Paychex Inc. PAYX recently completed the acquisition of Advanced Partners within a month of entering into the deal. However, the financial terms of the merger, signed on Dec 2, have not been disclosed.
According to Paychex, Advance Partners “offers customizable solutions to the temporary staffing industry, including payroll funding and outsourcing services, which include payroll, invoicing, and tax preparation.” Founded in 1998, Advance's end customers total about 7,500 businesses that are clients of the staffing firms that Advance serves.
Therefore, the acquisition will enable Paychex to capitalize on the rising opportunities in the temporary staffing industry.
Citing an industry data report, Paychex stated, “There are more than three million temporary staffing employees in the United States, and approximately 10,000 small and mid-sized staffing businesses that support this employee population.” Therefore, the acquisition will open new avenues of growth for the company, in our view.
Martin Mucci, Paychex president and CEO said, “The staffing outsourcing business is a growing industry that serves many small and mid-sized firms, which is a perfect fit for Paychex. We are excited about Advance Partners joining the Paychex family. And, given Paychex’s extensive product suite, financial strength, and access to capital, we can help expand Advance Partners’ product offering and accelerate client growth.”
He also believes that “the temporary staffing business is going to continue to grow, due in part to ever-increasing government regulation, including the Affordable Care Act and newly proposed overtime rules. Paychex is uniquely positioned to bring our regulatory expertise to staffing firms.”
The buyout will enhance Paychex’s roughly 600,000-strong client base apart from expanding its services.
The company’s initiatives to boost revenue growth through acquisitions are encouraging. Some of the notable ones completed over the years include SurePayroll and ePlan.
The SurePayroll buyout added user-friendly online software-as-a-service (SaaS) payroll solutions specifically targeted at small businesses to Paychex’s portfolio and increased market share.
With ePlan Services’ under its wing, the company now offers better clarity about fee structures to financial advisers as the market shifts toward full disclosure models in keeping with consumer and legislative demand.
Further, one of the key secular growth drivers of Paychex is the demand for outsourcing. Human Resource Services outsourcing is a large, less-than-half-penetrated market that offers significant cost-cutting potential. Moreover, the growing regulatory burden on small companies signifies that the need to outsource non-core activities is increasing.
The company seeks to capitalize on this opportunity by introducing products and services regularly for upselling to the client base and moving into the mid-market.
However, sluggish economic growth and a possible rise in interest rates remain concerns. Moreover, intensifying competition in the outsourcing space from major players like Automated Data Processing Inc. ADP and Insperity Inc. NSP may add to trouble.
Currently, Paychex carries a Zacks Rank #3 (Hold). A better-ranked stock in the staffing and outsourcing services space is Hudson Global, Inc. HSON sporting a Zacks Rank #1 (Strong Buy).
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