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!

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.

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.