PayGroup (ASX:PYG) - CEO, Mark Samlal
CEO, Mark Samlal
Source: OnMarket
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  • Human capital management company PayGroup (PYG) is trading higher today after announcing a $2.5 million, full-scrip buyout of payroll specialist Payroll HQ
  • PayGroup will pay the $2.5 million by issuing just over 4.1 million shares at 61.5 cents each
  • On top of this, the company may need to pay another $1.3 million in shares at the same price based on Payroll’s 2021 financial year revenue
  • Based in Sydney, Payroll HQ offer software-with-a-service (SwaS) payroll outsourcing services to a range of corporate Australian and New Zealand clients
  • PayGroup says the buyout will give it around $2.25 million extra in revenue and provide major cross-selling opportunities
  • Shares in PYG are up just under 2 per cent today and worth 56 cents each

PayGroup (PYG) is trading higher today after announcing a $2.5 million, full-scrip buyout of payroll specialist Payroll HQ.

PYG will cough up the $2.5 million through the issue of just over 4.1 million shares at 61.5 cents a pop. This price is based on PYG’s volume-weight average price for the 90 days to November 2.

On top of this, however, PayGroup may need to fork out a further earn-out payment of around $1.3 million based on Payroll’s 2021 financial year revenue. PayGroup said this would be fully paid by issuing PYG shares at the same price as the initial purchase payment.

The company said all payment shares will be escrowed for 24 months.

Why the buy?

Based in Sydney, Payroll HQ offer software-with-a-service (SwaS) payroll outsourcing services to a range of corporate Australian and New Zealand clients.

According to PYG, all contracts drawn up by Payroll have three-year recurring revenue terms with automated renewals. Importantly, the company has a client retention rate of more than 95 per cent.

Given PayGroup’s focus on workforce management and payroll solutions, Payroll’s business aligns nicely with PayGroup’s strategic plan to grow its client base and capitalise on the growing human capital management (HCM) and payroll markets across the Asia Pacific region.

PYG first had a close look at Payroll’s services in May 2020, when Payroll struck a service deal with PayGroup subsidiary PayAsia for its payroll administration services.

Now, this business partnership has transformed, and PYG said Payroll is expected to add around $2.25 million in revenue to PayGroup and provide major cross-selling opportunities.

On top of tall this, the buyout enhances PayGroup’s sales and management capabilities in the Australian market.

PayGroup Managing Director Mark Samlal said the Payroll buyout will “significantly transform” PayGroup’s SwaS presence and 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,” Mark said.

“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,” he said.

Payroll CEO Ross Heron shared similar sentiments.

“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,” Ross said.

“The HCM outsourcing market is experiencing rapid growth in Australia as business requirements have fundamentally changed following the COVID-19 challenges of 2020 and its impact on workforces,” he said.

“We believe that working together with PayGroup will put us in the best position to capitalise on post-pandemic business opportunities.”

Shares in PayGroup are up 1.82 per cent his afternoon, currently trading for 56 cents each at 2:53 pm AEDT. The company has a $42.98 million market cap.

PYG by the numbers
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