00:29:06 · Mikk, Brett Kelly
[00:29:06] S0: You have this 50 oneforty 9% partner owner driver model. You are reading a lot of books. There is this eightytwenty rule. Have you ever considered any models? Eightytwenty, seventythirty, why 50 oneforty nine? [00:29:22] S1: So the reason 50 oneforty nine works is that the average EBITDA self reported in accounting firms in Australia, The US and The UK is 18%. I think it's actually about 15%. And so we knew that if buy half but we double their EBITDA, then the firm, the partners are making as much or more money than they were making before we got involved. And so that's a key part of what we do and why it creates great alignment. And I know that alignment's critical, so deep alignment. So, Mikk, if I come to you and say, Look, last year you made $100,000 Let me buy half your business, and next year you'll make at least $100,000 You get capital to go and diversify your universe off to a powerful house or put your kids through college or clean up your retirement planning. But you haven't lost your earning power and it's a partnership. It's not a top down model. It's a bottom up model. So you're like, Okay, this is good. Now I have a whole team to help me because I have all these things I want to do but I don't have a team to help me [00:30:32] S0: What was the reason behind going public?
00:30:32 · Mikk, Brett Kelly
[00:30:32] S0: What was the reason behind going public? [00:30:34] S1: Right so in 2020 again so Mikk I'm a big student of differentiation it's hard to be different if you're the same as everyone else. And there were no listed accounting firms in Australia, The US or The UK at that time other than CBIZ. And it was really not seen as doing what we did, which is partnering with accounting firms, was considered not the right thing to do. But I believed, with Charlie Munger actually, that public companies are the best form of a company to run if you run them well. I believe that it would attract talent, that would attract firms, that it would legitimise what we were doing. I wanted to prove in public our business model. Whenever you're a private company, everyone says, Oh yeah, that works in private, but it wouldn't work as a public company. I like the challenge. I really like the challenge of building the company in public to prove that we have what I think is the best model for professional services firms anywhere in the world. And I believe that that would help us build a global organisation. And our reputation is important. [00:31:39] S0: You're acquiring companies with 2 to 10,000,000 in revenue, right? Have you ever tried to acquire a larger one or would it still fit into the system?
00:31:39 · Mikk, Brett Kelly
[00:31:39] S0: You're acquiring companies with 2 to 10,000,000 in revenue, right? Have you ever tried to acquire a larger one or would it still fit into the system? [00:31:49] S1: Yeah, the largest is probably 15,000,000 Australian. It really the size doesn't really matter in that below a certain size of private equity groups don't want to buy them. And they also don't really larger firms often want to join larger firms. So we want to buy firms from founders that have had blood, sweat and tears poured into them and they really want to partner with a founder. That's a key insight from Warren Buffett. I wanted to position as the Warren Buffett of accounting, meaning that if somebody really valued their firm, they would want to join Kelly Partners because they would know that I'm an accountant and we would look after them. And that's really what Warren Buffett's offered. He's offered a high integrity environment where he will look after your business after you've got to a point where you can't keep doing it yourself. And so as a public company with permanent capital, I believe that that is a position that we can win and own and we can win and own that position on a global basis. And then that will give us real opportunities to partner with some of the best firms in the world.
00:31:49 · Brett Kelly, Mikk
[00:31:49] S1: Yeah, the largest is probably 15,000,000 Australian. It really the size doesn't really matter in that below a certain size of private equity groups don't want to buy them. And they also don't really larger firms often want to join larger firms. So we want to buy firms from founders that have had blood, sweat and tears poured into them and they really want to partner with a founder. That's a key insight from Warren Buffett. I wanted to position as the Warren Buffett of accounting, meaning that if somebody really valued their firm, they would want to join Kelly Partners because they would know that I'm an accountant and we would look after them. And that's really what Warren Buffett's offered. He's offered a high integrity environment where he will look after your business after you've got to a point where you can't keep doing it yourself. And so as a public company with permanent capital, I believe that that is a position that we can win and own and we can win and own that position on a global basis. And then that will give us real opportunities to partner with some of the best firms in the world. [00:32:58] S0: When it comes to capital allocation, you've raised only 17,000,000 Australian dollars over twenty years to build a business that could produce around 50,000,000 Australian dollars of EBITDA. So how do you think about capital efficiency in a world where we see many roll up strategies require far more external capital?
00:32:58 · Mikk, Brett Kelly
[00:32:58] S0: When it comes to capital allocation, you've raised only 17,000,000 Australian dollars over twenty years to build a business that could produce around 50,000,000 Australian dollars of EBITDA. So how do you think about capital efficiency in a world where we see many roll up strategies require far more external capital? [00:33:21] S1: Yes, I think what we did is we really mastered when you look at the best businesses, they have the best business model because the business model wins over time because it's the model that allows the scaling. And so what we believed was that we could develop a business model that was the most capital efficient of other business models. So while we may not you know, I've got another great book back here. This is for people that like books. This is a hard book to get, which is this book. This is Distant Force on Henry Singleton and he was based here in California which is really cool. Henry Singleton was it's about how far you get with the amount of fuel you use And so capital efficiency, because of my EVA background, valuation background, is just absolutely paramount from day one. Know, Norm, if you want to build wealth for everybody, it needs to be on a per share basis. So most people forget that. We've never forgotten that. So we built a business model in the way we do our acquisitions that is incredibly capital efficient.
00:33:21 · Brett Kelly, Mikk
[00:33:21] S1: Yes, I think what we did is we really mastered when you look at the best businesses, they have the best business model because the business model wins over time because it's the model that allows the scaling. And so what we believed was that we could develop a business model that was the most capital efficient of other business models. So while we may not you know, I've got another great book back here. This is for people that like books. This is a hard book to get, which is this book. This is Distant Force on Henry Singleton and he was based here in California which is really cool. Henry Singleton was it's about how far you get with the amount of fuel you use And so capital efficiency, because of my EVA background, valuation background, is just absolutely paramount from day one. Know, Norm, if you want to build wealth for everybody, it needs to be on a per share basis. So most people forget that. We've never forgotten that. So we built a business model in the way we do our acquisitions that is incredibly capital efficient. [00:34:30] S0: Now there are a lot of acquisition platforms and they talk about synergies. But you said when you buy into a business you can double profits. So what are the biggest levers that drive that improvement so quickly? So you can tell the dose. [00:34:48] S1: So we don't really tell, Mikk, we don't tell people what the biggest levers are, but I get asked every day. Let me just say that the biggest lever, yeah, they all ask, the biggest lever is leadership. [00:35:01] S0: At least I asked. At least I asked.