Get to know serial acquirers

Join acquirers, business owners, and investors getting the briefs

Checking in with Will Thorndike – The 50X Podcast & Compounding Labs

Checking in with Will Thorndike

Gustaf: Hey Will, tomorrow you are releasing 50X’s second podcast episode in your series on TransDigm. It covers Nick Howley’s impressive achievement of returning 1,750x the original equity injection over c. 30 years.

Beyond Howley’s cheerful, no-nonsense personality, I particularly enjoyed how their high return hurdle actually gets enforced. And how he refuses to “understand” fixed from variable costs (seemingly self-fulfilling in downturns).

The audio is but one piece of your research on remarkable capital allocators – a natural extension of your book The Outsiders. And you carry out this exercise with Compounding Labs, a spawner of long-term holding companies. But let's hear from you. What is the 50X project?

Will Thorndike: 50X is a natural extension of our investing activity at Compounding Labs. As we build companies over multiple decades, we believe a relentless focus on equity efficiency and ruthlessly pragmatic resource allocation maximize long-term value creation. We rigorously study companies both to hone our approach and because we simply enjoy it.

Gustaf: How can business owners and young talent get in contact with you?

Will: You can learn more at and If you’re interested in working together, please reach out! We always love meeting likeminded potential partners.

Gustaf: Will, thanks for the effort you are putting into this content. I look forward to following Compounding Labs for decades to come.

Will: Thank you, Gustaf. It’s been a pleasure to get to know you and I appreciate your time.

Checking in with Will Thorndike
Röko Interview
Kelly Partners Group
Röko Interview - the perpetual owner is preparing for an IPO

Röko Interview

Today we are checking in with Fredrik Karlsson, who increased shareholder value by around 100x over 20 years in his previous role as CEO of Lifco. He is now CEO and co-founder of the decentralised serial acquirer Röko, which is preparing for an IPO.

His partner Tomas Billing also makes an appearance. Billing is the former CEO of the privately held investment company Nordstjernan and beat the market by circa 2x during his reign.

They are intensely competitive and got to know one another learning Russian as military interpreters and at Stockholm School of Economics, “doing group assignments at record speed, just dusting them off.”

Röko's Sweden team. Beers from the subsidiary Oppigårds are always present.

Gustaf: Hey Fredrik - let us get right to it!

Tomas Billing’s first presentation outside of Stockholm’s finance district - as a newly minted 30-year-old CEO - said on an overhead slide: “What can Tomas Billing add to the Vansbro factory?”

The following slide said humbly: “Nothing.”

You were also a CEO at this time, and you have separately generated some of the best - if not the very best - return track records in the Nordics.

But ironically, the word “Nothing” still echoes in Röko.

But let us start from the beginning. You radiate competitiveness - did you ever compete professionally in any sport growing up?

Fredrik Karlsson: Gustaf, thank you for dropping by. I studied too much when I was young, so I mostly only had time for skiing and sailing but never professionally.

Gustaf: But you have won some races since then?

Fredrik: I am a three-time Swedish and Nordic champion in F18 catamaran [the world’s largest catamaran class]. I have also got an 8th place rank in the world championship, having won one leg. And I have won the Archipelago Raid here in Stockholm three times, thanks to a home advantage.

Gustaf: You did the Swedish business leader preparatory quadfecta: military service in the Interpreter School, studies at the Stockholm School of Economics in parallel with Engineering physics at the Royal Institute of Technology, and then becoming a management consultant at BCG.

Just over 30 years old, you become CEO, and the year is 1993. What appealed to you about the CEO role?

Fredrik: I was not very good at making slides as a consultant. I do not find slides rewarding; it is like writing papers in school. I wanted to do something measurable, like in sports. And the business equivalent is being a CEO - you go in with one set of financials and leave with another.

Gustaf: What did Carl Benn​​et see in you when you took over as CEO at Lifco in 1998? What did you learn from him?

Fredrik: Carl Bennet saw somebody who was result-focused, and that was what he wanted. I still remember how I presented my case to him: “I started at this German firm Mercatura, and the numbers looked like this, and when I left, they looked like this.”

I just showed him the financials. I believe I was the only one who showed it so clearly. And Carl is also extremely results-focused. Results are the only thing that matters. We found each other in that.

From Carl, I learned the power of simplicity. I was too academic when I was young. And when you are over-educated, you are inclined to do everything yourself because you think you are that good. But he emphasised that one should not go in and interfere after you have given people responsibility.

Gustaf: Bennet had taken Lifco private in 2000, and with the subsequent 2014 IPO, you became the first CEO to list the same firm on the Stockholm Stock Exchange twice. Did you make any changes to Lifco’s strategy in connection to the 2014 IPO?

Fredrik: Growth was not considered as important when we were private. It was enough to grow a little each year with high profitability. But then I understood that I needed more growth. So we recruited a dedicated M&A professional.

My role changed from being a turnaround manager in 1998 to becoming an acquirer and CEO appointer. That was important because you win the Champions League by picking the best players. Training cannot be your number one focus. And I transitioned into a role of acquiring strong firms.

I stopped working at Lifco three years ago, but otherwise, it is the same employee team line-up today, and they have made an excellent performance.

Gustaf: In 2019, you left Lifco due to a dispute over your compensation. Your family hopes that you will calm down, but in a month or so, you and Billing - chipping in EUR 8m each - raise EUR 270m and you close your first acquisition the same month. Today you have 18 firms in the portfolio generating close to a fifth of Lifco’s EBITA. What motivated you to go at it again with such determination? What is Röko?

Fredrik: Entrepreneurship is exciting and measurable; it is a competition.

Röko is a refinement of Lifco's business concept, another version of executing something similar. The acquisition strategy and criteria have been developed jointly between Tomas, Johan Bladh, Anders Nordby, and me. We have a more structured mindset than Lifco, where it was not as pronounced.

The acquisition model is based on only buying smaller family businesses that are asset-light with strong market positions, and always keeping the management as shareholders. At Lifco, we more often acquired 100%.

The companies we bought in my later years at Lifco that had minorities performed very well. It has worked. And at Röko, we have chosen to focus on that model exclusively.

That sets us apart from other serial acquirers. Why? Because our old traditional companies have more or less been acquired in Scandinavia. So one needs to buy younger companies that have not had the time to grow as much, and then the management needs to stay involved.

We have had a healthy acquisition cadence since our founding three years ago. New firms meeting our criteria come for sale each year. And we estimate that 15,000 private SMEs are sold annually in Europe, of which 1,500 are potential targets for Röko.

Gustaf: You say that Buffett’s moats are important, but what are your two most critical acquisition target criteria?

Fredrik: We are sector-agnostic, meaning that we will not understand each firm 100% right away.

But, if a target has consecutive earnings growth, it must be doing something right. That is our most crucial acquisition criterion.

The second most important criterion is that we need management to stay on as shareholders. Most often, where there is robust financial performance, there are good managers in place.

Gustaf: Initially, your acquisition criteria included a 10% EBITA margin minimum - albeit somewhat flexible depending on capital intensity - and you said you would buy lower margin businesses than Lifco. But Röko’s margin profile is today just like Lifco’s, around 20%. Could you not help but buy quality?

Fredrik: I thought it would be challenging to find high-margin targets, but we discovered that there are enough of them.

Gustaf: Why have entrepreneurs wanted to sell?

Fredrik: There are​​ two strong reasons. First, they do not want to have all their eggs in one basket. For example, maybe they are 35, have a family, and feel like they need to buy a big house and withdraw some money to decrease their personal risk. And at the same time, they want to continue running their firm.

Secondly, many entrepreneurs discover when they are around 50 that they do not have children that want to take over. They might feel alone, and as they cannot hand over the firm to the kids, they prefer to onboard a partner.

Gustaf: Why do owner-operators sell to Röko?

Fredrik: They are attracted to our long-term and decentralised model; they know we will not move the business. Their firm can continue to act independently, and it will not become integrated into anything.

If you sell to a PE fund, they will want to double the profit in around three years, which requires a lot of measures to be taken. But many entrepreneurs do not want to go down that route.

They have done well so far and would like to continue to get a little better every year.

And we make no other demands. Many people are happy to hear this.

We also allow their children to continue working at any level. Some transactions occur when one of the children has taken over as CEO, but the parents must distribute the inheritance.

In 60% of cases, the second-level management has also invested in connection to our entry. And they find the Röko model absolutely fantastic. We pay dividends, so they get a tangible return on their investment right away, all while they can continue as before.

And then, of course, we have the personal meeting. If you have a lot of experience, people take notice, which inspires trust.

The transaction certainty is also very high with Röko. Brokers love working with us. If they pick five potential buyers, the chances are that Röko, who consistently shows that they close in a good way, will be one of them.

We do the work before the LOI, only to confirm the thesis during the second phase. In that way, we do not surprise sellers with discount negotiation tactics later in the process. In three years, there has only been one case when an acquisition did not close after the LOI. And that was because one part-owner had been convinced by his partners to sign the LOI, only to change his mind later.

Our DD can be fast. We use financial and legal advisers and do the commercial side ourselves. Due to their heavy use of leverage, PE funds need to provide debt providers with a lot of information that we do not.

Gustaf: How do you finance the acquisitions?

Fredrik: The minorities can be seen as bank loans carrying a higher interest rate. Then we have regular bank loans on the group level.

We used earnouts a few times at Lifco and when uncertainty was high during Corona in 2020. And we can note that earnouts have always been expensive for us.

We have used earnouts when I have been a coward, and it has come at a cost. One can probably say that there are reasons why a seller would agree to an earnout.

Gustaf: How do you value firms?

Fredrik: We make it very easy by applying a standard multiple on RTM EBITA.

As we have some experience, we can identify potential problems early. We try to deal with these by asking questions before the formal DD process. In this way, the purchase price is not based on the wrong data, which is very important for ensuring a smooth process.

We always check the cash flow before bidding. Typical areas for investigation could be inventory that has increased sharply or if family members are not compensated at a market rate.

We usually do not underwrite improvements, so we do not have to make the models that PE does.

Gustaf: The last​​ time we met, you praised your team within 10 seconds. How are investment decisions made? And, you have done two add-ons so far. What is your view on them going forward?

Fredrik: Our investment committee consists of me, Tomas, Johan Bladh, Anders Nordby, and soon Fabian Speiser, who will focus on continental Europe. Everyone has a veto.

The older Röko becomes, the more we can engage in add-ons. It might take a few years after you meet someone in your niche before they are ready to transact.

For example, we talked about add-ons within Dental at Lifco for years, and finally, we hired an external consultant who just went around and met companies. It took 3-4 years before something happened. It is a long-term job.

That can also be seen among the established serial acquirers. They have processed a lot of companies, which is why they have a continuous flow. We are still a bit too young, but it will come with time.

Gustaf: What happens after a transaction?

Fredrik: The significant change is that they need to start reporting to us monthly.

But we only buy good businesses, so there are no material changes needed. It is more of a process of getting to know one another personally.

Questions arise as time goes by, and we may have some thoughts. For example, every time we meet a particular firm, we may tell them that we think they could benefit from employing more salespeople. And to another firm, we may say that they probably can increase prices.

We are only trying to convey one message at a time.

Gustaf: What are some common cases where you act as a sounding board?

Fredrik: Currently, we tell CEOs that we are experiencing inflation and that they have to increase their pricing. CEOs understand the dynamic but find it hard. They want support in their decision-making, which we are happy to provide. And maybe, they can blame us when communicating their pricing to customers.

Pricing is also essential when getting to know a new business in a non-inflationary environment. Instead of conducting market research, you can increase prices to see which customer groups tolerate it. Then you can think about what other things that are possible for this subset of customers. It is a great market analysis to make.

Similarly, a common exercise is to discuss plans for big customers that are not very profitable. It is great for the CEO to have a partner for these difficult decisions. And you would proceed by increasing prices and ending the customer relationship that way if necessary.

At Lifco, for example, a subsidiary had one customer that represented 80% of revenues. That customer wanted to implement a 100-page agreement with price reductions set for each year. Together with the CEO, I made some calculations to see if we could become profitable on the remaining 20% of revenues were we to lose that customer. There was a six-month notice period during which we would have the time to scale down operations, and yes - it was possible.

We told the customer: "In Sweden, we have The Sale of Goods Act, which has its foundations from the Viking Age, to balance buyers and sellers. If you want us to even look at your 100-page agreement, you must first pay our lawyer costs. We are happy to send an order confirmation based on Swedish commercial legislation if you want to order. You will get a price. Take it or leave it.”

It was a prominent American firm, and they were caught blind-sided. Something similar had never happened to them before. The head of procurement flew in but soon understood that we delivered high quality and that they basically had no other option. So they are still today a customer of the subsidiary.

In general, if a firm wants to grow, the first thing we check is the margin. There is hardly any worse thing than increasing revenues without also increasing profits. It only ties up working capital and increases personnel costs. Revenues are only troublesome on their own.

If a subsidiary wants to develop a new product or onboard a big customer, we tell them that the investment needs a higher than average EBITA margin. Otherwise, the cash flow will suffer. And we need the cash flow for acquisitions.

Gustaf: What advice would you give other CEOs?

Fredrik: You have to be very careful about which issues you have an opinion on at the subsidiary level. You can have an opinion on a maximum of two things at any time. Since you are not allowed to have many views, you have to choose very carefully.

And there is usually increased motivation if you remove a layer of middle managers if you have several. There are delays in the communication between salespeople and customers if salespeople first must talk to sales managers, who in turn must liaise with a CEO.

Communication gets faster, and the salespeople find it more motivating when they can speak directly with the CEO. And the customer feels that they are dealing with someone who has authority.

Gustaf: How do you get managers not to complicate things?

Fredrik: By not complicating things myself.

Speaking of which, my son is ​​studying Industrial Engineering & Management and is doing product estimate calculations, with one model more complicated than the other.

If you have to deal with such complex calculations, you do not have a sufficiently profitable company to begin with! I tell my poor son that what he is doing is useless, which is not very motivating.

Suffice to say, I no longer comment on his economics studies.

Gustaf: What does your monthly reporting include?

Fredrik: Income statement and balance sheet. Simplicity permeates Röko's culture.

If you have a big organisation you need to make the goal easy to grasp. We only focus on increasing profits.

An example - although a bit simplified - would be Jack Welch, who started by using simplicity, and everything went very well at GE.

Then when he became chairman, he hired Jeff Immelt, who he thought was better than himself. And Immelt wanted eight goals instead of one and complicated things.

But of course, there were a lot of factors at play. Immelt also acquired at expensive valuations only to divest at low valuations and had a bit of bad luck - whereas Welch had fortune on his side.

But in general, increasing complexity does not go well.

Gustaf: How would you structure a bonus system if you did not have minorities?

Fredrik: It would be based on a combination of profit and capital employed. For example, if the firm increased EBITA by $100, maybe the CEO would get 10%. But if his capital employed increases by $100, he gets a penalty of $2.5, so he ends up with a $7.5 bonus. [Effectively a 25% ROCE hurdle (2.5%/10%)].

Gustaf: What are your thoughts on outsourcing?

Fredrik: The manufacturing companies that utilise outsourcing have higher margins and lower capital employed. It is better to be an assembly manufacturer than a fully integrated one - both in terms of return and cash flow.

The big problem is that if you have a production manager, that manager will always make the case that it is more profitable to produce in-house. With a strong-minded production manager, you will never be able to outsource. And that does not work.

Many of them do not understand that their job is not necessarily to produce goods themselves but to solve it in the best way. It is a tricky organisational nut to crack.

Ironically, the best outsourcers are former production managers who become CEOs. They suddenly see the light of outsourcing and become masters at it. They are amazing!

So, if you want something to happen on the outsourcing front, you should make the production manager CEO.

Gustaf: How do you spread your and Tomas’ competitive drive?

Fredrik: The entrepreneurs have it in their blood. We do not buy companies with a management that is not driven. The drive is what made them so good.

We had our first CEO conference this spring. It drives motivation and spreads the performance culture. Entrepreneurs learn how we think when we meet them in person.

Board meetings are not that important to us. The continuous dialogue over email and the phone is paramount​. They can call at any time. Questions always arise at random and should not be saved to board meetings.

Gustaf: What do you look for in CEOs?

Fredrik: The drive, and it is tough to assess. People can be different, but it works out as long as they are driven. Johan Bladh and I, and Per Waldemarson at Lifco for that matter, are very different. But all of us really want to make things happen, which is essential.

Quick questions

Gustaf: What is your favourite book?

Fredrik: The godfather of Swedish decentralisation is Jan Wallander. He invented it in the 1960s. It forms the basis of everything!

He wrote Decentralisation - why and how to make it work and The Budget - an Unnecessary Evil. He was both an academic and a business leader. Svenska Handelsbanken was one of the world’s most profitable banks for 40 years thanks to him. He understood that the local branch level should make all decisions.

It worked well at Handelsbanken until the regulation and bureaucracy that ensued from the GFC fallout.

Jan was the decentralisation predecessor. He banished budgets. As a researcher, he had seen that budgets, forecasts, and plans did not work.

We have a unique industrial tradition of decentralisation that is hard for us Swedes to apprehend.

Another classic to study is Hans Werthén at Electrolux. He was the next big decentraliser [Werthén made some 200 acquisitions over 20 years]. He said: “It’s not only about planning but parrying."

I also like Percy Barnevik’s book On Leadership, 200 Lessons. He split up ABB into profit centres, and that is also decentralisation.

They all had their pros and cons, but Wallander is most impressive. If you should read one book on Swedish decentralisation it is Wallander!

These business leaders have shown that conglomerates can lead to higher performance as long as you have a simple profit goal, decentralisation, and provide employees with trust.

Henry Singleton at Teledyne is also a role model. You can translate the Teledyne story and get Lifco - multiples and all. The stories are more or less identical.

The comical thing is that when we are now making ourselves IPO-ready, Nasdaq requires twice the amount of papers that they did in 2014. They are heading in the wrong direction. Business plans and budgets are considered something good. They are leaving simplicity for bureaucracy and complexity.

It is great fun to dodge that while the rest of the economy is leaving Wallander, Werthén, and Barnevik.

Tomas: While Fredrik mostly reads historical novels, I read tons of fiction. Haruki Murakami is the author that I am most fond of.

Gustaf: What is your career advice to young professionals?

Fredrik: Make sure to get a lot of responsibility early on in an environment where you can learn. My first CEO role was in Bramsche in Germany, and I got it because no one else wanted it!

Become a CEO in Säffle or Vansbro, do not try to stay in Stockholm. If you want to learn about people and business, you have to make do with the opportunities on offer.

Tomas: It is tough to become the best at something you do not find fun. It cannot be rewarding every minute, and some early mornings will be hard. But I chose Proventus - over McKinsey and other brand names - when I moved back to Sweden [after having had Michael Lewis, author of Liar's Poker, as mentor at Salomon Brothers] because I thought it would be more fun, and I have never looked back.

Gustaf: What life lessons are you trying to drill into your kids or is a common saying of yours?

Fredrik: I leave that to my wife. They do not listen to me anyway...

Tomas: From my second mentor Johan Björkman: "Once is a mistake, twice and you are out" ("En gång är ingen gång. Två gånger är en gong-gong")

Gustaf: When do you think we can expect an IPO, and how can investors, business brokers, and entrepreneurs contact you?

Tomas: Fredrik likes to be on the phone, while I prefer email. He calls me and I email him back. So call Fredrik or email me!

We have deployed capital faster than we expected. During the capital raise three years ago, we said that the IPO was ten years out not to stress. But when Fredrik and I said ten years, we really meant maybe 5-7 years. But we have surpassed even that.

The stock market is turbulent, but we are making ourselves IPO-ready, and it may come this fall at the earliest.

Checking in with Will Thorndike
Röko Interview
Kelly Partners Group
Kelly Partners Group, acquisitions with little equity down

Kelly Partners Group

Gustaf Hakansson: Brett (Founder & CEO of Kelly+Partners), I am excited about this interview. Let me take a stab at your story, and we will take it from there. Here we go:

So, imagine it is 1997.

Cabbies are pumping the Australian pop sensation Savage Garden's debut album all over Sydney’s business district.

A 22-year-old named Brett Kelly sits in a swanky investment bank office - hibernating in Excel - when his boss suddenly starts walking towards him.

The boss courteously asks Brett for a moment and, before skipping a beat, quips: "You don't fit in with the other people here. Brett, you are different. You would be better off somewhere else."

It felt disorienting - to be young, relentlessly ambitious, and suddenly without a prestigious job.

In an act of fatherly love, young Brett is given books as guidance on what to do next. One book gives Brett the idea to interview successful people and model himself after them.

A simple plan, but it was not an easy one.

Brett makes 50 calls daily for three months, trying to interview outlier achievers. The result became the 34 portraits in his best-seller Collective Wisdom: Prominent Australians On Success And The Future.

Hobnobbing with former prime ministers and business leaders sets a high bar for success. And when Brett later joins an accounting firm as a qualified tax agent, the status quo becomes unbearable.

Because Brett feels that accounting partnership structures are copied more than they are pondered, with partners cumulatively feeling entitled to 101 cents of every dollar. Therefore, they cannot reinvest for the long-term benefit of clients.

And the structures promote accounting as a mere profession; the business is always an afterthought. Activity gets confused for progress.

In 2005, when Brett’s first child was born, he got a worse promotion than promised. Feeling deceived by dishonest partners, Brett thinks: “That’s it. Either I leave the industry or improve it.”

Growing up, Brett wanted to be Warren Buffett. And, Mr. Buffett only invests in things that, with some certainty, exist two decades out. So, death and taxes were naturally the only entrepreneurial pursuits available for the down-to-fundamentals Brett.

It may have been a close call, but the young tax accountant chose taxes.

Brett employed the principles absorbed from his interview subjects, tailoring Kelly & Partners Chartered Accountants in 2006 to suit the industry’s peculiarities.

The vision is to provide private SMEs with the same high-quality service that multinational firms get. And the well-read Brett applies Walmart’s strategy of going where others do not. Building regional oligopolies before anyone notices.

Fast forward to today, and a lot has happened. Kelly+Partners (KPG) has launched 17 greenfields and made 34 acquisitions.

Brett characteristically joined the line to the 2022 annual Berkshire Hathaway meeting in the top 10 at 02:27 am, and he is set on KPG becoming a top 10 accounting firm by size in Australia.

Gustaf: Well, feel free to correct any butcherings of your life story. And then, why don’t you tell us what you are most proud of?

Brett Kelly: Gustaf, thanks for having me. I am most proud of our people and our businesses. I am proud by the fact that our people live by our values - to make our people, our clients, and the communities they work in be better off.

As Jim Collins says in Good to Great, we focus on hiring disciplined people - people that are aligned with our values, and that is what we have done at Kelly+Partners.

I am proud that our businesses are leading in the accounting industry. We have grown our revenues at 30% CAGR since inception and we are currently operating at 33% EBITDA margins, significantly higher than the industry (19%).

I believe this is achieved through disciplined thinking and processes that are unseen in the industry. I admire great businesses (such as Berkshire Hathaway, Constellation Software, LVMH, etc.), all of which provide us with ideas on how to run the best business.

We are proud to be listed in Australia as I always wanted to prove that we could do in public what we did in private. The rigorous disclosure processes involved in being a listed company have also made us better in our reporting and our analysis of our business.

I worked on Economic Value Added (EVA) software when I was young. That informed our culture as I did not have much capital starting out. I am proud that we have continued to be capital-light, enabling ambitious people to get equity-like compensation without much capital.

Since inception, we have only raised about AUD 14m and we can grow while increasing cash flow - we believe without raising further capital in the normal course of business for a very long time.

Our succession solutions allow young professionals that are great with clients to run clients and partner with KPG to operate a successful firm. But they might lack either capital for acquiring a whole firm, business expertise, or the ability to successfully negotiate deadlocks with a retiring senior.

Our theoretical EVA understanding, transaction knowledge, and domain expertise differentiate us against slow-moving partnerships characterized by misaligned incentives. So, KPG is run from first-principles, where we - like a bank - optimize both sides of the balance sheet.  

Gustaf: How does KPG differ from a regular accounting partnership? How is the alignment of interest different from a roll-up?

Brett: Our partnerships are 10-year deals that renew with a permanent ownership forever mindset (a 100-year view), and we have what we call a 51%-49% Partner Owner Driver™.

Our local operating partners sign and commit to this in the partnership agreement. We believe that only in the long term can a successful business be built.

That means that we are not rolling up all the responsibilities to HeadCo while leaving the rights in the subsidiaries. That is a model that does not work for professional services.

Acquisition debt sits at the operating business level and is secured against operating assets and personal guarantees.

However, we often negotiate to acquire 100% from the older partner only to facilitate the structuring of a deal permitting an internal successor to take the reins of 49%.

Firms pay 6.5% of revenues for the central management team and 2.5% for IP. The proceeds are reinvested into the business to make it better, to fuel the flywheel.

In return, they can centralise administrative functions, cutting costs in half. That gets us to a double in profit, while we also decrease working capital by about two-thirds.

We are capital-light, as we mainly need to fund working capital (work in progress (WIP) + debtors), where we rank about 50% better than the industry. By collecting well - by mostly engaging via fixed fees and not accepting jobs that we cannot finish - we dodge the professional services killer of having profits locked up in the business.

In sum, we engage in micro-LBOs. The sellers are taking the risk that we successfully manage their firm successions. We provide expertise, allowing firms to continue operating, which benefits their clients and team.

Vendors get some cash upfront and the rest after two years. We borrow for the up-front cash at a ring-fenced subsidiary level, whereas the rest effectively is vendor financing.

That gets us to a place where we acquire firms without putting down equity or very little. We effectively are consultants, but with skin in the game - getting paid in equity. That has quite the effect on return on equity.

Gustaf: Your second-largest shareholder (after you), recommended that I would ask how KPG increases acquisition EBITDA margins from 19% to 34% and why other accounting firms do not copy your playbook?

Brett: The short answer is that our playbook is full of trade secrets but, more importantly, part of a system that is probably impossible to duplicate…

Michael Porter’s HBR article “What is Strategy?” shares the “activity-systems map” idea. The thesis is that you can copy the product to a degree but not a combination of activities put together in a unique way! See an example for IKEA:


Our activity-system map is a tangled web, as our activities support both each other and our value proposition toward our people, customers, community and company sellers. They all reinforce each other.

It is a complex system built on simple premises, in which the parts seamlessly support each other to create a self-reinforcing flywheel.

Gustaf: How do you attract the best partners? I think the wording of your acquisition announcements says a lot about your culture “Regional Victorian Firm ‘chooses’ Kelly+Partners”.

Brett: We want people and firms to choose Kelly+Partners for our values, behaviors, and the difference we make to clients as well as our communities.

I usually say that the Big 4 are called the Big 4, not the Great 4.

We are leaner and can offer income streams not available at other firms. Partners get base profit distributions, profit shares, KPG stock, and can also own shares in our growing wealth business, investment fund, and property portfolio.

We remove the administrative burdens and let partners focus on what they like best, serving clients. By standardizing around 80% of work, they can focus on adding value to customers and get time over for work-life balance.

Often we look for partners that exhibit our values - that they want to make their people and their clients better off. We want to continue attracting energetic people to compete in a slovenly industry.

Gustaf: How did you come up with the idea of the KPG Owner's Manual?

Brett: From Berkshire Hathaway. We also received a lot of repeated questions from our shareholders early on and we thought that it would be a great idea to publish answers to these questions as part of a permanent document. We wanted to be transparent about our business, our values, our thinking - as Warren Buffett would say, we wanted to disclose everything about the business that we would like to know if we were a shareholder in the company.

Gustaf: What happens upon a succession in one of your firms? Have there been any disagreements with your subsidiary partners so far?

Brett: In a succession, we (the partner group of the operating business) would work together to identify younger partners (either from the existing team or recruiting new members).

Rarely do we disagree with our subsidiary partners. We leave it with them to think and act in the best interests of the business and we guide them to do so. Because of our unique structure and our sharing in our responsibilities and rewards, our interests are aligned which makes it a lot easier. Every month we would have a partners meeting with each operating business to understand the issues they face and help them solve them.

Gustaf: What does the runway look like, and how do you benefit from scale?

Brett: We want to become a top 10 accounting firm in Australia which means revenue of $125m+. We believe we can achieve this in time. Organic growth is essential, but our journey will be supported by marquee and tuck-in acquisitions.

We do not like to talk about “synergies” as that is a word that has been abused many times in the past. As we become larger and scale, we have a stronger brand and a larger group that in turn attracts better people into the business.

We are succession specialists in a market with over 10,000 firms that soon could benefit from our expertise. But our main focus is profitable growth. We also can see global opportunities for our business insight and system.

Our business system aims to be like Danaher’s in that it can be adapted to other geographical markets in the same industry. And while the M&A function still primarily will involve Ken and I, we will look to have our long established partners take responsibility as M&A scouts for certain geographies to increase the cadence and volume of new partnerships.

We are becoming the #1 acquirer of choice for accounting firms in Australia, and over the next five years, we will look at expanding the TAM. Focusing on countries like NZ, USA, UK, and Canada.

Gustaf: What do valuations look like, and how are acquisitions financed?

Brett: We always look at payback and we try to achieve a four to five-year payback with our acquisitions. We finance our acquisitions with debt, never do we issue equity to make acquisitions.

Gustaf: How is the business development team structured?

Brett: The acquisition team consists of me, supported by Kenneth, CFO, and our general counsel, Joyce. Joyce was our first employee and is still with the business.

Acquisition team members tend to make acquisitions no matter what, but at some stage we may consider growing our business development team.

We have been going at it for 15 years and have a database of about 10,000 firms that we reach out to.

Gustaf: You are impressively appreciative of others. What people and books have been most influential for you?

Brett: Warren Buffett, Mark Leonard, and Bernard Arnault come to mind. Warren Buffett and Arnault are similar in that they have a reputation for permanent business ownership. They have built a reputation where people want to sell their companies to them, and KPG is getting there, and aims to achieve that reputation amongst SME accounting firms, too.

As for books:

  • Good to Great
  • The Snowball
  • The Outsiders
  • 100 Baggers
  • The Warren Buffett Way
  • How to Win Friends & Influence People
  • Think & Grow Rich

Gustaf: How can investors and owner-operators contact you?

Brett: Please get in touch directly via phone +61 419 206 475 or email at

You can find our acquisition criteria here. You will see similarities with Buffett’s acquisition criteria which we based it on.

Reach out if you are an accounting practitioner with a business that meets all of the following criteria:

  • “Your values are aligned with Kelly+Partners, namely ‘We want the best for others’, ‘One team, one way’ and ‘We do what we say’;
  • Demonstrated consistent revenue (future projections are of no interest to us);
  • You are not affiliated with / or partly owned by an accounting network;
  • Your core business is the provision of accounting and taxation services;
  • Your target client is Private businesses and their owners”

The larger your business is, the greater our interest becomes.

We promise confidentiality and a fast answer — usually within five minutes — as to whether we are interested.

You can learn more about us here:

Checking in with Will Thorndike
Röko Interview
Kelly Partners Group

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Worth reading!
Chris Mayer
Author of 100-Baggers
PM & co-founder, Woodlock House Family Capital
Brett Kelly
Founder & CEO
Kelly+Partners Group