As U.S. job growth shows unanticipated strength, payroll giant Paychex announced it plans to acquire competitor Paycor HCM for $4.1 billion. The all-cash deal is structured as a reverse triangular merger that is expected to close in the first half of calendar 2025, subject to regulatory approvals.
“Headquartered in Cincinnati, Ohio, Paycor has approximately 2,900 employees, serves over 49,000 clients, and supports approximately 2.7 million employees across the United States,” according to the deal’s press release. “Paycor’s leading HCM, payroll, and talent platform was designed to serve organizations of all sizes, from ten to thousands of employees. Paycor has expanded its upmarket position since becoming a public company in 2021 by consistently investing in data, AI, and other cutting-edge technologies.”
The announcement arrives on the heels of unexpectedly strong employment figures. 2024 concluded with an acceleration in job growth as nonfarm payrolls rose by 256,000 in December, nudging the unemployment rate down from 4.2% to 4.1%. The Federal Reserve’s report found strength all around with unemployment duration decreasing and fewer permanent job losses. Demand for workers has placed upward pressure on wages, with hourly earnings rising 3.9% year over year.
Source: Reuters
This same strength led to fears of increased inflation as prices potentially rise alongside wages. Last month, the central bank’s Federal Open Market Committee pointed to inflationary concerns as well as changes in trade and immigration policy under the incoming Trump Administration as reasons to delay additional interest rate cuts. Equity markets have fluctuated widely over the past weeks as mixed economic data rolls in.
Source: Grandview Research
Paychex intends to cash in on this increase in payrolls as companies clamor for assistance with their payroll and other human resource needs. Analysts project the payroll outsourcing market will rise at a robust compound annual growth rate of 7.3% during 2025-2030 as growing employment while companies seek to reduce overhead costs.
Cloud-based offerings enable companies, ranging from conglomerates seeking to trim their HR departments to startups desperate for manpower, to outsource many of their needs. A 2023 survey found that 40% of companies polled intended to update their payroll processes, with 61% of companies planning to rely on cloud-based payroll options vs. 39% planning on-premises solutions.
In an effort to further drive efficiencies via technology, Paychex and others have begun incorporating artificial intelligence into their tools. For all the concern regarding AI replacing human jobs, AI adoption and job growth appear to be rising together – at least for now.
According to DealPulse’s M&A database, which harnesses both AI and attorneys to digest the granular deal points of publicly-announced transactions, Paycor HCM is advised by law firm Kirkland & Ellis LLP and Paychex is advised by Davis Polk & Wardwell LLP.
