Why Thrive Holdings Is Spending $1 Billion on These Roll-Ups

In this episode of 5 Minutes in the Lower Middle Market, we explore a trend that would have sounded strange just a few years ago: venture-backed companies pivoting into roll-ups.

For years, investors chased pure software businesses. Today, many are realizing that in fragmented industries, it may be easier to buy the customer base first and modernize it later with AI.

We break down why accounting has become one of the most attractive consolidation markets, how firms like Kelly Partners have completed more than 90 acquisitions, and why AI could accelerate the next wave of professional services roll-ups.

Timestamps
0:00 Why venture investors are pivoting to roll-ups
0:26 The surprising trend happening inside venture capital
1:10 Why accounting has become a prime acquisition target
2:36 Kelly Partners and the 90+ acquisition playbook
3:20 Why keeping local partners invested matters
4:33 How AI is changing the roll-up equation
4:41 Why buying firms may beat building software from scratch

Transcript

SPEAKER_00 0:00

Welcome to five minutes in the lower middle market, where I break down the best ideas about buying, building, and owning small businesses. And today, even venture capital people are starting to realize that in a lot of industries, it may be easier to buy, improve, and automate than to just wait for an entire market to adapt new software from scratch. And that's really the setup. And I found a tweet from Nicole Wischoff, and she is running a solo 50 million AOM VC fund. And she tweeted that three companies in her portfolio have pivoted to rollups. And that over the last 24 months. And these companies are crushing it at roughly seven to ten times her entry valuation. And I think that says a lot because for many years a lot of venture investors wanted pure software stories, low marginal cost, no messy operations, no integration risk, no legacy businesses. But now more and more people are seeing that in old, fragmented, slow-moving industries, the better move maybe to buy the customer base first and modernize it later. And accounting is probably one of the best examples right now. The playbook is becoming pretty clear. Acquire high-quality local accounting firms, keep the local partners incentivized, layer in centralized infrastructure, and use AI to improve productivity, margins, and service levels. That is why the Forbes headline matters quite a lot. Drive holdings, and what they do is they reportedly planning to bet 1 billion on an AI-powered accounting rollup. Forbes says the company's AI agents are already achieving up to 98% data entry accuracy. And the whole point is to use AI plus consolidation to automate and improve professional services. And routers reported a very similar version of this through Cred Professionals Alliance, a drive-backed accounting platform. And Cred said it planned to invest more than 500 million over two years, acquiring US accounting firms while using AI for tasks like data mapping and audit memo writing. And Reuters also said Cred had already grown to more than 300 million in annual revenue with 20 plus accounting firms, 900 employees, and 17 offices. Now, what makes this especially interesting is that the best operators are not just buying firms outright and stripping them for cost, they're using a much smarter model. And that's where Kelly Partners Group comes in. Another example for you. Brett Kelly, founder and CEO of Kelly Partners Group, has built one of the, I would say, most interesting consolidation stories in accounting. In the podcast I had with him, he says the company has completed more than 90 acquisitions, compounded revenue at more than 30% annually, and crew roughly 400,000 of IBITA in 2009 to a project projected 50 million in 2026. But again, the most important part is the structure. Kelly Partners does not buy firms and fully absorb them in a typical top-down way. Their model is usually 51% owned by Kelly Partners and 49% owned by the local partners. And Brett uh explained on the podcast that the idea is to keep deep alignment, buy half, improve the business, and let the partner still make as much or more than before while keeping skin in the game. That itself is a very important lesson because the best rollup models in accounting are not trying to destroy entrepreneurial incentives, they're trying to preserve them. And I think that is why this model is so attractive for other players as well. And accounting overall, recurring revenue, aging owner demographics, a fragmented landscape, long client relationships, and now real AI-driven operating leverage. So Brett Kelly's own framing is very simple. He wanted to build a better accounting firm by combining great people, strong process, better client service, and purchase-style financial discipline. He also says the firm built a 204-step operating system and that every acquisition helped strengthen that system over time. That said, rollups are no longer just a private equity strategy. More and more investors are realizing that in fragmented professional services markets, like, for example, accounting, buying firms and upgrading them with AI may be one of the best ways to build very large outcomes. That's it for today's five minutes in the lower middle market, and talk to you again in the next one.