Kelly Partners Group isn’t a well-known company but it’s become a significant component of my portfolio due to the leadership, incentive structure, and future potential.
How much potential? I look at KPG and see a business similar to Berkshire Hathaway in the 1960s. The CEO Brett Kelly is acquiring controlling interests (51%) in independent accounting firms and realising cost synergies by consolidating their back office. Each business becomes another cashflow machine, funding the acquisition of other independent firms. Because the partners of the acquired companies maintain a significant stake in their individual businesses, the incentive to run the business for long-term success is preserved.
Kelly’s attitude to running a listed company is very much modelled on Berkshire Hathaway. Similar to Berkshire, he has an owner’s manual which, among other things, outlines KPG’s Partner-Owner-Driver model, which preserves partner and shareholder incentives, very different from a typical rollup model where most of the ownership is outside the business. These models attract careerist CEOs with a short-term “pump up the numbers” mindset, and the partners of the acquired firms become employees rather than genuine partners in the business:
The accounting market in Australia is a $25B industry, and half of that is Small and Medium Businesses – a highly fragmented market. There is an enormous future potential for growth, and KPG’s current market cap is less than $100 million.
An interesting upside opportunity will emerge in the future as KPG’s clients (Many of whom are business owners) look to succession planning – giving KPG the opportunity to purchase these businesses when the founders are ready to take money off the table, much in the way that Berkshire Hathaway purchases whole businesses and uses the profits to fund future acquisitions.
It’s still very early days for KPG but I see a huge amount of upside potential with a very stable core business which will continue to grow faster than the market.