Kelly Partners (ASX:KPG): A Home-Grown Accounting Firm With Strong Growth And Expanding Abroad, So Why Is It Falling?

Kelly Partners (ASX:KPG) has endured a growth record very few ASX companies can rival. It boasts 30.3% revenue CAGR since its IPO and is rapidly expanding overseas. So why then is it down nearly 50% in the last year. Let’s look into it.

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History of Kelly Partners (ASX:KPG)

Kelly Partners Group Holdings began life in 2006 as Kelly+Partners Accountants, founded in North Sydney by Brett Kelly, Rebecca Kelly, Scott Elwin, Ada Poon and Craig Bullock with the mission to help private business owners “be better off” through specialist accounting, taxation and advisory services.

From a single office, the firm expanded steadily through organic growth and a systematic approach to partnering with and acquiring like-minded local practices, building a national footprint and later extending internationally, initially to Hong Kong and over the years to India, the USA and Ireland too – but more on that shortly.

In June 2017 Kelly Partners listed on the ASX, marking its transition from privately held network to publicly traded company. The IPO provided capital to accelerate growth, particularly the firm’s acquisition-led strategy aimed at consolidating smaller practices under the Kelly+Partners brand while retaining a degree of partner autonomy through its Partner-Owner-Driver (POD) model.

KPG is one of the few that gives annual letters to shareholders like Berkshire Hathaway and Amazon do; what is not to love? Did you know Brett Kelly has exchanged letters with Warren Buffett and has a cardboard cutout of him in his office? Oh and also that it has accountants who are specialists in McDonalds franchise accounting? Trust us, it is unique accounting. And KPG’s expertise means it serves 10% of franchisees in Australia and 6% in the USA.

But the POD model is arguably key to the company’s growth.

The POD model: the secret sauce

Under this model, senior accountants who run individual offices or practices are not treated as salaried branch managers. Instead, they are encouraged to become equity partners in their local operating entity while also holding equity exposure to the broader listed group.

In practice, this means the person who drives the business day-to-day is also a meaningful owner of that business, with a lot of autonomy and their financial outcomes are directly tied to long-term performance rather than short-term billing targets. The principal rolls a portion of their equity into KPG whilst retaining a significant stake in the local firm.

At the group level, Brett Kelly has consistently positioned the POD model as a response to what he sees as structural weaknesses in traditional accounting firms. In many large professional services firms, partners are rewarded primarily on annual performance and may exit once succession or retirement looms, creating instability and short-term decision-making. The POD model aims to extend partner time horizons, encourage reinvestment in people and systems, and reduce key-person risk by embedding ownership across generations of partners.

Financially, the model supports Kelly Partners’ acquisition strategy by lowering upfront cash costs. Because incoming partners retain equity and future upside, purchase consideration is often shared between cash, deferred payments and equity participation rather than full cash buy-outs. This helps preserve balance-sheet flexibility while also making acquisitions more attractive to high-quality principals who want to remain entrepreneurs rather than employees.

The POD model is also closely tied to Kelly Partners’ long-term risk profile. Its success depends heavily on selecting the right partners and maintaining alignment over time. If a partner underperforms, disengages, or resists group initiatives, the decentralised nature of the model can make intervention slower and more complex than in a fully owned, centrally managed firm. Integration risk following acquisitions is therefore not just systems-based but behavioural and cultural, which can affect both financial outcomes and investor perception.

The results look good on the surface

By FY25 it made $134.6m revenue, a figure up 24.5% and its bottom line (NPAT) grew too – by 13% to $9m. Of its top line growth, 20% was acquisition led and 4.5% was organic – more on that shortly. KPG’s 1H26 results came out yesterday and boasted that it had 715 team members including 105 partners.

Its revenue was up 17% to $76m and its profit was up 13% to $5.8m. It had 43 offices, the majority of which were in the Philippines as it expanded there. The company has not paid substantial dividends, preferring to reinvest into its capabilities and/or use it to buy new businesses.

But investors are skeptical

Despite this overall growth trajectory, KPG’s performance has not been linear nor universally perceived as exceptional by all market observers. And its share price has nearly halved in a year.

As with any acquisitive, professional services consolidator, several key risks are woven into KPG’s history. The core of its growth strategy—acquiring and integrating multiple accounting practices across geographies—brings integration risk; successfully integrating diverse cultures, systems and client bases is complex and may not always deliver expected synergies.

A heavy reliance on acquisitions can strain internal resources and make organic growth more difficult over time, potentially creating the perception that growth is primarily reliant on deal-making rather than intrinsic performance. This would not be the first company to fall victim to that perception with others including WiseTech (ASX:WTC) and DGL Group (ASX:DGL).

Financial risk is also a factor. Elevated leverage ratios associated with financing growth, which can constrain flexibility or amplify the impact of macroeconomic shifts if operating conditions deteriorate. High debt levels relative to equity and the cyclical nature of professional services can influence both profitability and investor confidence. Now, the company’s debt levels are not worrying by any means. After all its gearing ratio (net debt/EBITDA) was 1.42x and interest coverage was 3.8-3.9x. Management claims that acquisition debt is amortised and repaid through profits from the acquired businesses over 4–5 year terms.

But of course, the cycle of buying businesses and having it account for 20% of revenue growth cannot go on forever.

The risk of AI

Beyond traditional financial and execution risks, the rapid evolution of artificial intelligence and automation in accounting and advisory services presents a strategic challenge. AI-driven tools have the potential to commoditise many aspects of accounting work that have historically been labour-intensive, putting pressure on traditional service margins and forcing firms like Kelly Partners to differentiate through higher-value advisory offerings or technology-led services rather than cost-based competition.

This industry-wide shift requires ongoing investment in technology and talent development to remain competitive—a risk as well as an opportunity that could reshape demand for conventional services. We could not find AI mentioned at all in the company’s latest set of results. It is clear the company is aware of it as the company’s blog on its website tells its clients that there are opportunities to win from AI, but we could not find anywhere stating how KPG itself would respond.

We are not saying the company is ‘doomed by AI’. There could be commercial opportunities and perhaps even if AI automates much of accounting, you will still need some human oversight to ensure clients have minimal risk of regulators coming knocking. But perhaps investors are worried about the silence out of the company to date.

Conclusion

As with all companies down 50% in a year and claiming things are good, investors need to dig deeper to get a sense of what it might be (beyond simply saying investors don’t understand – whether or not that is the case).

KPG has achieved a lot of growth, but much of it has come through M&A and it remains to be seen how much longer the current cycle will continue or if it can pivot towards more organic growth. And even in the latter, whether or not it will be easy and how it will be received by investors.