Paychex Takes Over ePlan Services - Analyst Blog
May 06 2011 - 1:15PM
Zacks
New York-based outsourcing service provider Paychex
Inc. (PAYX) recently completed the acquisition of
recordkeeping and administrative solutions provider, ePlan
Services. Financial details of the transaction were not divulged.
Post acquisition, ePlan Services will operate as a wholly owned
subsidiary of Paychex and all the employees will be retained.
Denver-based ePlan Services serves the financial advisory market
with its software tools that automate the administration of 401(k)
plans (a retirement plan under which both employees and employers
can contribute). The tool also provides greater transparency to the
fee structures for services, through a fee disclosure option built
into the tool. Currently, the company serves roughly 4000
retirement plans.
ePlan Services’ Web-based platform will complement Paychex’
existing recordkeeping business. With years of experience, Paychex
was acknowledged as the leading recordkeeper in the U.S. by
PLANSPONSOR magazine.
With ePlan Services’ under its wing, Paychex will be able to
serve financial advisers with clarity into fee structures as the
market transitions to full disclosure models to keep pace with
consumer and legislative demand.
We find enhanced financial advisory services encouraging as
these are likely to attract more clients, and in turn drive revenue
growth in Paychex’ HR Solutions segment.
Apart from this, Paychex also solidified its Payroll Services
segment with the acquisition of the online payroll solutions
provider, SurePayroll Inc. in December 2010. The deal cost the
company $115.0 million in cash.
SurePayroll’s user-friendly online payroll solutions are
specifically targeted at small businesses. It serves about 30,000
small businesses with its online software-as-a-service (SaaS)
payroll product.
Apart from this, SurePayroll shares channel partnerships with
renowned financial institutions, such as Citibank
(C), Harris Bank and SunTrust Banks Inc. (STI),
which forward the company's offerings to their respective small
business customers through private-label and referrals.
Small businesses are significant revenue sources for Paychex.
With the SurePayroll acquisition, Paychex will be able to offer
SaaS-based solutions, for payroll processing through a user’s
Web-browser or an iPhone application.
We believe that the successful integration of these two
acquisitions will boost Paychex’ revenue streams and also increase
its market share, going forward. We also remain encouraged with its
better-than-expected top and bottom lines in the third quarter.
Though guidance for the fourth quarter was weak, we believe that
cost control measures and anticipated higher contributions from
small businesses could provide some cushion.
However, we remain concerned about growing competition in the
outsourcing space from big players such as Automated Data
Processing Inc. (ADP) and Administaff
Inc. (ASF).
Currently, Paychex has a Zacks #3 Rank, which translates into a
short-term Hold recommendation.
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