Many entrepreneurs secretly dream of one day listing on the Australian Securities Exchange (ASX), but the IPO process is not for the faint-hearted. Brett Kelly shares Kelly+Partners’ journey from privately-owned accounting practice to publicly listed company.
Brett Kelly has never been afraid to aim high. When the 22-year-old suddenly found himself unemployed, he approached 34 inspirational Australians and asked them for their secrets to success. Those interviews formed the basis for his first best-selling book, Collective Wisdom.
Nearly two decades later, in 2017 Brett made another audacious move when his relatively low-profile accounting practice, Kelly+Partners, began trading on the ASX.
The motivation for floating the business was Brett’s realisation that all the iconic companies he admired – Disney, Berkshire Hathaway, McDonald’s, Walmart – were public companies.
“One thing that people miss about a business is the importance of structure,” explains Brett. “Most business owners believe structure means whether you’re a sole trader, a trust or a company, but it’s so much more. There’s your legal structure, organisational structure, your mission and values and how these are reflected in the business strategy. Once you’ve done this foundational work, the real question is which is the best structure to have.”
The first business plan Brett gave to his bank projected that Kelly+Partners would list after ten years.
“It took 11 years because I underestimated how long it would take to complete the last phase, which was the legal, pre-IPO, et cetera,” he says. “But we always ran the business like a public company in terms of compliance, structure, quality, and our people.”
One of Brett’s many heroes is Steven Covey, author of Seven Habits of Highly Effective People.
“One of the seven habits is, to begin with the end in mind, and people just don’t,” says Brett.
“From day one, I created a holding company because I wanted to be Warren Buffett when I grew up, and I wanted to build a Berkshire Hathaway style holding company. I realised that Buffett made all his money buying private businesses, and that’s what I wanted to do.”
Brett’s vision for Kelly+Partners was to acquire small accounting firms, improve their operation, and create a network with its own brand and centralised back office.
“In 2006, I realised that all the baby boomers owning accounting firms would decide to retire at the same time. My mates went off into sexy careers in investment banking and funds management, while I was asking, ‘Who’s going to buy these businesses?’
“I’d studied private equity and had a background in corporate finance. I’d also observed that the big accounting firms were ageist, so I decided to buy these smaller accounting firms and look after the older practitioners. The plan was to transition each firm to a younger partner in a respectful, dynamic way.”
There was an important structural reason why listing on the ASX was advantageous for Kelly+Partners. Most accountancy firms are partnerships, which means they don’t retain profits; they pay 100 per cent of their profits to partners. Brett wanted the ability to reinvest in Kelly+Partners and build capacity.
“In most partnerships, the partners agree to underwrite some working capital, which they can take if they leave tomorrow,” says Brett. “With our pre-IPO and IPO round, we raised about 15 million bucks of hard, permanent capital.
“I also wanted to start a business that would make a difference to the private business owners who employ 70 per cent of all Australians and who should get the same quality advice that large companies receive. Our aim was to provide advice tailored to each client’s particular requirements, so they could create a unique market position, rather than be another ‘Me Too’ business.
“Kelly+Partners has always chosen its clients based on their psychological profile, not their revenue. We’re not interested in the size of our clients’ businesses as much as their attitude. For them to want to work with us, they need to be dynamic and on the move.”
Brett believes that the trick with goals, is not to share them with anyone, so his plan to float Kelly+Partners was a tightly held secret.
“Most people are small, mean and scared, and if you share a goal of any substance, you’ll typically get what I call, C-A-N-T-E-D,” he says. “You’ll get people who haven’t achieved their own goals tell you why you can’t achieve yours.
“Mark Victor Hansen cautions people not to tell anyone about their goals; just work on them, surround yourself with a small number of people who’ve achieved their goals and have enough generosity of spirit to believe you can achieve yours.
“I had my plan. The bank knew. My partners knew I’d structured our agreement so I could go public at any time. But I didn’t go out to the market and tell anyone, not my friends, my dog, my cat. I just went about doing the work, and when we announced the float, a lot of people were like, ‘Well, why would you do that?’”
They say that the timing of an IPO is everything, and the date of Kelly+ Partners’ float was carefully considered.
Brett explains: “I thought that we were pre-recession in 2017, so I was keen to get our capital structure right. I also believed that Chinese debt would become a problem at some point. I didn’t anticipate a pandemic, but I did anticipate a recession, and I wanted to raise capital to ensure the business was bulletproof in any scenario.
“One of my business heroes, Bernard Arnault, built LVMH Moët Hennessy – Louis Vuitton. Bernard says, ‘Be short term pessimistic and long term optimistic.’
“Most people list either to sell their business or to take an offensive position. Our business is very defensive in terms of the nature of our revenues. I believed that listing would give Kelly+Partners a stronger defensive position from which we could grow in the way we always have, but from a much stronger capital base.”
The Path To IPO
“Another reason for listing was that I believe many accountants hold themselves out as being able to help clients with things they have no experience doing,” says Brett. “Now, I’m the only chartered accountant in Australia with first-hand knowledge of the journey from start-up to a listed company.”
Choosing the right advisors is critical to a successful IPO, and Brett’s 18 years in corporate advisory services made it easy for him to assemble a team of experienced people whom he liked and trusted.
“The most important thing to understand is advisors work for the company,” says Brett. “They don’t work for the founder/entrepreneur, and so part of the niche that I’ve carved out post-IPO is advising the owner, not the company. I help clients manage the advisors.”
The Kelly+Partners prospectus was put together in conjunction with advisors but based on Brett’s original business plan.
Next was the most time-consuming part of the process, Due Diligence.
“Our Due Diligence was made easier because we’re chartered accountants, which gives us familiarity with the ASX and ASIC compliance requirements,” he explains.
Concurrently, the team finessed the financial model and valuation metrics, decided who got what and how it would be executed, and the lawyers liaised with ASX and ASIC.
“Next was a two-and a half-day roadshow to investors,” says Brett. “Those investors then went back to the broker, who is probably the most important advisor you appoint. The investors made commitments, we sat down with the broker and allocated equity based on advice as to who would make the most suitable shareholders. Then the investors paid their money, everyone took their fees, the company received its money, and finally, I rang the bell.”
Every line in a prospectus has to be substantiated through third party evidence, so typically the process takes up to two years from start to finish.
“We were able to complete the process in five days less than six months, which is extraordinarily fast,” Brett reflects. “This was because we’d been audited for many years beforehand and we had invested in a company secretary who set up all of the structures required of a public company.”
Going public inevitably changes how a business functions, and it also alters the role of the founder, who becomes accountable to shareholders.
Brett observes: “I’m a pretty robust personality. I don’t find criticism difficult to deal with, and I listen to it, act on it. I don’t take things personally. If you’re somebody who does, the public sphere is an inappropriate place to play. Running a public company is different, but if you understand human relationships and remember that people like you to do what you say you’ll do, then it’s not too complicated.
“The other thing that I did was retain 51.345% of the holding company, the listed vehicle, and it’s very unusual for a founder to own a controlling stake in a listed company personally. I always said that I wouldn’t list the company unless that were the case, because that gives me complete control of strategy and execution. I’ve found going public liberating, not constraining at all.”
Listing hasn’t changed Kelly+Partners’ corporate culture significantly.
“The team were excited about going public, but it had little relevance to their day-to-day life,” says Brett. “We don’t have screens with the share price in the offices, and I never talk about the share price, except to say I expect it to go up over time.
“I’m sceptical about broad-based employee share schemes, so I gave everyone $1,000 worth of shares instead. We’ve got 45 partners that own 49 per cent of each of the businesses we operate, and those guys have all bought shares over time, and are aligned and happy.”
When asked if, in retrospect, there are aspects of the IPO that he would have handled differently, Brett says no.
“I’ve reflected a lot on what we’ve done well and what we could have done better,” he muses. “Other than the technical treatment of a couple of things in our presentations, I can’t think of anything material that I would change.”
As for the future, Brett notes that when Warren Buffett and Bill Gates were asked about the one thing that made the most significant difference to their business career, they both said focus.
“For us, focus is really important,” says Brett. “We want ambitious private business owners in Greater Sydney and Melbourne.”
As for his growth strategy, Brett says: “There’s a particular cadence to every industry, and the largest accounting firm in the world is over 185 years old. The nature of accounting businesses is that they take time to grow because you need to get people, train them and get them to work together. I don’t think you can grow faster than you can grow your talent, and we tend to grow talent internally.
“Even so, Kelly+Partners has had a cumulative average growth rate over 14 years of around 34 per cent, which is nearly ten times the industry average.
“I hope that over the next decade, we’ll continue to remain open-minded to possibilities. You have to stay nimble; have a sense of the big, important things and not lose sight of how to create opportunity within the boundaries that you think are appropriate for your business. So that’s the game.”
Brett’s advice to people thinking of an IPO
- Confirm that a public company is the right structure to grow your business
- Only consider an IPO after reflecting deeply on what you’re trying to achieve
- Confirm that listing will give the business, and you, as the owner, a greater ability to execute the plan
- Understand your personality and how you deal with criticism
- Decide if you can work in a regulated environment that requires a high level of corporate governance
- Create the organisational structure, systems and disciplines required of a public company long before starting the IPO process
- Retain as much control as possible