
- "Is the US listing still a priority? Under US securities law, we can't say much about any intention or otherwise that we may have to list on a US exchange, be that New York or NASDAQ, or in fact in Canada."
- “Six deals, a little bit less, it's ten deals. These are not numbers that, as a CEO and as a CFO, we can't top up and ensure that all of the elements that are critical to the successful application of our partner owner driver model are present to maximize the chance of success.” (Note: the answer to the question of whether the capital allocation will be done by someone other than the CEO and CFO in the near future, or no, but other directors and Partners will be involved).
- "The gentlemen that are the partners in that firm, we've been talking to since 2020. It's taken five years to get that business into our group, and we're very, very proud of the partners and the people that make up that business." (note: this is how the Bowral acquisition went, after 5 years of relationship, just like CSU)
Kenneth Ko, CFO:
- ". As Brett indicated, revenue AUD 135 million for the year, increased 24.5% on the prior year. Our margins of the operating business at 28.3%, and our underlying NPATE for the parent at AUD 9.1 million, representing a 13% increase on the prior year. In terms of income statement, as I covered before, I just wanted to highlight there that our Australian businesses are generating operating EBITDA margins of 30.8%, and those other items I have covered previously.”
- "As Brett said, our net debt to underlying EBITDA as of 30 June was 1.42 times, which increased slightly on the prior year due to the debt we used to complete the in-year acquisitions. As Brett indicated, strong return on equity measures there for the group of 38.8% and 31.9% for the parent." (note: Kenneth says this in connection with the 6 acquisitions in 2025)
Stephen Rouvary, Director:
- "The company's auditor for the 2025 financial year is BDO, represented by Jesshen Biller-Pillay and Tim Ammon of BDO. They are present to take questions relevant to the conduct of the audit and the preparation and content of the Auditor's Report."
Next half-yearly report: 2026.02.05. (reported semi-annually)
Kelly Partners Group (ASX:KPG) Summary
Summary of the analysis, drawing lessons.
Kelly Partners Group (ASX:KPG) is essentially a mini Constellation Software (TSX:CSU) just for the accounting market. Very similar principles, almost all the elements can be found in the operation of KPG that are also in the case of CSU. Extremely rough capital allocation, platform building towards Partners, target database, concentration on generated and reusable capital, low acquisition price, excellent relationship with Partner offices. Since it is a company with a small market capitalization, it has a very long run-up time, it can grow a lot. It looks like a real wannabe multi-millionaire company, which is a huge advantage.
But it is also a disadvantage, as the liquidity of Australian shares is low, the price is volatile, and like all serial acquirers, it is particularly difficult to analyze. There is little data, but there are a lot of special metrics, the usual indicators are not worth much. Moreover, the competitive advantage is still emerging, anything can happen from this story. A real coffee can portfolio company, you have to put it away for 5-10 years, lock it up and let it grow. But for this you have to take at least one starting position, but fair value is very difficult to determine, I think currently Nobody really knows this. It seems cheaper to me than more expensive if the high growth continues. But the main part of the sentences always starts after the word “if”, so it’s a matter of faith whether you think so. But as the saying goes: with great risk comes great reward!
Frequently Asked Questions (FAQ)
What kind of company is Kelly Partners Group (ASX:KPG)?
Kelly Partners Group is an Australian-based, specialist accounting and advisory network operating in a unique, decentralised structure under a publicly listed holding company. The company is essentially a growth platform built on serial acquisitions, specialising in the consolidation of accounting firms in the small and medium-sized enterprise sector. Unlike traditional auditing giants, KPG does not fully merge acquired companies, but integrates them into its own system under a majority ownership model. This structure allows the company to transform the low-risk, recurring revenue of the accounting market into a scalable and high-return-on-equity business machine.
What should you know about Brett Kelly, the founder?
Brett Kelly is the group's founder, CEO and largest shareholder, with over thirty years of professional experience in the financial services sector. He is known as a charismatic and disciplined leader who consciously modeled the company’s culture and capital allocation strategy on successful long-term investment models such as Berkshire Hathaway. Brett Kelly is not just an operational leader, but a committed advocate of the “quality shareholder” approach, having written numerous books on leadership and entrepreneurship, and whose personal wealth is closely tied to the success of KPG shareholders. His vision has shaped the decentralized system that allows the company to expand globally without sacrificing personal client relationships.
What competitive advantages does KPG have?
The company's main competitive advantage is its proprietary Partner-Owner-Driver model, which offers a structural solution to the accounting profession's biggest challenges, generational change and scalability. KPG has an extremely valuable and hard-to-copy database of potential acquisition targets, which is constantly updated and analyzed by their internal working group, the Eagle Scout Group. This unique data asset, combined with the efficiency of the central platform, allows the company to make acquisitions at lower multiples than the industry average, roughly 5-6X EBITDA, while maintaining high partner engagement. The strength of the brand name and the specialized range of services provide the group with a high customer retention rate and significant pricing power over competitors.
What is the essence of Kelly Partners Group's (ASX:KPG) 51/49 ownership model?
The 51/49 ownership structure is a fundamental cornerstone of Kelly Partners Group's operational efficiency and capital allocation success, aiming to fully align interests between headquarters and local office managers. In this model, the listed holding company acquires a 51% majority stake in the partner offices, ensuring strategic control and centralization of back-office processes, while the remaining 49% ownership remains with the local partner, who thus has a direct interest in the long-term profitability of the office and maintaining the quality of client relationships. This division effectively eliminates the loss of motivation that occurs in traditional acquisitions, as the partners continue to run the units as owners rather than employees, while the central platform relieves them of the administrative, technological and marketing burdens. The structure also offers a sustainable solution for professional succession and attracting young talent, while allowing the holding company to achieve extremely high returns on equity, often above 30%.
Why is KPG so similar to Constellation Software?
The parallel between KPG and Canada's Constellation Software lies in the serial acquisition strategy and the extremely decentralized management model. Both companies operate in fragmented markets where small, cash-generating units are acquired, based on strict financial criteria, and then left to operate autonomously while adhering to central capital allocation guidelines. Just like Constellation in the vertical software market, KPG in the accounting sector strives for continuous and high-return reinvestment of free cash flow. Brett Kelly specifically learned from Mark Leonard's methods, so non-dilution growth, maximizing return on equity (ROIC), and enforcing a long-term ownership perspective are central elements at KPG.
Who are Kelly Partners Group (ASX:KPG)'s competitors?
KPG's competitive environment is multi-layered and includes traditional mid-sized accounting networks, global consulting firms, and private equity-backed consolidators. In Australia, they compete with players such as Count Limited or Findex, while internationally, they compete with American and British aggregators pursuing a large "roll-up" strategy. At the same time, KPG differentiates itself by not striving for 100% ownership and complete centralization, which often leads to the departure of professional talent from competitors. Because KPG focuses specifically on private business owners, it often competes more effectively against smaller, local offices, which cannot boast the same technological and professional background.
In which markets is KPG present?
The company is currently building its presence in three main geographic regions, of which Australia represents the most mature and dominant market, with particular focus on the states of New South Wales and Victoria. The strategic focus of recent years has shifted towards the United States, where significant acquisitions have been made in Florida and California, taking advantage of the huge size and fragmentation of the American market. KPG has also begun entering the UK market, which is structurally and legally very similar to the Australian environment, making expansion there less risky. The company aims to create a global network that serves the needs of private business owners in the world's most developed economies.
What is the Partner-Owner-Driver model?
The Partner-Owner-Driver model is KPG's business engine, the essence of which is that the holding company acquires a 51% majority stake in the partner offices, while the remaining 49% is owned by local operational managers. This division ensures that partners act as owners rather than just employees, maintaining their motivation to increase the firm's profitability and retain clients. The model effectively manages leverage and risk sharing, as the local partner has a direct interest in controlling costs and maintaining dividend-generating capacity. This structure provides an ideal solution for retiring partners to sell their ownership stake, while creating an opportunity for the younger generation to become co-owners.
Is KPG a platform business? How does the parent company help Partners?
KPG is defined as a platform business that provides a central infrastructure for decentralized offices, relieving them of administrative and strategic burdens. The parent company provides partners with critical services such as advanced IT, marketing, HR support, compliance and legal advice, and a developed brand strategy. In addition, the platform allows individual offices to offer their clients complex services – such as asset management or specialized tax structuring – that they would not be able to maintain independently. This support system drastically improves the operational efficiency of the offices, allowing partners to spend more of their time on high-value client relationships.
Why do Kelly Partners Group (ASX:KPG) Partners pay 9% of revenue to the parent company?
The 9% service fee paid by partner offices (which is actually 6,5+2,5%, where the first is the service, the second is the trademark fee) is a central element of KPG's "Platform-as-a-Service" model, which provides the holding company with a high-margin, recurring revenue stream while creating structural efficiencies across the entire network. This fixed fee based on gross revenue covers the maintenance of a centralized operating system, including a global brand strategy, advanced IT and cybersecurity infrastructure, central marketing, recruitment, and strict legal compliance processes. For partners, this cost is actually an efficiency investment, as central "back-office" support frees them from administrative burdens, allowing them to devote a significant portion of their time to high-value-added customer relationships and revenue generation, which they could only achieve at a much higher unit cost in an independent small business setting. From an analytical point of view, this 9% ensures that the holding company receives stable cash flow even when the individual offices are still in the integration phase, while scalability reduces the proportion of central costs as the network expands, further improving group-level profitability.
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