One Big Beautiful Opportunity: Kelly Partners Group Holdings Limited
Who have you made better off today?
Disclosure: I own shares in KPGHF
Introduction
We’re starting this portfolio spotlight series with a stock that is near and dear to my heart. Kelly Partners Group (KPG) is an Australian based accounting firm that trades in Australia (KPG.AX) and the United States (KPGHF). As someone that’s spent almost a decade in the public accounting industry at a global firm, I got very excited when I saw an opportunity to invest in an accounting firm as all the big firms are all private and consistent money makers. Ask anyone in public accounting and they’ll tell you it is very lucrative to be a partner or shareholder. In this case, that would be us.
Founded in 2006 by current CEO, author and chartered accountant Brett Kelly, KPG has 35 locations around the globe starting in Australia and have slowly expanded into the United States.
With a philosophy to make clients ‘Be Better Off’, KPG has grown to 100 equity partners, over 500 team members and assists 14,000 private business owners.
95% of total revenue comes from tax and accounting services. The remainder comes from wealth management and other financial services.
The Founder
Brett Kelly is not your typical accountant.
An excerpt from KPG’s website:
Inspirational and insightful, Brett has presented to over one thousand audiences ranging from the National Press Club in Canberra to youth, business, community, sales, and corporate groups. He is an excellent keynote speaker, able to captivate a wide range of audiences by making a potentially boring topic interesting, relevant and practical.
In 1997 at age 22, unemployed, with no money, journalistic experience, connections, or publisher, he picked himself up, interviewed 34 leading Australian achievers – including Bob Hawke, Malcolm Turnbull, Poppy King, Gerry Harvey, Kathryn Greiner, Ray Martin, Imelda Roche, Jeff Kennett, Pat O’Shane and Peter Brock – raised funds, gathered the expertise to self-publish ‘Collective Wisdom’ in 1999 and made it a national best seller.
Every seven years subsequently, Brett has published a book focused on growing in Wisdom:
1998 Collective Wisdom
2005 Universal Wisdom
2012 Business Owners’ Wisdom
2019 Investment Wisdom
If you’d like to hear more about Brett’s story, I encourage you to watch the video below put on by The Investor’s Podcast Network. Brett is fascinating to listen to and I’m always impressed by his knowledge of history and the focus he puts on this business. He also moved from Australia to LA in order to spearhead the U.S. expansion
He also moved from Australia to LA in order to spearhead the U.S. expansion.
The System
While organic growth was 5% as of 1H25, acquisitions are the real driver of growth for the foreseeable future. KPG partners with firms on a 51%/49% split partnership with the current owners. The current owners are required to stay on for a minimum of 10 years with penalties for leaving before this time. KPG tends to handle the operations side of the partnership while the original owner continues to service existing client relationships. This model is meant to reduce turnover for both employees and clients.
The primary firm targets are founder led firms with between $2-10 million in total revenue with privately held businesses as the focus client. This size of firm typically has some really profitable clients and knowledgeable employees but usually lacks any advanced software and modern processes that could be a boon to efficiency and profitability.
As you’ll see from the chart below, the system seems to be working very well so far growing from $1.2 million of revenue in 2007 to over $108 million in 2024.
KPG continuously reinvests 9% of revenue and can fund new acquisitions from cash flows. EBITDA is much higher than net income as they have high interest expense and amortization from acquisitions.
They have a significant amount of long-term debt on the books but this is typical in the accounting industry, especially when you are on an acquisition spree. Cash flows are seasonal for tax firms. A bulk of the revenue comes in during the spring busy season when a majority of tax returns are filed. Firms can either stockpile cash for the year during this time or use a line of credit for the remainder of the year hoping to recoup the cash the following year. Hint: most choose the latter rather than the former.
I expect the debt balance to grow for at least as long as they are acquiring firms and although I’m not a fan of debt, this is a very defensive industry that can still cash flow even during recessions.
One Big Beautiful Opportunity
Okay, it’s actually multiple opportunities but I couldn’t resist using a Trumpism while I had the chance.
KPG didn’t expand into the U.S. until 2023 which is significant because the U.S. total addressable market is about 15 times larger than Australia.
The first offices were established in the Los Angeles, CA region which is a major hub for Australian expats. In August of 2024, KPG partnered with FRSCPA, a 40 year old CPA firm in Florida and North Carolina that helps approximately 5% of all McDonald’s restaurants in the U.S. with accounting services.
They are just scratching the surface of growth in the United States.
One unfortunate characteristic of the U.S. public accounting industry is that the average age of a CPA is around 55 years old. That’s a large number of firm owners that are succession planning in some form or another. Speaking from experience, one of the hardest parts of leaving the industry is losing the client relationship. KPG makes firm succession easier by allowing the partner to continue the client relationship while freeing up time to handle behind the scenes operations creating a flexible solution to retirement. On the flipside, we have seen declining rates for college students choosing accounting as a major. Less people are choosing to into the accounting profession for a variety of reasons. Lack of pay, no work life balance and the general boringness of preparing taxes are usually referenced as reasons to stay out of the industry.
Other Tailwinds
Aside from the U.S. expansion, there are other tailwinds that should help KPG.
I am of the opinion that our large budget deficits will lead to higher tax rates in the future. Any change to the tax code is complex. As we just saw, a lot of things have to go right just to pass the law, and accountants will be deciphering the changes for years to come. CPA firms are licking their chops at the revenue the One, Big, Beautiful Bill is going to bring in later this year and next as new planning opportunities were just created and compliance costs next busy season will inevitably increase.
Artificial intelligence is usually looked at as a threat in a lot of other industries. AI will definitely be a threat to smaller CPA firms that work on clients with simpler tax return filings soon. Think the people that have a W-2, mortgage and some investments but still have a CPA file their returns. Those filers are not KPG’s demographic. The privately held business clients that KPG is after have much more complex tax returns. While the products aren’t there quite yet, I see AI as something that can speed up the research process on a lot of complex topics. Firms won’t really have to replace their aging employees as they will have the help of AI which will save on labor costs and help the bottom line.
Currently, a very small percentage of total revenue comes from wealth management services. Wealth management is a common pairing with tax services in the industry. The firm I worked at started and sold their wealth management division to private equity on two separate occasions. I’m not planning on this happening as part of my thesis but the expansion of wealth management services would obviously create a lot of value.
Thesis
While I am long from lower prices and this is a boring compounder, I think this can at least double over the next several years and would not be surprised if we see more than that. The founder is only 50 years old and very driven to replicate the success of his idol Bernard Arnault at LVMH or the success of Constellation Software. The stock is probably on the expensive side at the moment but you won’t see many opportunities to buy this at a cheap multiple. CBIZ is the only other publicly traded accounting company (although their revenue is more diverse and not technically a pureplay accounting firm) and trades at what would be considered a high trailing P/E and EV/EBITDA multiples. And they’re slowly growing. This is already a large position for me but I would be a buyer on dips as long as they continue to execute which they have a long history of doing so.
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