Paychex (PAYX) To Acquire Oasis Outsourcing For $1.2 Billion

Paychex, Inc. (NASDAQ:PAYX) yesterday announced a deal to purchase Florida-based Oasis Outsourcing Acquisition Corporation for $1.2 billion in cash.

Oasis is one of the largest privately owned professional employer organizations (PEO) in the United States and a leading provider of human resources (HR) outsourcing services. With nearly 1,100 employees, Oasis serves more than 8,400 clients across all 50 states.

Paychex plans to finance the purchase through a combination of cash and borrowings under existing credit facilities or new debt.

The company expects multiple revenue and cost synergies from this purchase. Additional details about the acquisition will be unveiled on the company’s second-quarter fiscal 2019 earnings call, scheduled to be held on Dec 19, 2018.

Paychex to Strengthen PEO Growth Strategy

The acquisition is expected to bolster Paychex’s PEO growth strategy and expand its PEO sales organization, provide a new client base for Paychex retirement and time and attendance products and help the company gain scale for new products through its insurance carrier partners.

Further, it is likely to expand Paychex's HR outsourcing and technology-enabled services and help it enter new markets. The combined entity is anticipated to deliver solid human resources and payroll solutions to clients and employees.

In the past six months, shares of Paychex have gained 3.8%, significantly outperforming the industry it belongs to and the Zacks S&P 500 composite. While the industry rose 0.2% in the said time frame, Zacks S&P 500 composite declined 1.8%.

Our Take

The acquisition is likely to help Paychex strengthen its total service revenues, which include Management Solutions revenues and PEO and insurance services revenues.

Total service revenues (which made up 98% of total revenues) increased 9% year over year in first-quarter fiscal 2019. While revenues from Management Solutions increased 3% year over year, the same for PEO and insurance services went up 39% in the last reported quarter.

Zacks Rank & Stocks to Consider

Paychex currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A few other top-ranked stocks in the broader Zacks Business Services sector are The Interpublic Group of Companies, Inc. (NYSE:IPG) , Automatic Data Processing Inc. (NASDAQ:ADP) and WEX Inc. (NYSE:WEX) , each carrying a Zacks Rank #2. Long-term expected EPS (three to five years) growth rates for Interpublic, Automatic Data Processing and WEX are 7.4%, 12.5% and 15%, respectively.

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