Paychex Inc. PAYX appears to be striving to capitalize on the rising opportunities in the temporary staffing industry. In this regard, the payroll and human resource solutions provider entered into a deal to acquire Cleveland, OH-based Advanced Partners. The transaction is subject to regulatory approval.
According to Paychex, Advanced Partners, with approximately 130 employees “offers customizable solutions to the temporary staffing industry, including payroll funding and outsourcing services, which include payroll, invoicing, and tax preparation.” Founded in 1998, the company boasts a strong client network and currently works with more than 7,500 agencies which hire and process about 200,000 temporary positions annually.
Citing an industry data report, Paychex said, “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, we believe that the acquisition will open new avenues of growth for the company.
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 Advanced 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.”
Paychex currently has roughly 600,000 clients and the buyout will enhance its client base and expand its services.
The company’s initiatives to boost revenue growth through acquisitions are encouraging. Over the years, the company has completed several acquisitions including 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 transitions to 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 saving 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 periodically introducing products and services 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, which sports a Zacks Rank #1 (Strong Buy).
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