Why the PayGroup (ASX:PYG) share price has climbed today

The PayGroup share price has risen more than 5% in early trading after the company announced it had acquired a rapidly growing competitor

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PayGroup Ltd (ASX: PYG) announced today it has completed its acquisition of Payroll HQ Pty Limited. Payroll HQ is an Australian-based outsourced payroll provider with high quality corporate client base, delivering approximately 120,000 payslips annually. The PayGroup share price was up 5.45% in early trading but has since retreated to a price of 56 cents, up 2.73% .

Headquartered in Melbourne, PayGroup provides payroll and human capital management solutions. The company has operations in 11 countries, with more than 995 clients, and processes more than 5 million payslips per annum.

For the first quarter of FY21, PayGroup announced record contract growth of $5.4 million in contract wins. This was up 93% on the prior corresponding period, and 98% of its entire FY20 total contract value.

What's moving the PayGroup share price?

Payroll HQ offers Software-with-a-Service (SwaS) payroll outsourcing services based in Sydney. At the time of sale, it has 100 corporate clients in Australia and New Zealand. All contracts have 3 year recurring revenue terms with automated renewals in place and a client retention of >95%.

The acquisition is worth the equivalent of $2.535 million, payable through the issue of 4,122,694 PayGroup shares at $0.615. A further earnout of circa $1.28M is expected to be achieved based on the FY21 forecast revenue.

The acquisition immediately adds 100 clients with significant cross-sell opportunities. Moreover, PayGroup plans to appoint the experienced Australian-based sales team to help drive PayGroup's growth strategy. The company expects the acquisition will add $2.25 million in revenues. 

What did management say?

PayGroup managing director Mark Samlal said the Payroll acquisition would "significantly transform" PayGroup's SwaS payroll presence and increase sales capabilities in Australia.

Payroll HQ has an excellent client base and sales pipeline, and is led by a group of experienced and high-performing industry experts. In this current environment, when payroll is so critical to the livelihood of workers, and cost efficiency and agility is a crucial element for all businesses in a post-lockdown economy, we see significant opportunity to grow this business and we welcome the Payroll HQ team on-board.

Payroll HQ Chief Executive Officer Ross Heron also welcomed the move, saying:

We see real benefits of integrating our business with PayGroup and have already identified many of their product lines – such as Treasury Services and HCM SaaS modules – as being highly attractive to our client base…We believe that working together with PayGroup will put us in the best position to capitalise on post-pandemic business opportunities.

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