Over the past few weeks, I’ve been hunting for businesses that could become the next 10, 20, or even 50-bagger. Companies at the very beginning of a compounding journey, with a proven playbook and enough runway ahead to multiply many times over.

Now, this always sounds a bit more flashy than it is. The reality is that most smaller companies with a lot of runway come with much more business volatility, and they rarely have a moat. So while it sounds good to “look for the next 50-Bagger,” the reality is you’ll turn around many rocks that look good on the surface but terrible on the second look.

What I mainly looked for is a proven business model, a founder-led team, and a company with a lot of runway.

Kelly Partners Group is one of those names. It’s another serial acquirer — a business model that has produced some of the best-performing stocks of the last few decades.

But many of its most prominent practitioners are in steep drawdowns right now, and KPG is no exception. The stock has been cut in half from its early 2025 highs. Although KPG acquires tax and accounting firms, not software companies, the market doesn’t seem to care about that distinction right now. AI is coming for all industries, apparently. And I should mention that Kelly Partners used to be a Fintwit darling and thus quite overvalued.

But I think Kelly Partners has something genuinely different going for it, and at today’s price, the setup is more interesting than it’s been in years.

Let’s dive in!

— Daniel

We are very excited to announce that on Friday, May 1st, Shawn and I will host The Intrinsic Value Conference in Omaha during the Berkshire Hathaway Shareholder Weekend. We will give a special stock pitch presentation followed by a Q&A session and a private dinner for members of The Intrinsic Value Community on Saturday.

In addition to the VIP Spots for members, a limited number of free spots for the conference will be available on a first-come, first-served basis. Shawn and I look forward to meeting as many of you as possible!

Being in Omaha last year was a fantastic experience, but the best part has been connecting with some of you. With this event and social hour, we hope to meet many more and get to know you better in person!

The conference is at Hotel Indigo in downtown Omaha from 1-4 pm local time.

Hope to see ya there!

At its core, KPG is a network of chartered accountancy firms, primarily based in Australia but now expanding into the U.K. and the U.S. The parent company acquires a controlling 51% stake in each firm, while the existing partners retain 49% and continue running the day-to-day operations. Brett Kelly, CEO and founder, calls this the “Partner-Owner-Driver” model, and it’s the foundation on which everything else is built.

We talked plenty about incentives when we looked at TransDigm and Constellation Software, and a big part of Kelly Partners' incentive system lies within the acquisition model. When you still own 49% of the company, you are highly incentivized to ensure the business is successful and continues to grow profitably.

It also creates a very positive selection bias. CEOs or founders who just want to sell for the money wouldn’t be attracted to what Kelly Partners has to offer, since they would only sell half the business, and need to be involved still. At least for some time.

Beyond that, each acquired firm has to pay a 9% fee to Kelly Partners. That breaks down into a 6.5% service fee covering marketing, HR, compliance, and back-office operations, and a 2.5% IP license fee for access to KPG’s proprietary systems and processes. Shawn rightfully said that this doesn’t sound very attractive for the seller. But Brett Kelly wants to have these negative filters. He wants to make sure he partners only with companies and people who truly subscribe to the mission of Kelly Partners and are committed to being involved for the long term.

And the 9% fee is not just high-margin revenue for KPG (short for Kelly Partners Group). The fee covers software development costs and the cost of building and maintaining the Kelly Partners IP, so that KPG-owned systems and documented processes are available to subsidiaries for use and benefit.

According to KPG, offloading those administrative burdens frees up partners to spend roughly 40% more time on high-margin advisory work or onboarding new clients. In a market where demand consistently exceeds supply, that incremental time translates directly into revenue.

Another important part of the deal structure is the financing. KPG, just like Constellation, doesn’t issue shares to finance its acquisitions. It’s done through cash flows and debt. But KPG doesn’t load acquisition debt onto the group balance sheet. Instead, borrowings are placed inside the operating businesses and repaid over four to five years using those firms’ own profits.

For this to work, KPG has to pay close attention to the price they pay. KPG typically aims to acquire companies trading at mid-single-digit earnings multiples. For acquirers, this is where part of the returns come from. If you can buy a company at 6 times earnings and fold it into KPG, which trades at 20 times earnings, the spread between purchase price and market valuation is a significant source of returns.

But the even bigger driver is margin expansion. As mentioned, KPG reaches EBITDA margins about twice those of the industry average. So, a company acquired at a 10x EBITDA valuation quickly becomes a 5x EBITDA acquisition after KPG applied its playbook and doubled margins.

Before we talk more about the business, let’s take a quick step back and look at the founder. It’s undeniable that the success of KPG, to a large extent, will depend on him. That’s the case with every small-cap, but even more so with KPG.

Brett owns close to 50% of the company, one of the largest CEO ownership stakes we have encountered on the companies we covered. So it’s safe to say he has skin in the game and should be highly aligned with his fellow shareholders.

He already announced, though, that he wants to reduce his stake to 35% over time. In part to create more float for a potential listing outside Australia at one point, and surely also to become more liquid. While he is rich on paper, his compensation has been relatively modest, and he has never paid himself any stock options or grants. He primarily made money through the dividends that KPG paid.

Before building KPG, Brett spent over 25 years working in commercial and professional accounting. He knows the industry from the inside, which matters enormously when your entire strategy is built around acquiring firms in that exact space.

But he’s also a student of business more broadly. He’s read thousands of books, studied hundreds of business models, and runs his own podcast — the “Be Better Off Show” — where he interviews everyone from Shaquille O’Neal to William Thorndike, the author of The Outsiders, one of Shawn’s and my favorite books on capital allocation.

It’s also worth noting that Lawrence Cunningham, vice chairman of Constellation Software, sat on KPG’s board as a non-executive independent director for about three years. The company clearly has the attention of people who understand the serial-acquirer playbook at the highest level.

When you hear Brett talk about KPG, it’s obvious this is his life’s work. He’s publicly committed to staying at the helm for at least another 25 years, and he recently relocated from Australia to the United States to personally oversee the company’s expansion there.

That said, the concentration of decision-making in one person is also the biggest key-man risk we’ve seen in any company we’ve covered. KPG is nowhere near Constellation’s level of decentralization, and if something were to happen to Brett tomorrow (or if Brett’s reputation were to be hurt, more on that at the end), the impact would be severe. He has a succession plan in place, and there are capable partners who could step in, but let’s not pretend it would be a seamless transition.

And Brett is a character, too. If you go through his interviews and social media, you'll see he’s not afraid to tackle political questions and state his opinion on them. Personally, I’m not a huge fan of that type of behavior from a CEO, but people can have divided views on it.

To understand why the accounting and taxes industry is an attractive place for a serial acquirer, we need to appreciate the structural tailwinds at work in the accounting industry. This is a market with more demand than supply. Tax professionals are working at full capacity, and they still can’t serve everyone who needs help. And this is not a short-term phenomenon. This is a dynamic that has been ongoing for decades, and I suspect it won’t change anytime soon. Despite AI.

Tax codes globally have grown dramatically more complex over the past seven decades. In Australia, the volume of tax law has expanded roughly 14 times since the 1950s. And the trend almost certainly continues. Government debt levels are rising globally, the taxpayer base is shrinking in most developed countries due to demographics, and higher taxes are one of the most obvious levers available to policymakers. And more complexity means more demand for professional advice.

Now, the big question, as always these days, is whether the increases in tax volume and complexity will be beneficial to businesses like KPG or whether AI will take over most of those tasks, and you won’t need as many tax and accounting firms anymore.

It’s not unreasonable to think that AI will be able to do my taxes. Actually, it can already do that quite well. And looking at my latest tax accountant’s bill, I have never been more inclined to ask Claude about automating it for me.

But this shouldn’t cloud our judgment regarding Kelly Partners. One of the reasons Adobe is under so much scrutiny from the markets is that many people look at their own behavior and realize, “Wait a minute, I don’t need Adobe anymore, look at what LLMs can do.”

They miss, though, that they never were the target audience in the first place. Adobe works with Hollywood studios and Fortune 500 companies. Those customers care about different things than you and me.

It’s similar for KPG. Their customers are SMEs (Small and Medium Enterprises). Their accounting and taxes look very different than mine. They have complex company structures, trusts, they make entity decisions, and cross-border considerations. There is a reason why 90% of SMEs still rely on professional accountants, although there are hundreds of software tools that simplify taxes and accounting already.

The real value in serving these clients is not in filing the accounting and taxes themselves, but in the consultancy services. Setting up a corporate structure to optimize your tax position, or converting funds from one entity to another without huge tax losses or missing things that you were legally obliged to do. Mistakes with these kinds of things are very expensive and cause a whole lot of headaches.

When you set up a corporate structure to optimize your tax position and the tax office calls asking for a detailed explanation, I’d much rather have a trusted human expert to consult than a chatbot. That advisory relationship is where the switching costs come from, and it’s where KPG’s firms earn their highest margins.

Having said all that, there’s no denying that individuals and businesses might increasingly handle routine tax and compliance tasks themselves using LLMs. And even if that’s not the case, bookkeeping, standardized reporting, and other basic work will be commoditized, driving down billed hours and compressing margins across the industry.

The companies that will survive this and actually thrive will be the ones doubling down on advisory and more complex tasks.

There’s also a data and privacy dimension that’s easy to overlook. If you are a private company, you are well-advised not to feed all your financial data and the most sensitive information you have into any public LLM. You need proprietary, secure tools, which, in turn, give a company like KPG an avenue to adopt AI internally while shielding itself from AI-native competitors who lack the same trusted client relationships.

Despite all of that, I want to be honest about my uncertainty here, too. I’m reasonably confident that heavily regulated, relationship-driven advisory work is among the least vulnerable categories to AI disruption. But without full visibility into exactly how much of the overall workload this high-value advisory work accounts for, it’s hard to assess how much of the overall business is likely to be disrupted by AI commoditizing basic work.

We already mentioned that KPG deliberately makes it difficult to join, attracting only founders and CEOs who want to take their company to the next level, rather than seeking a quick payout. The first two filters are to ensure this is the case.

The third filter is about acquiring only firms where KPG can own all offices. Many accounting firms use a sort of franchise or network model, sharing a brand name under a loose affiliation. When that’s the case, KPG can’t run its signature playbook — centralized systems, standardized processes, shared back office — if half the offices operate independently.

The final two filters are about focus and size. The target’s core business must be tax and accounting services for SMEs, obviously, and the firm should generate between $2 million and $10 million in revenue. That’s the sweet spot where the deal is large enough to move the needle but small enough to avoid the competitive dynamics and client negotiating power that come with bigger enterprise-focused practices.

Speaking of competition, after covering a handful of serial acquirers on the show, you know that competition in this business doesn’t look like competition in, say, streaming or ride-sharing. There’s no single rival trying to steal KPG’s customers. The more relevant question is: who else is bidding on the same targets?

The closest public comparison is CBIZ, a U.S.-based professional services conglomerate that also grows through acquisitions. Brett Kelly himself cites CBIZ as a peer, though the models are quite different. CBIZ has a significant benefits and insurance business alongside its financial services arm, and it serves larger clients with more negotiating power.

If we look at CBIZ's gross margins, we can see how these small differences affect profitability. CBIZ’s gross margin hovers around 15%, while KPG’s runs in the high 50s.

The more serious competitive threat has historically come from private equity. PE firms drove up prices in the accounting M&A space by entering aggressively and bidding up multiples. But with multiples coming down across the sector, the dynamic has shifted, and PE firms can’t justify paying the old entry prices. And the leverage they use to meet their return hurdles adds extra risk.

For KPG, which holds its acquired companies indefinitely, that’s a welcome development. Less aggressive bidding, and the possibility that some PE-backed platforms themselves become acquisition targets as their owners look to de-risk. It also shows founders and CEOs that the safest sale can be made with companies like KPG, not PE.

In the last few years, KPG has steadily built its presence outside Australia. The U.K. business is still small, but the U.S. operation is growing rapidly — it already accounts for about 15% of revenue, roughly five times the size of the U.K. segment.

One of KPG’s U.S. partners serves approximately 700 McDonald’s franchises, representing about 5% of the chain’s entire American footprint. It’s a strong anchor client, though I’d like to see the U.S. business diversify its customer base beyond that relationship over time.

This is not a coincidence, by the way. Taxes and accounting are businesses where trust is crucial, and many clients come through referrals. That’s why KPG initially focused on areas in the U.S. where many Australian expats live. Going after McDonald’s franchises is smart, too, since franchisees connect regularly. So if KPG does a good job, there’s a good chance, and we have seen that in the numbers, that they refer KPG’s businesses to other franchisees.

The expansion has come at a cost, though. Parent-level debt jumped from $9 million in 2024 to $29 million by December 2025, as KPG funded the U.S. push and some larger acquisitions.

Net Debt to EBITDA currently sits at 1.8x, the higher end of KPG’s historical range, though still below management’s 2x ceiling. With 95% of revenue being recurring in nature and a customer satisfaction score of 93%, which implies a high retention rate, the debt service looks very manageable.

As with most serial acquirers, KPG's financial statements are not that straightforward. The metric that matters most here is NPATA — net profit after tax, before amortization. The reason you need to add back amortization is that KPG capitalizes client relationships as an intangible asset and amortizes them over time, each time it acquires a company.

That amortization is obviously a real historical cost, but it’s not a recurring cash drain, as if it were treated without adding back amortization.

The other detail to remember is that KPG only owns 51% of the businesses and therefore only 51% of the revenue and profits. Under GAAP, though, it has to report 100% of revenue and profits. So the headline numbers overstate what actually flows to the parent by a factor of almost 2x. NPATA to shareholders adjusts for this and gives you the closest proxy to the owner’s earnings.

Overall, the financial profile is attractive. Revenue has compounded at over 30% since the IPO, with organic growth contributing a steady 4–5% and acquisitions doing the heavy lifting. The plan is to double the business every three years.

On the margin side, KPG targets 35% EBITDA at the subsidiary level against an industry average of 18–19%. The blended figure is already at 31% and climbing as recently acquired firms are optimized. Due to overhead costs at the parent level, the subsidiary's margins will always be slightly higher than KPG's as the parent.

Valuing Kelly Partners is tricky because the company is at such an early stage. With Constellation or TransDigm, you have decades of data to calibrate expectations around deal flow and its impact on earnings. With KPG, you’re projecting from a much smaller base, and the range of outcomes is correspondingly wide.

Since we recorded the podcast episode, the stock has come down some more, currently trading at less than $5 AUD, so roughly 20x NPATA. KPG itself provides guidance for the full year on two scenarios. In the low case, it will earn NPATA of almost $14 AUD, which translates into a current multiple of roughly 16x, and in the high case, KPG will earn almost $17 AUD in NPATA, which gives it a multiple of 13x.

In my base case, I project revenue growing at 25% annually from FY26 through FY28, then moderating to 20% for FY29–30. That’s broadly consistent with KPG’s historical growth rate and its own target of $500 million in revenue by FY31. The near-term assumption relies on continued deal flow of 6–8 acquisitions per year, combined with the 4–5% organic baseline that has held up through multiple cycles.

The deceleration in the back half reflects the simple reality that a larger base requires deploying more capital, and since KPG is selective about who it partners with, maintaining today’s growth rate could get harder if it requires 10 to 15 new deals annually.

On that trajectory, with parent NPATA margins recovering modestly from the current 6.7% back toward the 7.5% range as U.S. overhead scales against a larger revenue base, the model produces 2030 EPS of roughly A$0.65 — a five-year CAGR of about 25%, in line with the long-run historical average. Applying a 22x multiple, discounting at 10% to reflect the higher uncertainty involved with a company this size, and layering on a 30% margin of safety, I arrive at a fair intrinsic value estimate of approximately A$6.40.

At the current price of AUD $4.90, that implies an annualized return of well above 20%. However, in my less optimistic scenario, which still includes high-teens growth rates and a similar margin profile, but reduces the multiple to 15x, your expected return falls to mid-single digits.

The point being, this investment is all about the growth that KPG can generate in the years to come. And since organic growth is far too low, it needs to be able to keep finding and acquiring businesses.

There are some things that give me pause with Kelly Partners. I think the valuation is attractive and the model clearly seems to work. However, a bet on Kelly Partners is also a bet on Brett Kelly, and, again, he is a character. He’s not afraid to say what’s on his mind, and it seems like that can also go beyond what is socially acceptable and perhaps even legal.

Shortly after Shawn and I recorded our podcast episode, there was a lawsuit filed by Kelly Partners’ former COO, who claims to have been verbally abused by Brett Kelly over a dispute over a million-dollar bonus payment.

We don’t yet know what actually happened, but I have the feeling that these kinds of things could happen again.

On a more business-related side, my main hesitation lies with the acquisition pipeline over the long term. The reason VMS acquirers like Constellation have been so successful is that software companies are spawning — the target universe keeps expanding.

The same is true, to a degree, for aerospace parts companies like TransDigm and Heico, where every new aircraft generates thousands of new components. But accounting firms don’t spawn the same way. The universe of quality targets is large today, but it’s finite, and as KPG grows, it will need to acquire 10, then 15, then 25 firms a year to sustain its growth rate. Whether the funnel can support that remains the central question I can’t yet answer.

For now, we decided that KPG goes on the watchlist. The valuation is not unattractive at all, but there are some question marks left.

For more on Kelly Partners, you can listen to our podcast here.

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