Yet Another Value Podcast - Boldstart Ventures' Shomik Ghosh on Kelly Partners' $KPG.AX unique accounting firm roll-up strategy

Episode Date: February 7, 2025

Shomik Ghosh, Partner at Boldstart Ventures, joins the podcast for the second time to discuss his thesis on Kelly Partners (ASX: KPG / OTCQX: KPGHF), a specialist chartered accounting network established in 2006 to provide a better service to private clients, private businesses & their owners, and families.For more information about Shomik Ghosh and Boldstart Ventures, please visit:https://boldstart.vc/Chapters:[0:00] Introduction + Episode sponsor: Daloopa[2:20] Who is Kelly Partners and why they are so interesting to Shomik[5:31] What is Shomik seeing that the market is missing with Kelly Partners[9:09] $KPG's secret sauce for rolling up accounting firms / incentive risks / back office secret sauce that $KPG can do that PE firm can't[23:36] International expansion / is there enough growth runway of acquisitions[30:27] Why not relist in US from Australia?[37:10] Expanding into other areas outside accounting / AI tail risk[46:49] Management[52:13] Why are they so focused on McDonald's[55:22] Final thoughts[57:26] What does Shomik think would be the cause for the thesis breaking with Kelly Partners / how does Shomik look at fair value here[1:02:24] Quick thoughts on Match GroupToday's sponsor: DaloopaEarnings season is hectic—there’s no way around it. But what if you could take back the time you spend on manual model updates? With Daloopa, you can.Daloopa automates your audit and update process, instantly pulling accurate, fundamental data from filings and reports directly into your models. That means no more wasting hours on repetitive tasks. Instead, you can focus on analyzing trends, refining strategies, and staying ahead of the competition.Stop letting manual work slow you down. Set up a free account today by visitingdaloopa.com/YAV and see how Daloopa can transform your workflow.

This podcast is sponsored by Delupa. Earning season is hectic. There's no way around it. But what if you could take back the time you spend on manual model updates? With Delupa, you can. Delupa automate your audit and update process, instantly pulling accurate, fundamental data from filings and reports directly into your models. That means no more wasting hours on repetitive tasks.

Instead, you can focus on analyzing trends, refining strategies, and staying ahead of the competition. Stop letting manual work slow you down. Set up a free account today by visiting Delupa.com. slash yavie and see how and see how dilupa can transform your workflow that's the lupa d a l oopa dot com slash y a v all right hello and welcome to yet another value podcast i'm your host andrew walker if you like this podcast mean a lot if you could rate subscribe review wherever you're watching or listening to it with me today i'm happy to have one i believe it's for the second time one of the first podcast guests what was it three four years ago uh yeah coming up for the

second time. Show me, gosh. Show me, how's it going? Good, good. You know, thanks for having me on, Andrew. And, and yeah, this is, you know, it's, it's funny because I was like back in, I think it was like 20, before even 2020 or something. We were talking about Shopify. And it was, it was a great time. Obviously, that has run on to be quite a winner of which I've held onto some of the shares for some time. Then, unfortunately, at other points, have not caught that upside. But hopefully other listeners did. So, yeah, it's, it's a pretty magical business. still. You know, it's always funny when you talk about his circle stocks, whether it's podcast or stuff you've owned or something, you know, you'll hear someone, you'd be like, oh, especially as time goes on, you know, like, I heard you mention it or heard it, and I held it the whole time. And sometimes that's really, really bad. But a lot of times when they say I held it the whole time, it's like, oh, you know, the chart kind of J curves up. And you sold on the first little dip of the J and then it goes exponential. But look, I'm super excited for the company we're going to talk about today. But before we could start to just,

I start every podcast. Disclaimer, remind everyone, nothing on this podcast is investing advice. Please do your own work, consults financial advisor. That's always true, but funnily, particularly true today because we're going to be talking about an international company, which carries extra risks, including extra tax risks. And people understand why that's funny in a second, but, you know, just remember extra due diligence, not financial advice, all that. The reason I say it's extra funny is because we're talking about Kelly Partners Group. This is a tax-focused Australian, let's call it a roll-up. I'd love to turn it over to you and just give an overview of who Kelly Partners is, you know, why they're interesting and in particular why a VC like you is invested in an Australian accounting roll-up.

So I'll toss it over to you. Yeah. Well, one, first of all, thanks for having me on and not asking about Nvidia and Deepseek. Like, that's certainly been the topic of most of my conversations lately. And so it's refreshing to have a different thing that we're talking about. But I will say like AI will probably be something we want to explore for something like Kelly Partners. But let's just start off. So Kelly Partners started by Brett Kelly.

He is, I forget his exact age, but let's call it 50 years old right now. He started this business in 2006. And really the journey that led to there is pretty remarkable. So when Brett grew up, he grew up in Australia, young guy, he actually. wrote a book where he reached out to a bunch of the top Australian business leaders and government officials and just people that he looked up to. And this was like an 18, 19-year-olds reaching out to folks, got them on the call, got to meet with them in person and then wrote a book about it. And then the crazy thing is no publisher would publish it because it was

like a 20-year-old writing this thing. And he bankrolled it with his own capital, taking out some debt, ends up doing really well. And since then, he's written, I think, a book every seven years or something like that, just exploring kind of different people's wisdom and trying to learn from the best operators. And so that's kind of the way that he came about this is, you know, he started off as a charter accountant. He actually worked at a firm. He was doing very well. And he actually hit all the goals that that firm had set out for him. And he was like, okay, cool, now I'm going to be partner. Well, guess what? Like, they didn't make him partner. And I I'm sure they're regretting it now, but at the time, he was like, what the heck?

You know, like, you gave me these goals. I clearly hit it. Why am I not getting this? So we kind of had this chip on his shoulder and essentially got approached by a friend to start a business, an accounting business, and then that's kind of where this all started. He realized, okay, I think I could do this much better and go about doing it. So Kelly Partners acquires accounting and tax firms all over the world. right now the main focus is Australia, U.S. and the U.K. and Canada.

And yeah, it's an accounting roll-up. There's a lot of stuff we can dig into about how they do it and the secret sauce around it. But that's kind of the gist of it. No, look, I'm really glad you recommended it because I've had, you know, when you've got something that kind of this is, people are going to hear quickly, this fits into the compounders mold, I would say, pretty clearly. I mean, they're quoting Mark Leonard, Constellation Software really frequently and every other great in their thing. It gets around in the small cap investor world. And I've kind of just like

haven't looked at it. It was just a fascinating half day, three quarters day of research. So, but let's start with the question I like to ask everyone. Market is a competitive place. What are you seeing that the market is missing that, you know, even if you've got great management teams, all this sort of stuff, price for everything, what are you seeing that you think the market is missing that makes this a kind of alpha adjusted opportunity? Yeah. So I think this goes back to a concept But that, like, you know, even we talked about on the Shopify episode all the way back, which is like, you know, there's two types of valuation approaches I would think I would look at ways. It's like relative valuation and absolute valuation, right?

And so on an absolute valuation, I mean, let's just see where I haven't looked today, where it's at. But it is probably a, let's see, it is a $530 million Australian dollars. I think with the U.S., it's like 300 something million. And so from an absolute valuation, right, this is where the VC side of things come into play, is like you look at, you know, how big the business could be. You look at how many accounting firms there are, where they're targeting, where is their target market. And that's kind of what enables me to say, hey, the market is actually, I wouldn't say kind of completely missing it. I think they're paying actually kind of a fair relative valuation for where they're at right now. But an absolute valuation is still something that's quite attractive to me based on the fact that I think there's massive massive massive.

massive growth ahead. And the reason why is one of the biggest competitors, that's an accounting rollout that's out there, is called C-Biz. I think the stock ticker is CBZ. And if you look at them, they are actually a $4.8 billion enterprise value today, and they have over a billion in revenue, right? They are an accounting roll-up. Now, that's kind of how big this could get. Now, flip side is, you could say, well, aren't there private equity firms doing this? There's frankly even VC funds, right thrive capital general catalyst that have started to do this um but why does kelly partners have a right to win the reason is is because they have a really unique model so they buy um 51% of the businesses that they acquire um and why that's important is like say you're uh you know your bob

you've owned an accounting firm for your whole life you've grown this thing up they also uh target commonly succession sort of opportunities right where it's a partner who's been around have longevity is now thinking about what what do they do um And so into that situation, they can say, hey, Bob, listen, we're going to, we're going to buy majority ownership, but you're still going to actually have 49% of the business. And what we're actually going to promise you is by coming into Kelly Partners ecosystem and group, you were going to make more money than you did on your standalone basis. And on top of that, we're going to help you with the succession, with, you know, phasing you out of the business in a way that you want, which means maybe you want to still work, but you don't want to work the hours that you used to work, right? All that ability allows them to buy these businesses at really attractive multiples. I think they have a 20% hurdle rate.

It's typically about, you know, so you can imagine that four to five X kind of EBITDA type of plays. And then they're holding them for the long term, right? And so that's where it's really attractive. Is this unique model where they're targeting these businesses. And importantly, it's like kind of businesses that are like one to 10 million in revenue. And so why that's also important is like think about a P.E. roll up. I mean, there's certain P firms that maybe that's useful for, but most of them are trying to go for a larger scale. C-Biz also at a $1.2 billion revenue, they're looking for also bigger businesses to buy as well.

So these guys, actually, Kelly Partners, is like focused on the people who are like servicing Andrew and Shomick, right? It's not like, you know, who's servicing Coca-Cola, right? It's like, it's the two of us. And that's unique because it's more fragmented. I'm running an niche finance podcast. Maybe they're servicing you. This is a niche finance podcast. But let me, there's a lot of questions here.

And I think questions that you need to understand to like the stock. I'm not saying questions as in, you know, red flag. But let me start with the first one. One of the tough things with roll-ups, I want to talk every aspects of the acquisition, right? But one of the tough things with roll-ups, in particular this, which is a, you know, you're going and buy an accounting thing. If you're, yes, you can buy anything if you just come and have enough money, right? some point somebody's going to say yes. What you have mentioned, what they have mentioned is the secret

sauce. I think on their Q3 earnings call, they talked about, hey, we buy these things and they've got mid-single-digit margins, mid-high single-digits, and we take them to 30% margins. And you talked about something as well in the notes we were sharing back and forth. So there's a difference if you're a roll-up, a private equity roll-up where, hey, we're going to buy five small things and roll them up, and we can talk about that in a second. But the thing that jumped out to me is what is the secret sauce that they have where they take, you know, Andrew and Shomak have an accounting partnership that they own 100% of. Obviously, we are very hardworking and, you know, it's getting 9% margins. They come in. What is the secret sauce they deliver that take the margins up?

Because Brett even said, we have a huge margin of safety because if we buy something for five to six times, but we triple the margins, right, then it becomes two times. Or if we pay eight times their price, it's three times our price. So what is that secret sauce that kind of creates that much margin inflation. Yeah, so let's take a couple aspects. First, let's talk about it from the business aspect, which is that one of the important things to notice about these accounting firms that they're getting is, again, if they're servicing Schoemek and Andrew, right, the likelihood of churn is very low. And why is that, right? Well, like my accountant, for example, he works with a number of other VCs, right? And so it's just something where he understands the business, he understands

how to file extensions because, you know, carried interest, like all these sort of stuff that happens, right? And so all those dynamics, it's like, I don't have to think about it. This guy knows. So if he hikes the prices 5 to 10% on me, it's a lot of weight for me to be like he already knows everything about all my assets and everything like that. And now I've got to go and teach that to somebody else to save, you know, a couple bucks. Like, it's just not worth the audit risk. It's not worth the brain damage or anything, right? So retention of these business is actually quite high. And then two, you also have pricing power on top of that. So those are two levers that we'll talk about. I agree with both those, right? But this

would come to the other edge of the question, right? Like the knowledge, the thing I worry about here, and I've seen these work really well and these work really poorly in different industries. Like in the dental industry, I think private equity is really struggled because you go buy a dentist and a lot of what you just said, probably a little less so, but a lot of what you just said applies there. But what happens is you buy the dental practice and then the dentist all of a sudden he doesn't own 100% of the equity. He owns 49%. He doesn't work as hard or after his non-compete expires, he goes and opens up a dentist practice cross seat. Like everything you said, I agree with, but that is the accountant controls that and he should either price it up when he's selling

to Kelly Partners and or, you know, he works for Kelly Partners less hard because he doesn't get the direct fruits or he goes and creates a competitor. Yeah. So a couple things. Like one, when they're going in with the promise of like, hey, we're going to increase your, your earnings, things like that. One, the way the acquirement is like they do a third of it up front, and I think like two thirds of it in year two. So one, you have this dynamic of like just, you know, when do you get the cash? You got to keep working for at least like, let's call it two years. You were truly saying that, right? But also, hopefully in that two years, what they're able to show you is the Kelly Partners business system, right? And again, this goes back to like,

yes, Brett reads a lot of books. He talks about a lot of things, right? So he talks about Danaher. He talks about the Danaher business model. He talks about all those sort of aspects. But truly, what he's built is this thing where 9% of revenue from acquired companies gets put into KPG centralized functions. Now, what's happening here is there's a full tech team, there's an HR team, there's a marketing team, there's a sales team, everything that's been built out. And so now you have this kind of bespoke group, right, that they're calling a business system, but it's a services group that can go in and immediately start doing things to your business. And so, for example, imagine that, I mean, I can say this for my accountant, if he's listening,

like he does not have the most sophisticated backend billing system, right? So his accounts receivable are pretty bad because he literally sends me a letter and then is like, hey, show me like to send me a check back, right? Kelly Partners. My accountant does it on Benmo, right? He sends me a message and he's like, hey, I did your accountant this year. You me 200 bucks. And he's like, here's my Venmo whenever you get a chance. And like, you're in account and this can't be the best way to manage your accounts receivable. Literally, like, it's crazy. So imagine you go in and you're just like, hey, listen, we're just going to put in a standardized process, make it super easy. Well, no accountant also likes sending out invoices and like chasing the

person down and be like, hey, Andrew, did you pay the 200 bucks? Like can, you know, kind of just let me know when you could pay it, like stuff like that, right? It just automated. And so automatically that the cash conversion cycle just gets boosted just from that alone, right? But then there's also other dynamics. Like there's the client retention dynamics that we talked about of like, okay, well, now can you increase pricing, given the data they've had now over 80 acquisitions, like can you increase the pricing? What can you do with that?

Well, how does that flow through? Right. There's also the sales and marketing aspect. Most accountants, the guy that I met, for example, it came through word of mouth, which, by the way, is the best thing about these businesses, right? Because it's low customer acquisition cost. So again, the margins can be high if you run it properly. But by doing that word of mouth, you can kind of, you get these customers, but they come in kind of drip by drip by drip, right?

Imagine you actually put some marketing around that. Hey, listen, we are the best VC accountant out there, right? Come into our business. Well, all of a sudden, you can start to grow that revenue stream in a way that the current partners, either one maybe couldn't, or kind of didn't want to because they were just fine, right? Like, the guy I work with is not taking any more clients on. But that doesn't mean that it couldn't take on more business by hiring more people and going about doing that. And so that's really where Kelly Partners goes in and can show the benefit to the people that they acquire that here's how we're actually increasing your earnings. No, look, it sounds to me like, and this is not uncommon, right?

Like you go and you buy these high, high touch professional businesses. And what happens is these guys, they don't realize, you know, an accountant. I don't know what an account charge per hour, but I'm guessing a really good accountant, $200 per hour. And they don't realize like, hey, your business systems, as I said, with my Benmo example and you said they're terrible, right? And you're spending, I know I've seen this in a lot of dental practice roll-ups I've seen, but be like, dude, you're a dentist. You make 500 bucks an hour and you're spending 10 hours a week on management and phone calls and stuff. You need to spend zero time. We can hire a office manager who would pay 40 bucks an hour.

You get 10 hours back. You work five of them. That's $2,500 in revenue. And you take five off. So you're happier. The practice is more profitable. You know, so I can definitely see all that. The only thing that's a little disappointed is like one of the things I love, like private equity firms have done a lot with, I think the most successful place they've rolled up is physician offices. And one of the reasons they're so successful is like if you and I have a physician office, billing is really hard, right? We've got to, but if a private equity firm rolls up like 20 physician offices inside of a state, well, then all of a sudden they've got the scale where they can go to negotiate direct. with insurance companies and like billing gets a little easier so then when they go by the 21st

they say hey we get all the back office energies you and i are talking about and you'll get on our you'll get on our insurance pricing and we'll have negotiate rates so our AR gets better our payments get better so yeah it seems like it kind of falls in in the middle there please correct me from i went off on a tangent there i mean kind of i would say like i mean think about your again think about your an accountant especially if you're you're thinking about the succession or thinking about like hey, I'm kind of, like, I kind of, you know, I enjoy what I'm doing, but I just sort of don't want to do like the hard parts of the work anymore, right? Like, and, and so you're having all of that abstracted away. Like, you truly just get to work on the work that you want to do. Well,

let me, let me ask a different way, right? Because in my physician example, the nice thing is if you're first and you roll up 20 offices, you've got the scale. And when you go for that 21st office, if you and I started a PE fund, we don't have the insurance billing so they can pay a better price. in this case you mentioned competitors you know private equity and everything coming in what is the secret sauce that kelly group gives on that back office that a private equity roll up couldn't copy or you know a smaller startup or you know a mid-sized accounting firm rolling it up like what's the secret sauce there yeah i mean some of it's just like we're just talking about different markets right so if you're serving uh you know individuals and smbs there's a completely

different kind of, you know, need for that customer and need for that back end system and everything like that, than if you're doing mid-market. That's what, by the way, C-Biz, the company that's acquiring people, they're solely focused on the mid-market, right? Now, over time, do I think Kelly Partners will probably start to go up market and start to go into some of those mid-market customers? Absolutely. But right now, they're focused, again, mom and pop and S&B accounting firms. Those are highly fragmented, very few private equity funds besides like search funds or whatever are buying these companies up. And so when you go into somebody like this,

it's not like, could a P.E. Fund do the same thing? Yes, except for the fact that these are guys who are accountants that know your business cold. So they're also talking about all the other things that you wanted, like the shared best practices that you have across all these other accounts. By the way, the other thing we didn't think that we didn't talk about is the owners of these businesses. So think about like Kelly Partner.

So Lawrence Cunningham is a board member of, Kelly Partners. His only other two board positions are Markell, which is Baby Berkshire, right? I mean, people may take, you know, I know. Allegedly. Allegedly. Not the performance the same. But, but, you know, kind of whatever. That's what they're called, right? And Constellation Software, right? The best software roll-up of all time, bar none. So Lawrence reads a shareholder letter that gets sent to him by some random person, calls up Brett Kelly and is like, hey, this is super interesting. I bought some shares. Like, can I chat with you? And then ends up joining the board, right? Markell is a, I don't know, 50 billion, whatever it is, like market cap business,

consolation software, similar, right? And then you have this $300 million market cap business that all of a sudden you have Lawrence doing it. That's where the Constellation Secret Sauce comes in. And so what we didn't talk about here is like, yes, you're going to acquire that accountant. But now that accountant also, because they're kind of incentivized to be owners of Kelly partners as a group, they buy into the share just like kind of Constellation Software where you buy into the shares there. They're incentivized to kind of become, like grow the business by going and talking to other accounts. So there are these decentralized scouts that start to go in their markets to go and acquire those people. So think about it. You make an acquisition in Florida,

right? You are you are targeting VCs, right? And but you know a buddy that's like really good with athletes or something. I don't know. And so you just go out to them and you're just like, hey, listen, like I just joined Kelly Partners. It's pretty good. Like, would you like to come on? we could we kind of share best practices do all this sort of stuff all of a sudden that's how you start to acquire these businesses right um and that's how you start to build up that list which is why it's harder for private equity to go and do that they got a cold call they got to do all this sort of stuff meanwhile you have these owners who are shared owners in this practice who actually enjoy being part of it who are going out and doing that decentralized scouting with you right and the

stat i think they shared is like uh i think he did this on a talk read it was like 1,400, 1,700 companies that they've looked at and they've acquired 1-20th of them, right? It's like, it sounds about right, because their owner's manual has, it's like 8%, 8%, 8%, 8% and 8% of 1,000 of 1, so that sounds about right, yeah. Yeah, so I think that's like, that's kind of where it is. I don't actually, the risk to me is not, hey, it's private equity going to come in and take these businesses or even like, will they be able to incentivize someone to to join? I think like there's enough businesses out there.

there's enough of a compelling value proposition just even from seeing how they performed in the past that I think people will want to join in because they're seeing how other people have been made more wealthy wealthy but also being able to focus on things they want to do but the risk to me is actually much more of like losing their focus on their core right so again they're going to the u.s they're going to Canada they're going to the UK they've been in australia for a while they've shown ability there but now you're starting going to new market outside and then on top of that there's also a, there's a financial wealth, you know, planning business. There's a, I think there's an insurance business.

There's an investment office, right, where the partners and others, you know, kind of are buying either stocks or private companies or land, right? And getting some money off of that. Like, so there's these other businesses that, like, sometimes I get worried about, is there too much focus that may drift into some of those other areas, right? And that's probably my biggest concern. But I would say, like, Brett Kelly is a student of history. He's a student of many successful businesses.

Same like Mark Leonard. He's done the same exercise where he went through all the high performers. He looked at them. He did analysis on him, all that sort of stuff. That makes me think that he's thought about all these systems in the right way, which is also why I like how he's done this decentralized scout method, even though it's a centralized M&A process. That's slightly different at Constellation, by the way.

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today by visiting dilupa.com slash yavee and see how Delupa can transform your workflow. That's DeLupa, d-A-L-O-O-O-P-A- dot com slash Y-A-V. Let me ask about the decentralized scout method, because I think you started talking about it, but it's worth asking. The big thing when I heard other shareholders talk, the thing that gets them so excited is they've started to, this was Australia focus, and I think they just cracked, if I remember, they just cracked top 10 in accounting in Australia, right? And they started moving into, they exclude the big four, but I know, I've got the

quote, they said we're like right in the, we're number 10. out of 10. We're number 10. But yeah, yeah. The thing that's gotten shareholders so excited is they started moving into the United States. They, and I believe it's California is where they started. They just had Florida and there might have been one other market. But I did want to ask you, a lot of the, when I said, hey, when I kind of suggested, hey, I'm a little skeptical of some of the angles, a lot of what you came back to was the culture and the scouting. And then they comes to the US and it's like, hey, I can understand how if I'm a dentist in Texas, I know the best, the other best dentists in like all the markets in Texas or all the best markets

in the Southeast. But it is a little hard for me to say like, hey, this Australia accounting firm that's ungrate and has great scouts in Australia, none of the Australian accountants know the best local accountants in Florida or California, whatever. So like, I do, maybe they pay out, maybe the systems are so good. But I kind of worry that you poured it over to America and because it's such a people business, not a real software business, I worry about, hey, does it work? And maybe the answer is you pay a fair price for the first five and then you've got the scouting department going. But it is a risk. And it's something people get so excited about the international expansion. So I'll just pause there because I'm starting to ramble.

No, that is a great question. That's a concern anytime you see a business go expand internationally, right? I would say the only thing that I would kind of tweet. to that is it's not like they're just going in and saying like, oh, hey, California, like, you know, I'm just going to go buy a bunch of businesses. No, they started in Los Angeles. And they actually started even more specifically, I think it was, I think they started in like Burbank or something like, I don't know exactly no way, but they started in a specific city in Los Angeles. Now, why am I talking about that? Well, the reason is because they targeted areas where they were the most Australian expats, the highest density. And so the companies that

they're actually acquiring, the firms that they're acquiring, it's not like, again, it's, it's not people that are servicing Shomik. It's the people that are servicing, you know, the guy who says crikey or whatever, you know, like the Australian who moved over to the U.S. And so that's how they're building this out first, right, is around density of these expats, around, you know, where they're focused. And so that's where in Florida, they've been very specific, North Carolina and then Texas are those kind of markets. But that's kind of where they're specifically going. The UK is another reason. The Canada, they're very specific in terms of targeting that now over time i think as you get in there again you start to get this natural expansion out

because the buddy of this guy you know who runs this accounting firm and is an australian expat you know maybe now it's like there's the the u.s guy who just grew up here and and you know and he's got a good business and their buddies right and so that's how you could start to expand but but in terms of their international expansion they're not just going willy-nilly they're being very thoughtful about hey we can how can we keep that australian culture how can we play to our And that's where it's going. Let me ask a question, and I'll turn this into a softball question because I first looked at Constellation in 2016, and I had the exact same question then that I do now.

And I think Constellation software is like a 12x since then. So I'll turn into a softball question by prefacing that. But this is now, you mentioned, 350 million market cap company. And a lot of it is not because it's trading for, you know, 10 times price to earnings. This is pricing in a lot of very good, accretive growth. And you mentioned they're going for accounting practices that are $1 to $10 million. And obviously the market's huge. But you know, it's a fair question to ask, hey, is there enough?

And if they're doing acquisitions 50 years down the line, like the NPV of those is very, is there enough where over the next five, 10 years, like they can really grow into this market through accretive acquisitions because it takes a heck of a lot of $3 million acquisitions to like really budge the needle at this size and kind of at what the stock is implying. Yeah, and I think that's where the constellation sort of method comes into play, right? It's like everyone had questions around, will they be able to continue to make acquisitions? How long is that tail, right? How will they go about it?

That's where that decentralized aspect is really so important. If this is the biggest risk, if they can't figure out how to decentralize the M&A, then the value collapses because they won't be able to make the future acquisitions that are needed in order to create the story of like, hey, we can continue to kind of do this in the future. forever, right? And that is of huge risk. And by the way, just for people, like, you know, I'm a user of coiffin, right? If you go into coiffin, I think it says like 17x EBITDA or something, right? Like, just be very clear and careful that that's not actually, remember, we said that they're buying 51%. So it's actually trading at 34x, 35x, I think, actually, you know, EBITDA

currently right now, right? So it is not cheap by any metric. Let's see what C-Bus is trading. C-Biz is at 20x, right? So there's a, it's not cheap by those methods, but, but it's like, again, you're talking relative versus absolute valuations. Relative, is it expensive? Yeah, I mean, or is it fairly priced or whatever terminology you want to use it? Yes. On an absolute basis, based on the market opportunity, do you think that this team is, is with all

the risks that we mentioned, kind of focused on those right things? For me, the answer is yes, right? I think this could be, you know, a 10x type bagger, right? But there's a lot of risks, and it's never going to be cheap. It's one of those things where, like, maybe you can buy it on a hiccup at some point, but, like, I don't know, I really doubt it. And by the way, once they list on the U.S. Stock Exchange, which, like, well, you know, who knows when it will happen, but it could happen in the near term future. They're kind of focused on it. A lot more eyeballs are going to be on this business.

A lot more people are going to be looking at it. and probably the valuation may even get bit up higher, right? I don't know for sure, but yeah, that's something. I agree with everything you just said. And for those who are listening, they had an investor day, I think, November 2024. Go look at the slides and the accounting is complicated because of all the NCI issues, but they do, this is a, they give you the details. They do a great job of backing out.

I mean, they really are spoon-feeding how to like look through all the numbers and the complexity. So if you're looking, it might sound crazy to say NCI and stuff. on a podcast. This is not a company that makes it hard to understand. You can go look at it. Let me ask you a question that just top of my head. You know, I think Lawrence Cummingham is the one who wrote the book. You get the shareholders you deserve. I've got some questions about all the quits. But you mentioned they're going to relist from Australia to the U.S. And I know every investor loves that. Though I don't think Australia multiples are that cheap because they've got the superannuitization fund and that's kind of like a permanent bid and stuff. If they were,

If they were UK listed, it would be a party if they did it. But I guess I guess I, this is a team that's focused on long-term value accretion. They talked about, hey, they buy back. Here's the shares we've got, here's the shares we've bought back. We buy back shares when they're too cheap. I think they even bought back shares in the second half of 2024. So that gives you an idea. They even talk about, they started talking about dividend discount models on their thing.

So at least you know they think that they're trading too cheaply. I guess my question here is, why re-list from Australia to the U.S.? Because they're not really issuing equity. They are the type of shareholders who would like to buy back stock when it's cheap. And when I just roll all that, I'd be like, hey, most of the manager I know would almost rather be on a more inefficient market and, you know, less compliance eyeballs, all that sort of stuff than the relisting to the U.S. sounds like the type of thing I would hear from more short-term focused people, people who have plans on issuing inequity.

I'm not, like, harsh criticizing it. It just doesn't strike me as the team that would be really looking for that. I kind of think of it as a short-term pop, you know? Yeah. So, one, we're completely speculating on if there'll be a pop or not. I think there probably would be, but like, you know, who knows, right? But what does listening to the U.S. actually do? One, it brings a lot more exposure to the brand, right?

It's like truly, I mean, as much as we talk about, yeah, the Australian, Futsi, like, all this sort of stuff. But, like, let's be honest, the U.S. stock market is still. the most dominant one and whatever will take. Does an accounting role need exposure to the brand through the stock market though? Because Constellation Software has not had any problems buying people or with brand exposure. They're up in Canada. Yeah. I mean, I don't think you necessarily need to. Does it help with an accountant that lives in California and is like, oh, wow, I'm buying publicly traded stock that's on the U.S.? Yeah, I think that helps a lot more to explain to your wife while you're selling the business versus if you're, you know, saying, hey, I'm buying an ADR or like

on the Australia. No, it's a great point, especially if you're doing stock deals as part of the sale component, having a, it actually really answers the question, having a listed U.S. stock. Definitely one aspect, by the way. Like, we didn't even cover, remember, like, again, when you start to buy these businesses, they're really trying to think through how can we be thoughtful. You have high retention businesses that can cash flow really well and a team that believes that they can take that cash flow and increase it in a, you know, relatively short time period, right? So if you think about that, then they want to, you know, buy it with as least equity as possible. And so what they actually do is each acquisition, they put debt onto

that entity, right? So it's only that entity. So if they buy, you know, Rangely Capital LLC or whatever, right, like they're only doing that and they're putting debt on that business. So there's nothing coming to the parent company, right? It's a little bit complicated as we're describing this, But just imagine each company that are buying, there's debt attached to it. Yep. Listing in the U.S. helps with that because then you have U.S. regulations. You have U.S. SEC.

You have all this sort of stuff. So the banks that can also start to bank you are no longer Australia, Commonwealth, whatever, right? But actually, maybe J.P. Morgan. And then that starts to help with a lot of these sort of deals where you can do. Now, the risk that I see is like they do this. They do get J.P. Morgan. And then they're like, oh, well, shit.

like we got pretty good at this like why don't we just got to do an 100 million revenue business right and like why not you know that is to me the biggest risk but i i just you know breck kelly's pretty he's on podcast he talks about a lot like I just don't get the sense that that's what he's going to do. But I would say that that would scare the crap out of me if they went and did that because that takes away a lot of the moat that I currently see in the business of being able to service this mom-and-pop accounting firms better than anybody else. And one thing, Andrew, that I just wanted to bring up, which we've kind of talked about. But we've been talking about dental roll-ups, and I know your own's been on the podcast a few times.

I don't know, did he pitch the dental roll-up? I think Zach Buckley from Buckley Partners actually pitched the same dental roll-up you're thinking of. And I've looked at that one in detail and I've looked at several others and the physician roll-ups and all those, yeah. Yeah. But I think it's important to think about the difference

between some of those. So for something like a dental roll-up, right, think about what happens when you get audited by the IRS or the risk of getting audited by the IRS. You can lose your house, you could lose your car, you could lose your, you know, there's so many things that you could lose, right? You could destabilize your life. Now, if you get a cavity, like, it's not the worst thing in the world. You can, you can kind of deal with it. If you get a heart attack, that is the worst thing in the world, right? And so that's why

you don't see people switching physicians that often. But dentist's churn is actually a little bit higher than it would be for a physician and certainly than an accountant. And so, like, I think that's where when you were talking about dental roll-up versus this, I actually think it's more equivalent to the physician roll-up, where it's, the retention is actually higher per client because of the risk associated with if that knowledge and context is lost. If you go and switch and guess what, on that switch, somehow knowledge wasn't transferred and then you get audited, you are fucked, right? No, it's a great point.

I mean, you mentioned the audit word and my heart race picked up a little bit. So I think it's an excellent, it's a really excellent point. Let me back up a second. Well, I guess one more. The other thing is you mentioned they, right now it's a. accounting focus, but they're clearly moving into other directions, and they clearly want to, how do you think about that? Because, you know, on the one hand, if Warren Buffett had never moved, well, if you'd stayed inside of insurance, I don't know, maybe it gave me more, maybe less,

I don't know. But, you know, if you've got this super talented group, especially with a great owner-operator culture, you probably want them starting to move into the injunctional things. And look, most accounting businesses, I think you mentioned wealth management, most accounting businesses end up with a wealth management side by hook or by crook unless they're, you know, just completely corporate focus, they're going to end up with wealth management because you'll have some type of wealth transfer or something. The synergies are pretty natural. So that seems natural over time. But, you know, I think they want to get into other areas as well. How do you think about just like expanding into other areas? Do you think that's NPV positive or risk? How do you think about

that? You know, it's it's both a risk and NPV positive is what I would say. Like, the risk is, of course, like, you know, the software analogy is like probably the easiest for me to make, which is like whenever you have a company that goes outside of its core product and starts to add a new product on, the risk is like you've got to create a whole new go-to-market motion around that. You've got to create new marketing materials. You've got to staff up a whole new team. You've got to figure out the economics associated with that, right?

It's all these sort of constraints and challenges. That being said, no successful compounding business has ever reached their. compounding status without going into multiple products and going outside their comfort zone, right? It's never happened. Did you see the quote? I don't even know if it was a parody or not. It was apparently from Masa from SoftBank that was like Bill Gates and Mark Zuckerberg, they're one-trick ponies. I'm over here building an empire. And, you know, as the founder of the yet another value empire, I kind of respected it. I'm going to start saying that all the time. But I was like, you're really saying, Zuckerberg was the one where I was like, what, this guy bought WhatsApp?

He bought, he bought, he made every pivot almost perfectly. And you're ever going to be like, one trick, phony? But did you see that quote? I did not see that quote. But that's a, you know, Masa, by the way, is just awesome. Like, he's having his moment again. The guy has like nine lives, right? Like, I mean, it's just, it's truly incredible.

But, you know, I think like multi-product execution is really freaking hard, right? But that being said, if you pull it off, it is the only way you become a massive business. And I think like they've been thoughtful about it, right? Estate planning makes a ton of sense because you're already managing the financial estate. And so kind of now this is the leap over. Wealth planning again kind of makes a lot of sense for doing it. You know, insurance, stuff like that. You know, I think that's the question.

I mean, every 10 years, every financial company staples on an insurance company. And then 10 years later, they staple it off. So, yeah, yeah. I mean, so that to me is more of a risk a little bit further apart. But one thing I will say is, again, you can study how they're doing this. So they're doing it thoughtfully by focusing on Australia with these ancillary businesses. And so then that's their testing ground. Does it work in Australia?

Are we doing it right? Whatever. And then they can start to move into the US, UK and Canada. But like, we haven't yet seen them doing that. Right now they're still putting boots on the ground with just accounting firms, making the acquisitions, you know, building the playbook, building the decensurized scout network. all that sort of stuff. And I think Brett's pretty thoughtful about, like, I don't know what number that is, but some level of density where he feels comfortable with the business and then starts

to layer on these adjacent products and new GOs. Let me ask a tail risk here, right? So this is, we said one to $10 million revenue companies. So betting against the U.S. tax code and complexity has been a loser's bet forever. But, you know, I do think there have been efforts underway if you make less than $50,000 per year, just very simplified tax returns. I think there was. would be a lot of steps if the government wanted to take them. They could simplify tax returns for all but the upper, upper, upper tier earners. But the other side of this is also, you know, tax returns are something that I would think are very exposed to AI, right? Like, it's a systems of rules. You could probably plug in, I don't know what the Australian equivalent of the W2 is,

but you probably plug it in and then it could spit out a tax return pretty quickly. That's like 98% correct and then maybe you hand it to a accountant say review the work or maybe review it yourself and turn it in but I wonder if there is a tail risk here of you know these accountants are highly paid professionals and is there some type of tail risk where three years from now AI is so good that these accountants are completely displaced or you could go the other way right like I see two years ago I think I saw a lot of people like lawyers are going to get displaced by AI. And now what I am hearing from people is lawyers are really benefiting because AI does the grunt work and the lawyers can spend more time on like the creative work or client sourcing or

like really. So I just want to toss it over you. You're actually a VC. You're involved in AI. You've probably talked more about deep seek in the past day than I have in my entire life. But, you know, how do you think about that type of tail rescue? Yeah. So, you know, I think this is like technology has almost never successfully like completely gotten rid of jobs, right? Like, you know, people were saying, like, hey, you know, what was the first one that would happen? Like, it was like, uh, typewriters and people like that. We still have editors. We still have, uh, copyright people, right?

There's, I mean, copyrighters are huge business, right? Um, uh, secretaries, EA's like, everyone's like, oh, there's going to be automated. We have calendar tools, all this sort of stuff. It's actually just, it just means more account and more meetings get booked and you need people to, like, help you manage, like, how that works. The same thing goes for accounting, right? So, um, so, um, so one, let's, let's, let's tackle the, uh, tax complexity. Intuit spends a lot of money to make sure that doesn't happen, right? H&R Block, all these companies, they lobby.

It's freaking terrible. I wish it wasn't the case, but it is. And it's been that way for a very long time. It's not going to change. You mentioned the less than 50K sort of cohort. Those people are not using the accounting services of who Kelly Partners is acquiring, right? It's higher net worth individuals. You know, it's one of the crazy things, too.

Like, everyone knows about the Intuit and H.R. Block lobbying and stuff. And it reminds me of Jones Act shipping where it's like, hey, you know, you're in the middle of Iowa and the Jones Exhibing guy comes and gives you 25K and says all you need to do is vote against any changes to Jones Exhibit. But it's one of the things that's a shame, like a cult of personality like Trump has. It's one thing that would be so great for so many Americans. And it feels like you'd just be like, F, the lobbyist. Like, let's go change this. It's one area that I don't know anybody who's like, yeah, the U.S. tax code, 95% approval among Americans. It's like, it's such an easy fix and you could like really point to it.

I can't believe nobody suggested it or done it. Well, part of the reason why I also don't think that happens is, and this is just my personal opinion, but I think Trump is someone who is fairly self-interested in his own wealth as well. And, you know, I bet he benefits from a fair number of tax loopholes that, you know. That's what they say, right? When you've got things like this, the more you can make it a rules base and then there are exceptions to the rules, it's actually really. good because you can take advantage of the exceptions. If you're high up, you can start pulling strings. It might be bad overall, but it's, yeah, completely agree. Yeah. But let's go back to AI. So, so, um, so the coolest thing about AI and what I like to say is like, I've actually

not been calling it a platform shift. I've been calling an enablement shift. And why I say that is because like, um, you know, I don't, I don't know if you've used like chat GPT for, for like, your stock research. Have you like use it yet? I have. I don't know the, I mean, there's, I've seen people use it in so many different ways. I'm not sure the exact way you're thinking, but I'm certainly quite familiar with chat GPT and the likes. Okay. I use it. Like it is the best tool I've ever said. Like the other day, I was like, oh, why is regenerate on trading down where it is? And like, I just like asked it. I asked chat GPT. It gave me a bunch of reasons that it came up with this ILAA thing. And I was like, what is that? And I started, and just like,

the ability to go down the rabbit hole using chat GPT or Ploxy or whatever, you know, answer engine you want to use is amazing. Now, that being said, like, someone could say, well, like, oh, my God, so good at doing research and, like, you know, it knows what's happening. So it could just buy our short companies. Well, again, this is a system of people all buying together. So, like, Adobe gets shot because people are saying, oh, it's, it's like non-AI winner. It's an AI loser and all this sort of stuff. Well, then, like, show McAndrew might have a variant perception, which is like, well, actually, even given all those, like, we're actually going to make it a higher position because of the fact that, you know, we don't believe that that's a case, right? That's very hard for. an AI to do because it's like it's taking in behavioral tendencies and and like the zeitgeist and like the culture and the tweets and who's tweeting what you know like all this sort of stuff could you make a model that takes that all together sure but like how do you gauge nuance right the the the tuning and the weights of that would be really hard so all that goes to say like normally these paradigm shifts mean that the that the individuals doing the work get augmented which means margins go up they become more productive but at the same time that usually doesn't last in the sense of, then everyone else also gets productive and the margins go up and so then they get competed away and you end up back where you were. But all that being said, we do have this tailwind as people start to adopt this in the near term. Let's call it the next three to five years before then they start to stabilize. And so I think that's actually a margin

tailwind for Kelly Partners and other roll-ups if they're able to leverage AI properly. Let me push back on it from a different angle. I wonder, you say margins go up and then it gets competed away. I mean, the other thing, and this would be a long-term tailwind is, and I, I think you've seen this across a lot of industries. What happens is margins go up because the lower tier players get competed away. The best players can do more work, right? So I think of a lawyer. Lawyers in the 80s, what would a high paid lawyer make? A million dollars. I think there are examples of lawyers today who are pulling in 20 times that. And I'm sure a lawyer today isn't like dramatically better at law than the best lawyers of 20 years ago, but because they can use AI and stuff to do a lot more

work because the world's more competitive, all that type of stuff, I think they just get paid a lot more. You know, I point to basketball player salaries, but that is much different in terms of it, but I think it speaks to the same thing as well. No, I think that was great. Let me shift to the other red flag factor I had here. And this is, I'm a value investor. When I read the earnings calls, the owner manual, obviously it's speaking to me, right? I mean, I think the last earnings call, He quotes Charlie Munger. He mentions Good to Great. He mentions Bill to Last.

He mentions listening to a Dan of Her podcast on, I mean, unfortunately, he didn't mention listening to the Yet Another Value podcast podcast. You know, hopefully the next earnings call will send it to him and he'll be able to say yet another value podcast, go listen to it if you want to be a shareholder. But he's speaking to me, right? But my history of CEOs who mentioned especially Good to Great. Good to Great is always the one. Somebody mentions it like, oh, my God.

For some reason, there's something about Goods Great. when it or you know there've been several CEOs who've gone and they've said hey I read the outsiders and I'm going to run an outsider playbook here and I won't name names some of them have done it well and some of them the stock has gone to zero right so I guess I've been hurt before right and when I read this and I've got Lawrence Cunningham and I'm like this sounds great but it also sounds like the type of thing that somebody with a low margin business would go to get like a retail cult around it and there's nothing wrong with that but it's get a retail cult around it, to get a high stock price, and then rugpole.

And now the thing here is he owns a 50 percentage of the stock. Like, I don't know what the rugpole would be, but I guess, you know, on the one hand, I love to see it. And on the other hand, like a lot of it does hit my, hey, these are things you learn over like 10 or 15 years and you start getting the gray hairs and your beard is sometimes the thing that seems like a green light go is actually a big red flag. So I'll just toss that to you. Yeah.

So this has been pretty much the biggest pushback from anybody that looks at the stock is like, Hey, Brett's on Twitter, by the way. Like, I think it's at Brett KPG. He's very active. He's on podcast. Kelly Partners has his own podcast, right? And so you're kind of asking like, hey, what, like, what is this guy doing? Right.

He's like, oh, he's talking about this stuff. Like, what's going on, right? He's on Twitter. I just saw, I did not know this. And he follows me. He might be yet another value podcast listener. Yolo Long, let's go. It's, you know, I think one of the things that I would, I would just say is, one,

And, you know, as a VC, like, we study human nature. And one of the things is we really want to see consistency, right, in the way people work. And so, like, good to great is a great example of, like, Brett mentions that in every single conversation. It's not just like, oh, hey, I read it or whatever. It's like, no, no, no, this is ingrained in me. This is, like, what I believe. This is how I think about things, right?

And so if there was variability and all of a sudden, he was like, he was like, you know, Oh, I moved over from Munger to Bill Ackman, right? Like, because, you know, Acman's crushing it right now or something. Like, that would, that would, you know, obviously scare me. But it's like, one, the consistency in his messaging. And then, two, you know, we talked about that owner's manual. I really encourage anyone who wants to be a prospective shareholder to go and look through that. The level of detail, not even just explaining the accounting, but also Brett shares and his ownership and what he sold each year is listed there.

He also says, it even tells you, like, hey, he owns, I think it's 48% right now. It says, but I'm going to own over 35% over time, but I'm letting you know over time, like it's coming down to 35%. Now, is that through share issuance or him selling, I don't know, but he's letting you know, I'm not going to be, you know, a 90% share. Like, I thought that was refreshing, you know? I just like to tell it, yeah.

I would say, so to anybody that has this issue, right, of like, hey, is he over really promotional? Is this the, I would just say, like, go and figure out the KPIs and the stuff that you think are really important. to the business and see if those are reported consistently every single time. If they're not and they start to change, then that should probably, you know, trigger the warning signal that, hey, something's happening. But if not, like, you know, if Brett goes and sells 5% of his stake tomorrow, like, given consistency, we should expect to see that in his report

saying, here's what he did. And I bet you he would probably say something around, like, here's why I did it and so on and so forth, right? And so, like, if that didn't happen, then that would be a warning signal for all of us to hit the sell button right away. But I don't think that's the case. Again, he's 50 years old. He just moved to the U.S. His son's going to, I think he's about to go to college or something like that, right? He is someone who's still in the prime of building this business. And it's not like, you know, why did he move to the U.S.? It's because he wants to open up this geo and make it a big business. Otherwise, he could have stayed in Australia. He could be a really wealthy man and just like got to chill and just do it. But he wants to build this into a big

business. No, I completely agree. And then the other thing is when I say red flag, I worry about, I mentioned rugpole, right? And you kind of look at it and it's like, where's the rugpole? Like a lot of it when I've seen people mentioning goods to grade or something, you see it in the company's issuing stock nonstop or the CEO is getting paid in a lot of stock and he's selling stock nonstop or you can imagine other variations of this. But here it's like, hey, he owns 50% of the stock. Yes, it's come down a little, a little over time. But it's not like he's selling tons of stock or getting tons of shares, like, it's hard to see the rug pull. And I think, you know, the actions we've got out of the world. Not that I haven't seen places where,

uh, the CEO talks a big game. It doesn't seem, it doesn't, their actions suggest there's not a rug pull and the thing explodes, but that lends a lot of confidence. Uh, I have one last question. And then we can kind of do final thoughts and wrap it up. I just want to ask, this is akin to a franchise business, though it's not a franchise business, but, uh, you've studied it longer than I have. Anybody who's getting into franchisees, is going to study McDonald's quite a bit. But they really talk about McDonald's quite a bit. They mentioned, hey, we went into California and Florida.

It's no coincidence that those are two of McDonald's biggest markets. I think they mentioned going to the McDonald's franchisee symposium in France, I want to say it was last year or something. But I can't remember for sure. But they talk about McDonald's quite a bit. And I was just wondering, it's a great thing to study. But was there anything more to why they're so focused on McDonald's? I think, I think, you know, he's been a student of businesses. He talks a lot about, I forget, there's, there's a different company that, like, he mentions always.

I think it's like Costco or something. I forget what, but he's like, you know, everyone will always bring up or Berkshire or something like that. They'll be like, oh, is this where it is? And he'll just be like, no, like, I love studying McDonald's, right? And I think part of that is this, yeah, it's a franchise model. It's, but I think it's like this geo expansion. It's owning your customers, right? it's like it's it's it's it's kind of uh also thinking about this you know again there's there's

kelly partner's investment office right it typically owns a lot of the lands that the uh that the accountants are are are are on right um and so like there's these different aspects too where he's like thinking about the real estate aspects and stuff like that again that is kind of a risk again if if Brett like kind of went and was like wow i'm going to be a real estate landlord and like I'm just going to buy up all these properties and stuff right like that is a risk I'm not saying it's not, I just think he is very transparent, like, to a fault. Like, he talks about it, like, he talks about everything, he shows everything, stuff like that. So if he didn't disclose that stuff, or if it came out somehow or whatever, there's a, the clearest red flag in the

world, then you should be selling because, like, he violated the trust. But, like, that's not who Brett is. That's not what he's done. That's not how he's shown himself to us. Again, he started this business in 2006, right? So, like, he's been operating this business for quite a long time and he could have again just like chilled and and there's no rug pull or anything like just imagine you own 100% of this business like you'd be fine you'd be a very wealthy person living in Australia having a good life right but he wants to build a big business and a great compelling longstanding business the other thing we didn't mention by the way he's already appointed a successor right that the board knows and he also has many other people that he's trained up underneath him

just in case stuff happens. And so this is not someone who's just thinking about like, hey, I'm Brett and it's called Kelly Partners. And so like my name, like that's it. Like, you know, I'm the person. He's already thinking about no, no, no, I need to study how do we pass this off to others and how do we keep compounding this over time? Because I want this to be like truly a generational type of company. I think he said on one of the calls like right now, I'm the point man. I'm the front man. But, you know, when it's time for me not to be, I'm ready to be like Mark Leonard and grow a giant beard and become a big recluse, and you guys won't hear it for me. This has been so much fun.

I really enjoyed kicking myself, well, both because of stock performance and because of how interesting it is. I'm kicking myself. I didn't look at this earlier, but I guess any last thoughts we should kind of wrap this up with? I just want to go back to like, I think, I think like people really, when you're studying businesses like this, I think it's important to talk about like what we just went through between the physician, the dentist, the accountant, right?

like again these are not AI factors these are human factors right think about like the risk associated with an audit the risk associated with losing your financial being because of these sort of things and think about your own personal side of stuff like do you want to handle all this tax complexity on your own or would you rather use somebody who is is their job to do it and what sort of pricing power does that person have over you right all those sort of dynamics are how you can think about this being a good business because it just leads to a lot of stuff. High gross retention, right? The ability to charge more, which means then you can earn more margin, right, and you can increase revenue over time. And then this low customer acquisition cost, both on acquiring me and you, right, as customers of the accounting fund,

but also potentially this localized network effect of if you start in Florida, then, you know, can you get, you know, and you're in Tallahassee, can you get, you know, I don't know what's close of Tallahassee, but like Florida, whatever, whatever's close, I don't know my Florida geography, sorry, but whatever's right next to Tallahassee, like, can you then go and start to acquire there? Because, again, they're friends, they probably go to the same CPA meetups and, like, all this sort of stuff. And so you have this sort of low customer acquisition, low M&A sort of cost that is embedded throughout everything that this business does. And that's why as a VC, I get so excited, right? It's like, you know, like, we're, we're,

investing in security companies and infrastructure companies and all this sort of stuff. But this is the same parallel that draws to what Kelly Partners is doing, why I get so excited because I see exact those same things, how they're leveraging distribution, how they're going multi-product, how they're leveraging low-cac, how they're leveraging the network effects. And so that's really what's compelling to me about this business. Let me give the last, I guess two last questions. Number one, five years from now, you and I are sitting here and something has gone wrong, right? The stock is way down. And it wouldn't take crazy amounts for this to be way down.

because, again, it's got a lot of growth premium for future accretive acquisition. So if that stopped for any reason, this would go down. But if five years from now, for some reason, stops right down, whether it's because the accrued acquisitions that happened or something else, what do you think caused it, what do you think caused the miss? Lost focus. They started, they got really excited in either one, they moved up market too soon and like went for a, you know, $100 million or $50 million type acquisition, right?

or they were like, oh, you know, like this was really working, let's go into the wealth side, and then they start making plays on the wealth side, and they lose the core of their business. And so that's, to me, the biggest risk. The only way you can see that is, again, they're transparent on what they report, on what they acquire, they put out press releases. You just have to study them and keep a list and just keep on top of that. This podcast is sponsored by DeLupa. Earning season is hectic.

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That's Delupa, D-L-O-O-O-P-A-com slash Y-A-V. And then last question, and Brett mentions this on the calls, right? He talks all the time about, hey, they bought, again, they bought shares back recently because they thought they were under value. And he talks about his dividend discount model and all this type of stuff. How do you look at fair value here? Because, again, one of the things that's really hard here is if they were going to do $500 kajillion dollars in accretive acquisitions in the next year, you know, the shares are worth $5,000 times where they are. It's hard because you've got to paste that out. So how do you look at fair value?

And you can base it on what he said or you can base it on what he's there, what you do. Yeah. I mean, listen, like the fair value part is the hardest part of this equation, right? It's why I passed on Constellation South for over 10 years because I kept looking at being like, high multiple. I don't know how they keep doing these accretive acquisitions. And, you know, I shouldn't have just like bought it and gone to a beach and never even budge and thought about it.

I think that's the hardest part in general of like buying into these compounder companies, right? You're paying a compounder premium. And so what you need to assess is like how much. much is that compounder premium that you're paying? So again, remember, not 17.5x or whatever it says, 35x, EBITDA, right? Now the question is, go into that EBITDA and see what it is. Well, for me, what's interesting is like, even though the year over year growth number is not that high, it's actually not that high because they've done so many acquisitions. And so if you think about it,

the acquisitions are still, they're at lower EBITDA margins than what's currently there. So you have this kind of interesting dynamic where the more acquisitions they make, the kind of less, the kind of suppress that EBITD growth is in that sort of area. And you're betting that, again, they're going to make these improvements and get it back up to historical norms. This is where you're using past performance does not equal future success or whatever, but like you are using their past performance to say they're going to be able to do that. That's where I get more comfort, right? Is like one, the market, like as expensive as it is on a relative basis right now, it's still not as expensive as that because there's this non-optimized EBITDA that's in there, right?

And then the other aspect to it is, again, like, C-BIS is a, is a $4, $5 billion enterprise value company, right? They've been compounding for a very long time. If we're this, if we're early into the compounding story here, which I think we are, because given they just started in the U.S. and UK and Canada, like I think those can be very big, markets, let alone Australia, they could still expand within. We're looking at something that could compound for quite a long time, right? And so, like, for me, I think it's warranted to pay the high multiple, but, like, let's not kid ourselves. It's a really freaking high multiple on a relative basis. So that's just what people need to understand. But, like, I own Constellation

software, right? I own Topicus. I own, you know, I own MasterCard, right? Like, for me, I get very comfortable owning that. I don't get comfortable owning the Andrew stocks where it's like, you know, 5x EBITDA on like a trough, you know, thing that's going to a shipper that's going to turn around or something. Like, that's just not my game. And so that's why I have more comfort with this. You know, you said 5x EBDA on trough multiple. It's like, what is it? What is it? I'm like, a rat with cocaine as somebody said of shipping one. You know, at some point you need to, you need to check out match group because that's, that's the version for me right now is like match group is like. Oh, I've looked at match.

a lot. Probably a conversation, but for another day. But, you know, I think it's really interesting, though. I mean, you're married. You just had, was it your second kid you just said? First kid. First kid. Okay. So you're in the thick of it now. But my worry is we are not the right people for it. Both of us are married and have kids, right? We're not the right people. And my worry is unless you're actually going out there and hitting it and is like eight years ago, I own match group and I had a thesis because me and all my friends, it was the hot thing. It was great. When I talk to my few remaining single friends, like a lot of them tell me, hey, we don't do online. We don't do those anymore, right? Like the run clubs, which there

was a Wall Street Journal article that was just absolutely, but they're into the run clubs or different ways of meeting people. They use Instagram. And like, I worry that it's one of those things where you look at it and you say, yes, the network effects make sense to me. The valuation looks cheap, but then you buy it because it looks good on a spreadsheet and like the actual users are really churning. It's really hard for married guys. I remember when I was looking at in 2016 and I told my now wife, I was like, hey, I need to download, we've been dating like nine months. I need to download some dating app so I can do some due diligence. And she told me a few months later. She's like, yeah, I texted all my friends. I was like, I got to go with this guy, right?

Like, he's definitely about to cheat on me. So it's hard to do diligence. And you can say, oh, I download and look, unless you're going on them. It's just one of those hard ones. Tell me anything I said right or wrongly there. I would, the only thing I would just push back on, I guess, is, I think, I think, like, this is one of those stocks that is an AI winner and its price as an AI loser. And why I say that is, like, what AI is really good at is search, discovery, surfacing insights that you weren't able to see before. And so for people who are looking at these profiles and, like, want to understand, like, a bit more about the person to really get to know them, I think AI is just going to enrich that going forward.

And by the way, I mean, not to kind of be crass or whatever, but like, you know, a lot of the dating profiles are like, you know, people do the Instagram filters and like all that sort of stuff. Like, AI is only going to improve that, right? You're going to be able to make your photo be the best, most attractive photo of all time. Like, I think those sort of things are actually going to be, are actually going to be useful to improve or at least, I wouldn't say improve, but like right now it's priced as if it's a declining dead asset. right? And I think it's like less of a decline debt asset than the market thinks and more of a stable asset, which can cash well for a very long time and maybe has growth from hinge kind of breaking out. But that's probably for for another time. And also when you think AI winner like looked at the toughest thing for I had no shame, but the toughest thing for a lot of my friends is

like how do I start talking to someone here? Like you think about AI prompting or like I could imagine a world where you and I match on a dating app, right? And like we actually never really needs to communicate until we discover we like each other because AI is just sending paragraphs back and forth and like, okay, we've checked your two AI matches. Why don't you go meet up in person? I don't know. That'd be kind of crazy. I mean, that's that, you know, that might be where we're going. Hopefully not, right? I think it's going to be much more around like, imagine again, you do a video, right? And it clips the best part of your video because AI is really good at acknowledging, you know, kind of where you're doing, what your voice inflection,

all that sort of stuff. And boom, now that's in your profile. And so one, it reduces the the friction to create the dating profile and get it up there. But then, too, also improves, you know, the way you kind of look on that, on that dating app in a number of ways. And so, like, that to me is why it's, it's not a, it's like the path of decline is still like a COVID. No, I hear you, but you got to, if you want to own that, I think you got to hire two 24-year-old analysts and be like, I want to see, I want you to go sign up for all

the dating apps and tell me, like, how you use them and tell me how your friends use them. You know, it's just very hard to, but that is where the edge can be, right? Like, famously, I personally think stocks that aren't in the Silicon Valley slash New York City wheelhouse, I think can have are often underpriced because they don't get it. And there's a really long runway in things that aren't quite in that real house. Anyway, we're way off topic. This has been awesome. We're going to have to do, it's been four years between pod one and pod two.

We're going to have to do less between pod two and pod three. But it's been great. I'm going to send it over to Brett and be like, I want to mention on the podcast. are out next time, but this has been awesome. We'll talk soon. Yeah, thanks, Azure. All right, see, yeah. A quick disclaimer.

Nothing on this podcast should be considered an investment advice. Guests or the host may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.