HR Tech Marketplace Quick Take: Paychex Acquires Paycor

[00:00:09] Welcome everyone to a special episode of HR and Payroll 2.0. I'm Pete Tiliakis and as always I'm joined by the legendary Julie Fernandez. Welcome Julie.

[00:00:17] Thanks Pete. I know we're just getting into the hang of these quick takes when something happens and everybody wants to know about it. We're getting a little bit better at just jumping on the horn and putting something out there.

[00:00:28] Yeah, yeah, yeah. You know this is big news, right? One of the, well, the pays, right? The Paycom, Paycor, Paylocity, all the pays, paychecks.

[00:00:38] We've got two that have gotten together and this has been obviously huge news. I was already being pinged by clients and others in the marketplace on Sunday before this happened.

[00:00:47] I've got briefings all week with clients wanting to ask questions and certainly we've had a lot of folks on the social media asking about it and so here we are. I'm going to give you all the inside baseball that I can.

[00:00:57] Yeah, and like why the interest? I think you said it great in your blog post which is this marriage might not have been one that people are expecting, right?

[00:01:06] Yeah, yeah. Yeah, it wasn't one that I would have picked for the it's not it's not the two I would have picked to get together but I think it does make sense.

[00:01:13] And once we go through this I think I think you'll understand why some of it I think is obvious some of it may not be all that apparent.

[00:01:19] But yeah, just thought we'll share what we can and give you our point of view. And I know you've got some experience with vendors getting bought. What should buyers be thinking about? I know there's a lot of benefits implications here. So yeah, I would love to just sort of share all that for those folks.

[00:01:32] Yeah, well, let's give it a roll and see you know with so little time out there on the moon on the news what we can what we can share.

[00:01:38] Yeah, yeah. So all right, let's let's start with maybe talking this deal by the numbers. So what's happened? Well, paychecks has purchased and acquired agreed to acquire its SMB competitor pay core. So congratulations to both. I think this is an interesting deal.

[00:01:53] So it's an all all cash transaction for $22.50 a share, which represents a value of 4.1 billion. So if you know pay core, they just went they just went public in 2021. And for paychecks largest deal in their history. So this is this is really interesting.

[00:02:11] Yeah. And by the way, that's about I think a 19 almost a 20% premium over the recent reading price, right? Yeah, not bad, right? And I think pay core, obviously, has done a really good job.

[00:02:23] Their brand right there on the the bangle stadium pay core, I think it's pay core field pay core stadium, I'm not sure. So they've really done a lot in terms of marketing and really their product and push push really far up market. So yeah, it makes a lot of sense.

[00:02:37] Fair to say I would typically say target market of 50 to 500, right, which is a little bit higher, larger numbers than maybe paychecks.

[00:02:45] Yeah, absolutely. Absolutely. And so maybe just to start with some comparison to the organizations, right again, by the numbers, if you will.

[00:02:52] So so paychecks the size of them, obviously, about a five plus billion dollar organization.

[00:02:57] Whereas, you know, pay cores more of a 700 million, I think is their AR, or excuse me, their total revs annually, or at least for 2024.

[00:03:06] And now both of these firms finished their year in the mid mid year, I think it's like a May June kind of a timeframe, but back to paychecks.

[00:03:12] So what about 750,000 customers, I think 10 million total employees on their systems and services with about 2.3 million of those doing are taking an ASO PEO or a benefit solution, maybe 401k as well.

[00:03:27] And then pay core on the other side, about 2.7 billion employees on their platform.

[00:03:31] Now they have about 31,000 or so or excuse me, 49,000 customers, and about 31,000 parent companies.

[00:03:38] So you can imagine there's a lot of chains and franchises and that sort of thing that roll up.

[00:03:41] But just comparatively, right?

[00:03:43] I mean, these are totally different organizations in maturity, in targeting, in size, you know, in revenue, that sort of thing.

[00:03:51] And I think coming together, really fundamentally, paychecks takes out a very, you know, formidable competitor that was probably taking some of their customers as they were maturing off of the paycheck solutions.

[00:04:03] And I think that's part of what gives them the opportunity now to maybe preserve some of that.

[00:04:07] Yeah.

[00:04:08] And actually, that's something that many PEO firms, right, are looking at is what's happening as my clients are growing or outgrowing, you know, something that is maybe perfectly suited as they're smaller and then gets bigger.

[00:04:22] Yeah.

[00:04:23] A lot of them will call it a success penalty, right?

[00:04:25] It's like, you know, we started off with them when they were babies.

[00:04:27] You know, they were born four or five employees, became 50, became 100, became 1,000.

[00:04:33] And now we just can't really mature with them.

[00:04:35] I think that's why we saw, or I know that's why we saw, or one of the reasons, one of the drivers behind Trinet and, or excuse me, excuse me, Insperity, Insperity and Workday.

[00:04:44] Insperity and Workday.

[00:04:45] And actually, you weren't wrong.

[00:04:46] Trinet and Zenefits as well.

[00:04:48] There you go.

[00:04:49] Yeah.

[00:04:49] Yeah.

[00:04:50] Another example.

[00:04:51] So why does this make sense?

[00:04:52] Well, first of all, I think this is a very affordable, even though it's the biggest in paychecks history, I think it's actually a very affordable number when you think about what they're getting.

[00:05:02] And so I think it's a good deal.

[00:05:04] Obviously, it doubles their, you know, more than, I wouldn't say doubles their book of business, but doubles the heads that they have now serviced, right?

[00:05:11] Because PayCorp, like most of the pays, have every customer has some level of service.

[00:05:16] Typically, it's at least compliance and payroll.

[00:05:18] You know, and if they take others, that's different, right?

[00:05:21] So, you know, you're now at about a 5 million, right?

[00:05:25] Employees that you're serving, not to mention the folks that you already had that, you know, maybe have an opportunity to upsell.

[00:05:32] I think it also adds more tech.

[00:05:35] Now, I would argue that the PayCorp solution is a bit more mature, certainly a bit more mature and formidable at handling that middle market customer than maybe the paycheck flex is.

[00:05:45] Although nothing wrong with Paychex Flex, it punches well above its weight for the market that it's serving.

[00:05:51] But I think that they're obviously paychecks struggle to maintain those customers, right?

[00:05:56] You look at something like Paychex retention rate, it's in the 80%, where you look at someone like PayCorp, they've got more of a 90 plus retention rate.

[00:06:04] I think they've almost got a 95 or 8 revenue retention rate.

[00:06:08] So they're hanging on to their customers, and I think that's because they're able to stay mature with them or stay with them as they mature.

[00:06:14] Just tell me if you're leaving the technology side, because I had a question I wanted to probe on.

[00:06:18] I'm going to get into what it brings.

[00:06:19] Yeah, but for now, I'm just thinking, I'm just talking kind of why it makes sense.

[00:06:22] And then last, as we've sort of talked about and wrapped around, it enables them to push further up market, right?

[00:06:28] I mean, Paychex just hasn't made that push, made that leap, where PayCorp has been pulled that way.

[00:06:34] And I think some of that is the way that they brought their tech together.

[00:06:36] We can talk about that.

[00:06:38] There is a lot that has been acquired.

[00:06:40] There's some that is integrated.

[00:06:42] So it's not entirely organic, but it is a bit more mature, and it is purpose-built and has been brought in and platformed into a pretty robust solution that's obviously resonating with the middle market.

[00:06:53] Let me add also just, I was taking a look at the dimension of industry, like top industries and that sort of thing.

[00:07:01] And of course, down market in the small, medium business space, you serve everybody.

[00:07:06] There's a lot of everything.

[00:07:08] They have a lot of overlapping, you know, kind of our top industries that we serve in, IT and computer software and healthcare.

[00:07:15] You would expect that retail, right?

[00:07:17] Those are complex distributed businesses.

[00:07:20] But Paychex has a pretty decent inroads into some of the financial services space, whereas Paycore actually has a pretty good track record getting into nonprofits and education.

[00:07:35] And so there's probably some complementary strengths there from an industry perspective.

[00:07:40] Yeah, no doubt.

[00:07:41] No doubt.

[00:07:41] Yeah.

[00:07:41] Well, so maybe let's talk through what it actually brings to Paychex.

[00:07:45] And so that actually is on this list, to tell you the truth.

[00:07:47] Let me maybe break some of this down.

[00:07:50] So first, I think the key thing, and shout out to TD Co.

[00:07:54] And I was looking at what they put out in their research.

[00:07:57] And they see this as an additional total addressable market increase for Paychex of about $10 billion while taking out a key competitor, right?

[00:08:05] That is obviously successful further up market from where they are.

[00:08:10] It's bringing a bit more robust tech.

[00:08:11] I think I talked about that, including the ability for them who, you know, when I talked to Paycore at HR Tech, they were already talking about pushing a bit more into Mexico and Canada.

[00:08:21] Makes total sense, right?

[00:08:22] With the U.S. and where footprints are going, particularly manufacturing and different things, which I think makes a lot of sense.

[00:08:28] You can kind of see them inching their way towards more of a multi-country core HR.

[00:08:33] And then, and certainly supporting payroll with partners, right?

[00:08:36] Safeguard and a couple of other firms were helping them out from a marketplace perspective.

[00:08:41] They're also, I would argue, first to market with embedded HCM.

[00:08:45] And they're doing very, very well with that, right?

[00:08:47] I mean, you know, we've seen solutions like Check and others do really well in the embedded space.

[00:08:52] Payments and other ancillary capabilities are becoming more embedded.

[00:08:57] Why not HR, right?

[00:08:58] Putting HR into systems that should have HR but don't.

[00:09:02] And the beauty of that is, is they are doing very well with that embedded solution.

[00:09:06] They're getting incredibly strong margins, I think in the 40% to 50% range.

[00:09:11] And think about it, right?

[00:09:12] It's an indirect channel that is selling itself, right?

[00:09:15] There's not a lot of lift and effort in having to go and chase those customers.

[00:09:18] So that's a key thing there.

[00:09:20] As long as folks don't get too into looking for all the bells and whistles, right?

[00:09:25] I mean, that's the secret around embedded HR.

[00:09:27] You want something.

[00:09:29] You got the basics.

[00:09:29] It's easy to extend it.

[00:09:31] But, you know, don't go nuts out wanting the latest and greatest of everything.

[00:09:35] Then you start talking about something fancier.

[00:09:37] It's early, right?

[00:09:38] I mean, and that's more, I would say that is a down market, probably a little bit more of a down market play right now.

[00:09:42] But it will mature.

[00:09:44] And I think what you're seeing is that the embedded capabilities are really back to sectors, right?

[00:09:49] They're dropping into these sector-specific solutions that are very well adopted within their communities, but they don't have that HR payroll time kind of core.

[00:09:59] You know, the day-to-day that a manager or a leader is going to be dealing with, right?

[00:10:02] You know, you think about something like an engineering firm who might be managing big projects, right?

[00:10:08] What's a major part of a project?

[00:10:10] Labor.

[00:10:10] And so having your time systems or having your core HR right there next to your, you know, your engineering business systems is just going to be beautiful.

[00:10:17] But that's an area where I think PayCorp got ahead of its peers.

[00:10:21] I think there's a huge benefit for Paychex because, again, they've got all those services.

[00:10:25] They can come at that and now start talking to those folks about maybe some PEO, maybe some ASO.

[00:10:30] I'm sure there's some involved when you do embedded.

[00:10:32] But yeah, very interesting channel that PayCorp is already done well with and scaling, you know, in that way.

[00:10:40] Are you lumping, you know, kind of the driving into AI-driven technology along with embedded?

[00:10:46] Or is that another?

[00:10:47] Well, I think it would come along with whatever modules are available.

[00:10:50] And right now, I believe it's core HR and payroll, if I'm not mistaken.

[00:10:52] Eventually, I'm sure they'll bring more of the modules embedded.

[00:10:55] But that right now, I think it's starting in the core space.

[00:10:58] Most of them started in payroll.

[00:10:59] That's definitely, you know, something that PayCorp brings to the table for Paychex, you know?

[00:11:05] Yes, yes.

[00:11:05] Tech.

[00:11:06] I think tech is the big thing here.

[00:11:08] Now, let's talk about the tech though.

[00:11:09] Because look, PayCorp, while it's done really well, while it has a lot of robust point solutions collectively in its platform, a lot of the outside of the core element of the system, the core HR, the payroll, you know, it's really largely been acquisitions.

[00:11:25] So, last year, 2023, well, technically 23 a year plus now, Talenya came on board.

[00:11:32] That's their AI-enabled recruiting.

[00:11:34] They had already added Newton software years ago, 2015-16 for applicant tracking.

[00:11:40] In 23, they also grabbed MicroLearning, which was VIRB.

[00:11:43] They picked up 7Geese in 2020 for performance management.

[00:11:46] And of course, Zimbal in 2019 for their advanced time and scheduling.

[00:11:49] So, a lot of acceleration of their innovation by acquisition.

[00:11:56] So, what worries me about this is, look, anytime these organizations have these multiple systems, right?

[00:12:03] Paychex has primarily Flex.

[00:12:05] They also still support SurePayroll, I guess it would be.

[00:12:09] That's a lot to maintain, right?

[00:12:11] I'm curious to what – and I'm waiting still.

[00:12:13] We haven't had an analyst briefing yet.

[00:12:15] I'm hoping to get that soon.

[00:12:16] But I'm curious what they're going to do with this technology.

[00:12:18] To my understanding, what the press release is saying, what we're hearing is that they are going to operate, at least at first, as separate brands, obviously targeting slightly different customers in some ways.

[00:12:28] But I'm sure the synergies will start to get, you know, obviously integrated and played out.

[00:12:32] But we'll see how that goes.

[00:12:34] The tech is a big question for me.

[00:12:37] And I think that there is a lot of opportunity likely for them to maybe at some point merge these solutions and maybe have a piece of technology that could play up and down market or maybe just keep them separate.

[00:12:49] For now, I think they will.

[00:12:51] Smaller firms, probably the 100 and below will stick with Flex.

[00:12:54] And then you can imagine the more mature 100 and above.

[00:12:57] Maybe even into the 500s will probably be more of a pay core.

[00:13:00] Yeah.

[00:13:01] And depending on the rate at which folks are growing and maturing, it's been at quite a good clip recently, you know, from a growth perspective.

[00:13:09] There might be some secret sauce opportunities in how do you how do you port or move?

[00:13:14] You know, when you hit whatever that that size is that I think a lot of these, you know, growth stories are maybe haven't really explored.

[00:13:24] They get two things.

[00:13:25] Do they bring them into one?

[00:13:26] Is there a progression or a path or how does that happen if you're one of those growth stories?

[00:13:33] And can they do something unique and really powerful in the market around that?

[00:13:37] Yeah.

[00:13:38] Agreed.

[00:13:38] Agreed.

[00:13:39] So, you know, I would love to talk about maybe some of pay cores differentiators that I see it, but what are your initial thoughts?

[00:13:45] So, you know, you've got buyers that are obviously going to go, hey, I'm a pay core customer.

[00:13:48] I just got, you know, I just got bought.

[00:13:49] What does this mean for my solution?

[00:13:51] What is kind of some of the best practices you might say tell a customer or buyer that is out there operating on something that's been acquired with this sort of magnitude of organization taking it over?

[00:14:02] Yeah.

[00:14:03] Well, let's start with the idea that, you know, this stuff takes time.

[00:14:06] I mean, we didn't see that already with the ultimate and Kronos, you know, that was a big, big to do in the market.

[00:14:13] You know, the technology underpinnings are not something that happened overnight.

[00:14:19] They probably are right at the page of even figuring out strategically as they're organizing the deal.

[00:14:25] You know, do both exist?

[00:14:27] I mean, it takes years.

[00:14:28] So if you're one of those companies that is, you know, has been bought and you're wondering, oh my, what might happen to me?

[00:14:35] You know, nothing's going to change, you know, in the immediate from a foundational offering perspective.

[00:14:42] And I wouldn't expect a lot of these technology changes or the harmonization of the whole portfolio behind the scenes to be ready for a couple of years, realistically.

[00:14:52] In fact, I don't even know if some of the, you know, AI acquisitions that Paycore has made to get that, you know, to get that advance or jump if they've been fully, you know, baked in and incorporated into their product.

[00:15:04] So it's not instant.

[00:15:06] These things happen.

[00:15:07] They're big.

[00:15:07] They're big logo changes.

[00:15:09] But when it comes to the technology underpinnings, you know, likewise, a paychecks that might be on that growth trajectory, there's not going to be a clear and obvious answer about when and where and how to jump.

[00:15:21] And should, you know, do you jump or do you extend your current platform?

[00:15:25] And so those are slow moving and strategic questions that will get answered.

[00:15:31] And so, you know, just don't panic.

[00:15:33] Yeah.

[00:15:34] Yeah.

[00:15:34] I agree.

[00:15:35] Yeah.

[00:15:35] And I think you, I think you have to understand, you know, imagine I would expect Paycore is going to obviously be in touch.

[00:15:41] It's probably, they're probably heads down talking to customers today, really talking about this and maybe helping them.

[00:15:46] So just, you're right.

[00:15:47] Be patient.

[00:15:49] Think through, you know, where you are, where you want to be, and then maybe have that conversation with your vendor.

[00:15:53] But Julie, sorry, go ahead.

[00:15:55] I want to talk to you about some other part.

[00:15:56] I do think, you know, folks that are shopping in the market, I mean, there's this market of players down market, right?

[00:16:03] But I'm not sure that folks that are generally talking to or about the pays might always have paychecks, you know, on the radar and vice versa.

[00:16:12] And so I do think, you know, keeping the two brands separate and distinct is probably not a bad idea because folks that might be interested in a paycore, if all they see is paychecks, might go, well, that's clearly not what we're looking for based on, you know, what the differences have been in the past.

[00:16:29] And so at some point in time, they'll work through and sort that out.

[00:16:34] And honestly, this is all down market.

[00:16:35] So whether it's one to 50 or 50 to 500, you know, you're still pretty squarely in that as a space.

[00:16:42] But just strategically, when you're thinking about an RFP or searching for which people are in the pot, you know, those individual names do align to something that is a recognizable difference today across those two companies.

[00:16:55] Yeah, yeah. No, excellent point. Excellent point. You know, one of the things I would say here, though, obviously a huge benefit, some of the huge benefits, I think, to paychecks, but more importantly, a benefit, I think, to the paycore client community.

[00:17:10] Right. And this is, again, I think it's a win win for both sides is, you know, paychecks is coming to the table with a very and I've written a lot about this, a very impressive one stop shop for small businesses.

[00:17:21] You can fundamentally do just about everything you need in their walls by way of their capabilities or a partner.

[00:17:26] You can get business loans. You can get insurance. You can get lawyer help, you know, legal help.

[00:17:31] You can get it all right. You really can.

[00:17:33] And I think that but but here's what I think is really, really powerful.

[00:17:36] Don't forget that. And I love the paychecks always reminded me of this every year when we do their profile.

[00:17:41] They're the 22nd largest insurance agency in the United States of America.

[00:17:44] Right. That's a that's a big deal.

[00:17:46] Two point two, I think it is, or three billion in health premiums that they're moving and managing about a million dollars in 401k.

[00:17:53] Or is it a million 401k participants? I guess the dollars there.

[00:17:56] But a large swath of payroll of 401k participants, huge benefits population.

[00:18:01] And again, lots of add on products and deeper services.

[00:18:05] PEO, obviously, which is something that I don't think Paycor ever offered.

[00:18:10] Fundamentally ASO.

[00:18:11] And look, just a lot a lot.

[00:18:14] You can open the book up to and now sell to a much bigger, more mature, growing customer that I think is really the key hidden gem for for paychecks.

[00:18:22] And also maybe the the the hidden gem and opportunity for the customers in the Paycor ecosystem.

[00:18:28] Yeah. And it actually kind of links to the fact that down market, when you just think about the technology or the managed services activities,

[00:18:35] they they share a lot of the same competitors. Right.

[00:18:37] The ADP and Augusta's and the Rippling's and the Paycom's.

[00:18:40] But when you start to think about what, you know, some of the differentiators, the paycheck side of the house is going to have a lot more competition with JustWorks and TryNot and the different PEOs.

[00:18:50] Yes.

[00:18:51] Precisely because they have those extended offerings that nobody's really going to, you know, that nobody's really going to do if you're more squarely in that technology software with managed services,

[00:19:02] if you want them and especially the directly related managed services and some metad HR.

[00:19:07] Right. I mean, they're just serving different purposes.

[00:19:11] And so that that plays out all the way into the providers, you know, that they're associated with and those services.

[00:19:19] You know, I think, you know, going along with your how many how much insurance, you know, how much of an insurance activity they really are.

[00:19:27] Or, you know, just direct 401k management is something that, you know, a million participants.

[00:19:34] Yeah. They're just not they're not just not going to go there by nature.

[00:19:38] Any. Yeah. Yeah.

[00:19:39] So what do you think this means for the broker network?

[00:19:42] The big broker network is obviously not quite the benefits powerhouse as at Paycor as at Paychex.

[00:19:47] But what do you think that means for the benefits brokerage over at Paycor, which is a rich network and key to their sales, too, by the way?

[00:19:54] Yeah. And it does. It does. It is something to think about because Paycor in particular, you know, while you're mentioning the strength and kind of where Paychex plays, some of that is because they're they're doing it themselves.

[00:20:07] Paycor has really done a great job cultivating some relationships in the broker community.

[00:20:12] And some of that leans on, you know, the idea that when it comes to some of those benefit services, the broker is going to take that piece of the pie.

[00:20:20] Right. And whereas in the pay in the Paychex side of the space, you know, they're quite happy to do a lot of that portion themselves.

[00:20:28] So. So does that mean and, you know, again, nothing happens super rapidly in this space.

[00:20:33] But as Paychex brings its own capabilities in that space, you know, then what does that mean about their interaction, their go to to the different broker relationships that they've already established?

[00:20:48] Well, you know, there's got to be some overlap between the CPAs, banks and brokers.

[00:20:52] They're all brokering for the whole pay community, if you will, the PEO community.

[00:20:56] And one of the things, you know, I picked this up from the TD Cohen, Cowan Research.

[00:21:00] Shout out to those guys. We're hoping to, by the way, we're just teasing a quick episode here, Julie.

[00:21:04] I'm hoping to bring on Brian Bergen and Jared Levin from TD Cowan.

[00:21:08] And we are going to talk the market. And I can't wait.

[00:21:11] Those guys are I have a lot of private conversations with them and I love their insights.

[00:21:14] So we're all going to compare notes here to the best of our ability.

[00:21:17] But one of the things they pointed out is just how rich that broker channel is to Paycor.

[00:21:22] It has a 3x close rate over other channels. That's impressive.

[00:21:26] And I think that that is going to be something that maybe now combined, it's much easier for the brokers to sell and help and certainly reach a wider audience in this case.

[00:21:37] Well, and, you know, some of the secrets, you know, some of the underpinnings of those broker relationships are really built on, you know, the organization has something to offer.

[00:21:47] It's technology at minimum. Sometimes it's more than technology.

[00:21:50] But when it comes to the benefits bit, they need that services boost.

[00:21:54] And that's what the broker adds in as sometimes it says a white label.

[00:21:59] You don't even know, you know, that you're going and how you're getting it.

[00:22:03] And so there's so many ways that those relationships are put together in ways that you can buy that or tap into that solution that it opens up a bit of a hornet's nest.

[00:22:12] If you have something in your environment, do you have it because it's part of a white label broker solution or do you have it because you've gotten it directly and then your broker is adding service?

[00:22:24] Like there's kind of a financial puzzle from a business case perspective to unravel there.

[00:22:29] And it's something that we do a lot, you know, but it's not second nature to an HR leader who just wants a solution.

[00:22:38] Right, right. No, agreed. Agreed. Yeah. Reach out. Shout out to Brown and Brown. Reach out to get help.

[00:22:44] So let's talk about a couple of pay core differentiators because these are some of the things that I always felt may sort of set them apart a little bit.

[00:22:51] So one of the things I think is very important to point out, obviously, it's pretty obvious the marketing spend they've been doing recently.

[00:22:57] Right. In the last few years, the stadium, you know, amazing, right? Huge for the NFL.

[00:23:01] There's been a few Monday night games I've watched. I just, you know, marveled at the fact that HR tech is on an NFL stadium.

[00:23:07] That's really, really fantastic. Yeah, I love it.

[00:23:11] So that marketing push has been huge. I know they've showed some metrics on what that dividend or what they've seen as a sales increase as a result of that.

[00:23:19] I think it's a, I think I saw somewhere investments in marketing again, shout out TD Cowan.

[00:23:23] Investments in marketing is evidenced by marketing leads growing by 31% CAGR. So it's working right now.

[00:23:30] What is important about that? I think is not just they're spending money and putting their name on NFL stadiums, but they're backing it up with 600 sales and marketing folks on the ground in the 50, I think it's the 50th biggest cities in the United States.

[00:23:42] So they are deeply embedded in regionally into the United States and obviously doing a good job that way.

[00:23:49] And I think that's a huge benefit to what Paychecks has out there, which is an army constantly, you know, adding new clients.

[00:23:57] But I think the other thing I want to go back to your point in the very beginning about sectors, one of the things that I always appreciated about Paycor, and I can remember this as far back as 2017, 18, when I was first working with them from an HCM tech perspective, is they have a value chain, not just as go to market for sales, a value chain.

[00:24:15] The full go to market spectrum from going to the customer, you know, on the sales end, to servicing them for the life of the deal, implementation, deployment, all that generally is aligned around sector specific knowledge.

[00:24:29] So they have leaned into sectors, they have invested in sectors, but more importantly, invested in the knowledge, engagement and relationships along that path to be able to speak and stand side by side and guide these customers in those sectors with these key challenges.

[00:24:43] So I think that's a really nice, a very mature element of their operating model that I think is going to come over.

[00:24:50] And I hope it will continue and obviously translate over at Paychecks.

[00:24:54] Yeah, and these are some sneaky industries, right?

[00:24:57] If you think about healthcare and hospitals or mental health, I mean, like, there's just unique characteristics of 24-7 services that drive unique needs in the technology or modules in the technology.

[00:25:08] And so being able to represent and to showcase your strengths to those sector industry specific criteria, it is a huge, you know, it's a huge win, whether you're looking at a competitive bid or keeping clients.

[00:25:24] Yeah, yeah, yeah.

[00:25:25] I've been in many RFP situations in my day and there's nothing more that the C-suites prefer than to have someone speaking their language, right?

[00:25:34] And putting it into the lens that they are dealing with and the challenges they're going through.

[00:25:38] And I think that that shows in how well Paycore has been able to grow its solution and obviously, you know, end up the darling of Paychex's eye.

[00:25:46] And, you know, interestingly, right, is this – I didn't see this coming, to be honest.

[00:25:50] I kind of felt like it was time for Paychex to pick up something.

[00:25:53] They hadn't made an acquisition in a little bit, I don't believe.

[00:25:56] So I thought that was coming.

[00:25:58] Yeah, yeah.

[00:25:58] So I think this is interesting, but I think it makes sense, right?

[00:26:02] Take Gallup, takes out a partner, adds a huge TAM, helps them move up market, and now they can cross-sell a ton of stuff.

[00:26:07] So, yeah, maybe we'll see more.

[00:26:10] The other thing that I can't help, you know, bringing up is just that growth mentality.

[00:26:15] So if you're one of these clients that's growing from one, you know, critical size range to another critical size range, when you start heading, you know, even upwards into the hundreds,

[00:26:26] there's a dynamic that happens where, you know, you end up having to add some resources.

[00:26:31] So maybe your one-person HR team or fractional HR team becomes, you know, two to four people or five people, right?

[00:26:39] It becomes actually a team.

[00:26:41] At that point in time, oftentimes there is a genuine interest not only in the really robust technology that you've been talking about with Paychex,

[00:26:48] but also in some do-it-yourself.

[00:26:51] Yeah, yeah.

[00:26:52] So if you have a bigger team, you're less likely or less inclined, sometimes depending on your growth trajectory, to need to outsource it all because you just couldn't possibly handle it.

[00:27:02] And so, you know, being able to lean a little bit into that tech-centric model and slow down some of the services as you grow, you know, that's a dynamic that we see, you know, as well.

[00:27:15] Yeah, yeah.

[00:27:16] No, agreed, agreed.

[00:27:17] You know, the other thing I would love to see too from this is I'm hoping, you know, look, there's a little bit of a tone of a multi-country pull for Paycore, right?

[00:27:27] I don't know that they're strategically ambitious about becoming global.

[00:27:30] I think they're just being sort of pulled just like many of the down market players are.

[00:27:34] I solved, right?

[00:27:35] We saw them get together with a cohort to start solving for that.

[00:27:39] They've got others that are being inched that way.

[00:27:41] But remember, Paychex owns the lesser group.

[00:27:44] They bought that back in, what, 2018-ish, I think it was.

[00:27:46] It's in Denmark exclusively.

[00:27:48] It stayed separate.

[00:27:49] It's still separate.

[00:27:51] I've always wondered, you know, when are they going to push a little bit further beyond borders?

[00:27:55] I don't know that they will.

[00:27:56] I'm not saying that they are.

[00:27:57] I just wonder if this might be the pull, right?

[00:28:00] Maybe the Paycore element of this pulls them a little bit further.

[00:28:02] And maybe the lesser group gets activated in their ecosystem beyond just being a subsidiary and owned.

[00:28:09] So it's going to be neat to see what happens here, right?

[00:28:14] COVID and beyond with work from home.

[00:28:16] I mean, we do see companies of all sizes find themselves with presences outside of their borders.

[00:28:23] So you mentioned earlier in our conversation here about, you know, the potential pull into Mexico and Canada.

[00:28:31] And then, you know, several of these down market players have specifically aligned themselves with a partner that is their go-to for, you know, anybody outside of the U.S.

[00:28:42] Yeah.

[00:28:42] And I don't know that Paycore necessarily has a specific partner in that.

[00:28:46] I think it's been a little bit more organic.

[00:28:48] They've got Safeguard and I think three others.

[00:28:50] I think most of the, I can't remember exactly off the top of my head.

[00:28:53] I know Safeguard is one of them.

[00:28:54] So I think they've solved it kind of with a cohort of kind of marketplace style approach.

[00:28:59] Again, giving customers choice, which totally makes sense.

[00:29:02] And absolutely integrating, you know, best in class somewhere.

[00:29:05] You know, when you think about these sorts of things and does this set the tone for M&A in the year, right?

[00:29:10] Yes.

[00:29:11] You know, sometimes those handshake partners are getting swallowed up.

[00:29:17] You know, think of Emetis, Active Payroll Emetis.

[00:29:19] You know, those were kind of common go-tos that a number of folks might use because their breadth and, you know, their specialization in that area.

[00:29:26] And you take one of those players off the table, like 80pxler go off or you kids, you took M&A off, you know, then that just reduces the go-to pot, right?

[00:29:36] Yeah.

[00:29:36] And it's part of the dynamics that I know you and I both follow and love to talk about.

[00:29:40] Yeah, no doubt.

[00:29:41] And I think we've talked about this a little bit before on the show last year.

[00:29:44] I expect, you know, look, the election's over now.

[00:29:47] There's some clarity.

[00:29:48] It looks like the economy's getting healthier and a lot of optimism.

[00:29:52] And I think you're going to see a bit more consolidation to power up, right, to go to market.

[00:29:56] And I think you're also going to see some IPOs.

[00:29:59] So this space is, yeah, it's what, January?

[00:30:01] It was the first day, first working day of the year.

[00:30:05] And we are already off to a $4 billion, you know, pay takeout, right?

[00:30:09] So what could be?

[00:30:12] I think that, you know, there's 300 and whatever days left.

[00:30:14] It will say.

[00:30:15] I'm sure there's gonna be a lot more HR and payroll 2.0 market quick takes, is all I know.

[00:30:19] That's right.

[00:30:22] Well, have we boiled down in a nutshell at least some of the top highlights so we can get them out there?

[00:30:27] For now.

[00:30:27] We've distilled what we have.

[00:30:29] Stay tuned.

[00:30:29] I'm certain that the analyst community will get more from both sides.

[00:30:33] Congratulations to PayCorps and PayChex.

[00:30:35] This is a beautiful ad.

[00:30:36] And yeah, we'll be keeping an eye and keeping you posted on what's going on.

[00:30:40] For sure.

[00:30:41] All right.

[00:30:42] Take care, everyone.

[00:30:43] Bye.

[00:30:43] Bye.