Acquisitions and Responsibility - The Success of Kelly Partners Group Holdings Limited

This article does not constitute a recommendation to buy or investment advice.

Table 1: Key figures for Kelly Partners Group; Sources: FY2026 Annual Report, FY2026 Results Presentation, own calculations of free cash flow and market capitalisation.

Why am I writing about Kelly Partners Group? Kelly Partners acquires accounting firms through a business model that turns sellers into co-entrepreneurs. Revenue has quadrupled since 2019, free cash flow to shareholders has more than tripled, and the number of shares outstanding has remained virtually unchanged since the IPO. Fears surrounding artificial intelligence and negative headlines about the founder have caused the share price to fall by around two-thirds in the 2026 financial year. For long-term investors, we see a business with recurring, legally mandated revenue at a price that already reflects considerable scepticism.

“We want to build the next Berkshire or Constellation of the accounting industry.” - Brett Kelly, Founder and CEO, speaking to Business News Australia (2023, paraphrased)

Figure 1: Growth in the Number of Pages of Australian Tax Legislation (Australian Treasury, 2015)

Table 2: Key milestones of Kelly Partners Group; Sources: Annual Reports 2017–2026, Independent Expert's Report September 2026, EGM Results dated 23 October 2026.

The Product: The Accountant Nobody Fires

Kelly Partners provides what every business owner needs but does not do themselves: tax returns, annual financial statements, bookkeeping, corporate secretarial services and advice on structuring their business. Its clients are privately owned, owner-managed businesses and their families — ranging from tradespeople and dental practices to medium-sized retailers.

Around 92% of revenue comes from this core accounting business (AUD 145.8 million). The remaining 8% comes from additional services for the same clients: financing arrangements, wealth advisory, an investment office and personnel outsourcing. The business has three characteristics that make it economically exceptional:

• It is legally required. Tax returns and annual financial statements must be prepared every year — in recessions just as in economic booms. Around 95% of the work is recurring. Even during the pandemic year of 2020, revenue grew by 13.8%.

• It is built on trust. Accountants know their clients' finances, families and often their succession plans. Switching accountants means having to explain all of this to a stranger. Annual client attrition at the time of the IPO was approximately 2%.

• It is becoming more complex. Every tax reform and new reporting obligation increases the need for advice. According to management, accounting firms currently cover only a fraction of the services a business-owning family requires over its lifetime — creating another avenue for growth.

What this means for us as investors: We are not buying a cyclical business, but growth with subscription-like characteristics: 25,000 client groups, no single client material to the group, and a service that is required every year - with increasing complexity. This predictability forms the foundation of the entire acquisition strategy.

The Business Model: Partner-Owner-Driver®

At the heart of Kelly Partners is a model that the company has registered as a trademark: Partner-Owner-Driver®. Rather than acquiring an accounting firm outright and replacing its owner with a branch manager, Kelly Partners typically acquires 51%. The previous owner retains 49%, continues to run the firm, receives their share of profits in cash and commits to remaining for approximately ten years.

Each firm pays the holding company 9% of its revenue for brand, IT, HR, marketing and finance services. Management has assured partners that this fee will never increase — the holding company itself bears any additional costs. This allows Kelly Partners to determine the IT infrastructure for the entire group, for example. At least 80% of the software is standardised across the network. Management estimates that this saves partners a quarter of their time.

Financing also follows a systematic approach: acquisition loans are predominantly held at the individual accounting firm level and repaid from the firm's own cash flow over approximately five years. Brett Kelly describes the strategy in disarmingly simple terms: buy “ordinary” accounting firms, which are often only half as profitable as they could be, and keep improving the same business. The numbers support this: on average, Kelly's partner firms achieve EBITDA margins of 30%, compared with less than 20% at comparable firms.

The company itself explains just how important the human factor is: in an accounting firm, the assets leave the building in the lift every evening. Retain the partners and you retain the clients. This is why Kelly Partners believes its most valuable asset is not found on its balance sheet - it is the model itself.

What this means for us as investors: The 51/49 model solves two problems simultaneously: it gives sellers a reason to stay and gives Kelly Partners access to firms that would never sell to a financial investor. According to management, client losses following an acquisition are so low that they are not worth measuring. The price of this arrangement is that a substantial portion of profits remains with the partners — more on this below.

The Story: From Two Offices in Sydney to an International Platform

The journey from the company's founding to its IPO was deliberately unspectacular: one accounting firm at a time, roughly one partnership per year, initially in the greater Sydney area. Only after the stock market listing did the pace accelerate significantly.

Figure 2: Brett Kelly (found on www.dailytelegraph.com.au)

The 2017 IPO deserves a footnote: anyone who subscribed for shares at AUD 1.00 back then now holds a stock worth AUD 4.36, despite the price decline over the past twelve months — more than four times the original investment, in addition to dividends paid until 2024. Within approximately two and a half years, the US business has already grown to the size of the entire group at the time of its IPO.

Brett Kelly: The Entrepreneur Who Never Gives Up

Brett Kelly's career begins with a setback. After leaving school, he joins Price Waterhouse, studies alongside his job and plays cricket. Then comes what he believes is his dream job at an investment bank — only to be dismissed during his probationary period at the age of 22. Kelly encounters a culture in which only money matters, while team building counts for nothing. He says this experience shaped his subsequent path.

Table 3: Comparison of accounting firm acquirers; Sources: Kelly Partners results presentations and analyst calls 2025–2026; information on competitors according to management.

His father hands him two books: Think and Grow Rich by Napoleon Hill and How to Win Friends by Dale Carnegie. Kelly then devises what he himself calls a crazy plan: to interview Australia's most successful people about success. Thousands of phone calls and hundreds of letters follow - eventually, 34 personalities agree, including former prime ministers, business leaders and artists. One interviewee cancels twice before the interview finally takes place. He had wanted to see whether the young man would come back. The resulting book, Collective Wisdom, becomes a bestseller; further interview books follow, most recently Investment Wisdom (2021).

“I am genuinely relentless — and I keep showing up.” - Brett Kelly on himself, New Zealand Herald (paraphrased)

Kelly subsequently returns to university, completes a master's degree in tax law at the University of New South Wales, qualifies as a Chartered Accountant and works at the time in medium-sized accounting firms. There he meets many technically excellent professionals who, however, show little interest in growing their own businesses.

A Student of Buffett and Leonard

Kelly regularly attends Berkshire Hathaway's annual general meeting and admires Mark Leonard, the founder of Constellation Software, which we have already featured here. The parallels are intentional: many small acquisitions, none of which carries much weight individually, but which collectively make a significant difference. Even the long-term financing through 15-year bonds at holding company level is intended to follow Constellation's example.

His remuneration is also remarkably straightforward: Kelly's salary is contractually fixed at 1% of audited group revenue (approximately AUD 1.56 million in FY2026), with no bonuses and no stock options. His wealth rises and falls with his ownership stake. At approximately 31%, he is by far the largest shareholder.

How openly Kelly deals with setbacks became apparent in his August 2026 shareholder letter. He begins with a single word describing the share price performance: “Ouch.” He writes that, in the short term, the market is a “voting machine” - and encourages shareholders to judge management on free cash flow per share, book value per share and return on capital. Ultimately, long-term financial performance is what matters.

What this means for us as investors: We see a founder who operates in a way that aligns with our investment philosophy: persistent, long-term oriented and responsible. His salary is linked to revenue rather than short-term bonuses, and his wealth is invested in his own company. His reference to Berkshire and Constellation sets a high bar - capital allocation over the coming years will reveal whether he can meet it.

The Market: A Succession Crisis as a Growth Driver

The market for tax and accounting services is large, unexciting and extremely fragmented. Management estimates that the three core markets - the US, the UK/Ireland and Australia - together represent USD 234 billion (Source: IBISWorld, cited in the shareholder letter). With approximately USD 105 million in revenue, Kelly Partners has a market share of around 0.05% - “one-twentieth of one percent”, as Brett Kelly puts it. According to management, the market outside Australia is approximately ten times the size of its domestic market.

The key drivers are:

Ageing owners without successors. According to management, partners at target firms are typically over 60 years old. In the US, the professional association AICPA estimates that around three-quarters of CPAs are approaching retirement.

Too few young professionals. According to management, the number of accounting students has roughly halved over the past decade. In the US, the number of candidates taking the CPA exam fell from 42,626 in 2023 to 28,082 in 2024.

Increasing regulation. Following the PwC tax scandal, Australia has significantly tightened oversight of tax advisers - with registration bans of up to ten years. Costs are rising for independent firms, while larger, structured groups gain an increasing advantage.

Private equity has discovered the market. Since 2021, financial investors have been acquiring accounting firms on a large scale - with around 175 transactions recorded in 2025. This confirms the industry's attractiveness, but also increases competition for acquisitions.

What this means for us as investors: Kelly Partners does not need a growing economy; it needs accounting firms without succession solutions - and there should be more than enough of those for decades to come. With a market share of 0.05%, growth is not limited by the size of the market, but solely by the discipline with which the company deploys capital.

Competition: Why Sellers Choose Kelly Partners

Competition for clients is limited - clients remain with their trusted partners regardless of the name on the door. The real competition lies in acquiring accounting firms and retaining their key people. In Australia, competitors include mid-sized firms such as BDO, RSM, Grant Thornton and Pitcher Partners, as well as the listed company Count. In the US, there are private equity-backed groups such as Baker Tilly, EisnerAmper and Citrin Cooperman.

Table 4: Revenue, operating cash flow and free cash flow (FCF) to shareholders of Kelly Partners Group, financial years 2019–2026 (each ending 30 June).

Kelly Partners attracts owners who want to continue their life's work and remain involved in future success - rather than simply changing clients. The company deliberately does not offer the highest price or a quick exit. How seriously it takes its pricing discipline became clear in June 2026: a planned partnership with a group in Cyprus fell through because the seller raised the price at the last minute - Kelly Partners walked away.

The timing is also interesting: many private equity funds acquired firms at high prices from 2021 onwards and will need to sell their holdings over the coming years. The AI-driven reassessment of the industry is making this increasingly difficult. Management reports that PE-backed groups are already approaching Kelly Partners with portfolios of around ten firms - making a permanent owner the natural buyer.

What this means for us as investors: The advantage is not capital, but structure and reputation: 20 years and 83 partnerships in which sellers have remained on board. According to management, discussions are underway with firms generating more than AUD 300 million in combined revenue - approximately twice the size of the current group. There is no shortage of potential acquisitions.

Financial Performance

Table 5: Valuation scenarios for 2031; Base year FY2026: AUD 159.2 million in revenue; cash flow ratios: FY2019–2026 averages according to the cash flow statement; five-year horizon (FY2026–2031); own estimates by OHP.

Note: FCF to shareholders = operating cash flow (after interest and taxes) less maintenance capital expenditure, repayments of lease liabilities and actual distributions paid to partners (minority interests).

The figures reveal two things. First, the resilience of the business: since 2019, revenue has quadrupled (approximately 22% annual growth), while operating cash flow has increased from AUD 10.0 million to AUD 38.9 million. Revenue did not decline in a single year during this period. Second, the growth in free cash flow to shareholders: this rose from AUD 4.9 million to AUD 15.9 million. Fluctuations arise from the timing of partner distributions - more in some years, less in others - which determines the cash outflows. (2025 saw record distributions of AUD 19.1 million.)

Most of the growth has been acquired: in 2026, 15.3 percentage points came from acquisitions and 2.9% was organic, adjusted for deliberately relinquished unprofitable mandates and office consolidations. Part of future growth is already secured: the six partnerships established during FY2026 together contribute AUD 18.7–22.2 million in annual revenue, while annualised revenue at the end of June stood at AUD 164.2 million.

A Closer Look: Why Reported Profit Appears So Low - and Why We Calculate Differently

Anyone focusing solely on reported net profit is not seeing the company's true earnings power. The group generated profit after tax of AUD 17.6 million in 2026. Of this, AUD 14.1 million belongs to partners holding 49% stakes in the individual accounting firms - leaving just AUD 3.5 million for shareholders. This roughly 80/20 split is significantly below the holding company's 51% ownership interest because the holding company alone bears acquisition interest, central costs exceeding the 9% fee, taxes and, above all, amortisation of acquired client relationships.

These amortisation charges are correct from an accounting perspective, but only partly meaningful economically: accounting clients rarely leave, so the acquired client base does not lose value at the rate implied by its amortisation schedule. We therefore value Kelly Partners not on reported earnings, but on free cash flow to shareholders - operating cash flow (after interest and taxes) less maintenance capital expenditure, repayments of lease liabilities and distributions actually paid to partners. What remains is cash flow available for growth or distribution to shareholders — the key metric for our business valuation.

Because free cash flow to shareholders fluctuates from year to year, we use historical averages: since 2019, an average of 26.2% of revenue has been converted into operating cash flow, and 36.0% of operating cash flow into free cash flow to shareholders.

What this means for us as investors: The partners' share is not a leakage, but the price of the model. What matters to us is how much reaches shareholders. Applying the average ratios since 2019 to FY2026 revenue produces normalised free cash flow to shareholders of approximately AUD 15 million. With a market capitalisation of around AUD 197 million, the stock therefore trades at approximately 13 times free cash flow - which we consider attractive for a business that has more than tripled its free cash flow per share since 2019.

The AI Risk - Why We Believe in the Accountant

During FY2026, the share price lost around 65% of its value. The main catalyst was - as with Constellation Software - fear of artificial intelligence: if AI largely automates bookkeeping and tax returns, billable hours could fall, taking fees down with them.

We consider this concern justified, but overstated. Brett Kelly sums it up for us:

“AI changes how the work gets done - it does not change whom the client trusts.” - Brett Kelly, FY2026 Shareholder Letter (paraphrased)

Three factors support Kelly Partners.

First, regulatory obligations: Tax returns remain legally required, and responsibility lies with registered tax advisers - not software.

Second, the business mix: Auditing, the most standardised activity, accounts for only around 5% of Kelly Partners' revenue. Its core business is advisory and context-intensive: tax optimisation, choosing corporate structures and protecting wealth.

Third, succession: The problem of ageing accounting firm partners without successors remains unaffected by AI.

So far, there is little empirical evidence of a decline. Revenue per employee rose from approximately AUD 204,000 to AUD 224,000 in FY2026.

Two developments would change our assessment: declining fees per client because clients become less willing to pay for routine work, or staff reductions as software takes over tasks without a corresponding improvement in margins. Neither has been observed so far.

Further Risks

The founder and corporate governance. The company has granted its founder a loan, most recently amounting to AUD 6.4 million. To repay it, the employee trust is purchasing approximately 1.4 million shares from him and offsetting the purchase price against the loan. The move to Nasdaq will introduce Class B shares carrying ten times the voting rights for long-standing shareholders - with the founder, as the largest shareholder, benefiting the most. Kelly is also both Chairman and CEO, and only two of the five directors are independent.

Debt and financing. Net debt stands at approximately AUD 70.7 million, or 1.52 times adjusted EBITDA; including leases and performance-related purchase payments, obligations are significantly higher. Cash on the balance sheet amounted to AUD 18.2 million at the reporting date. Bank loans are being refinanced, and the planned long-term bond has not yet been placed. Management itself describes the available financial headroom as “fairly constrained”. Dividends and meaningful share buybacks are not currently planned. Furthermore, free cash flow to shareholders is insufficient to finance growth entirely from internal resources. Between 2020 and 2026, approximately AUD 55 million in free cash flow was generated, compared with growth expenditure of around AUD 90 million - for purchase prices, earn-outs and the expansion of new offices. The difference was financed through debt.

Rising acquisition prices and lower US margins. The price paid per dollar of acquired revenue rose to approximately 2.0 times in 2026 (previous year: 1.65 times). US firms operate at below-average margins when acquired and, according to management, require up to two years to reach Australian levels. At 28.4% (before IFRS 16), the firms' margin has remained below the company's own 32.5% target for several years.

What this means for us as investors: The risks lie less in the operating business than at holding company level: financing, the founder and the question of how much of the firms' success ultimately reaches shareholders. The share price decline of around two-thirds has already priced in much of these concerns. That is precisely where we see the opportunity - we are acquiring a proven business model at a price that reflects a substantial degree of uncertainty.

Valuation Scenarios for 2031 - Our Estimates

Our assumptions are, as always, deliberately conservative. The basis is free cash flow to shareholders.

Growth: Scenario 1 assumes revenue growth of 7.5% per year - one-third of the growth achieved since 2019 (approximately 22% p.a.) and significantly below management's target of six to ten acquisitions per year. Scenario 2 assumes 12% per year, a slower pace but one that we consider appropriate given the balance sheet situation.

Cash flow ratios: In both scenarios, we assume the average ratios since 2019: 26.2% of revenue converts into operating cash flow, and 36.0% of that converts into free cash flow to shareholders - equivalent to approximately 9.4% of revenue overall.

Valuation: Based on these average ratios, normalised free cash flow for 2026 amounts to approximately AUD 15 million - meaning the stock trades at around 13 times free cash flow. Scenario 1 applies the current multiple. Scenario 2 assumes a higher multiple of 17.5 times, which we consider appropriate given the risks and growth prospects.

The deliberately wide range demonstrates that even under very cautious assumptions, we can expect a clearly positive return - for us, the essence of an investment.

Conclusion

Kelly Partners Group Holdings Ltd. is a holding of our OHP Unternehmerfonds.

Kelly Partners combines three things that are rarely found together: a service that is legally required and needed every year, an acquisition model in which sellers willingly remain involved, and a market where the succession crisis will provide a pipeline of opportunities for decades to come. Since 2019, revenue has quadrupled and free cash flow to shareholders per share has more than tripled - without any meaningful issuance of new shares.

At the helm is a founder who thinks like the kind of entrepreneur we look for. The fact that the stock has lost around two-thirds of its value within a year reflects fears about AI, financing and negative headlines surrounding the founder. These concerns are real - but much of them is already reflected in today's share price. At approximately 13 times cash flow, we consider a business with this level of resilience an attractive entry point for long-term investors.

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