Kelly Partners Group (KPG) is based in Sydney, Australia. KPG does tax accounting for private companies and their owners. The firm was founded 15 years ago by Brett Kelly and went public in mid-2017. It consists of 26 operating units. 49% of each unit is owned by the partner and 51% by the parent. With around 9,500 customers, KPG has a total turnover of A$48.9 million and an EBITDA margin of 33%.
Since its foundation, the company has grown revenues by 30% per year. KPG systematically acquires smaller tax firms. The purchase price multiple is usually six times the cash flow post implementation of KPG best practices. Banks finance about two-thirds of the full price and the rest is financed by a vendor loan. As a result, KPG can grow through acquisitions without having to reinvest its equity. This creates a fabulous compounding engine.
Brett Kelly, the CEO of KPG, owns 50% of the company. There may be an element of key man risk as the firm appears to be reliant on Brett for upholding the culture and driving the vision for the firm.
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The main thing is having access to more financial clout to finance your work in progress and debtors, and access to an experienced set of people who can run a business. Accountants are notoriously bad at running their own firm or other firms on behalf of anybody else. Their work in progress is always too high, many firms simply don't bill at the right time, and even if they do, their debt collection is poor. If you have a large debtors and work in progress book, you might as well shut up shop.
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When you are on this road, you need critical mass to benefit from a chief executive officer who is experienced in running firms. There's a lot you can buy in if you have the critical mass, although there comes a time when it needs to be in-house. The most important thing is the person at the top, which is not that easy because the wrong person cannot take the partners with them, so that is also a disaster. If I haven't put you off yet, I don't think I ever will, but if Kelly have critical mass and the right people within their own organization or access to the right people going forward, there are opportunities. You have to be cognizant of embracing the vendor, partner and shareholders, which is what ETL do. Post-acquisition, ETL are very good in liaison but they stay out of the way, as long as everybody is making what they forecast in their budgets.
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