KPG kelly partners group holdings limited

Ann: KPG Market Eye conference presentation, page-5

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    "The key criteria for me is 1) that they don’t issue swags of new shares for acquisitions, and 2) the ROE stays at its current strong levels. The ROE is quite high considering it is mostly a bums on seats business, which shows they can run a tight ship."

    @gosouth

    It's high ROE because it's a "neck-up assets" business. But the problem with "neck-up" businesses is that there are also legs involved and often those legs walk out the door, taking the brains with them.

    That said, while it's a generalisation, my sense is that, unlike other more "prima donna" professionals (such as radiologists who know they are pretty rare creatures and therefore tend to exercise their significant pricing power), accountants - despite being financially literate - tend to be somewhat less demanding, and certainly less rapacious, in terms of maximising their personal financial positions. Perhaps its because accountants simply enjoy doing accounting stuff.

    I'm not sure of the extent to which KPG have retained the intellectual capital in the businesses they've acquired. While my sense is that the turnover of key staff has not been meaningful, I'm open to learning where I might be wrong in that regard.


    "Hopefully they don’t get sucked into the larger and larger deal cycle that a lot of previous roll-ups have fallen into."

    Yep.
    And the other thing that I feel needs watching is the level of indebtedness.
    Net debt @ 31 dec 2019 was $17m, up from $11m 18 months prior.

    Net Debt-to-trailing EBITDA is running at a still-comfortable 1.3x, but it has been moving up over time.

    Roll-ups are already quite risky; debt-fuelled ones even more so.

    .
 
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