PEO Acquisitions

intern profile

April 05, 2023

by an member from Virginia Polytechnic Institute and State University (Virginia Tech) in Pittsburgh, PA, USA

Hello,

I am doing some digging in the PEO world (payroll and benefits specifically) and I'd love to connect with someone that is familiar with this space and could speak to the ins & outs as well as relevant deal considerations!

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commentor profile
Reply by a searcher
from The University of Chicago in Chicago, IL, USA
I considered sourcing PEOs several years ago but decided to pass on the space. PEOs provide a critical, subscription-based service with high switching costs, which is very good. I also think there are strong regulatory and worker tailwinds. More people working remotely (including out of state) and additional regulations increase HR complexity for SMBs, which is good for PEOs.

The major downside (for me) was that there has been a lot of PE activity with PEOs over many years. While consolidation and PE investment is a good thing if you are early, it makes things challenging if you are late. I thought I was too likely to run into high valuations and competition from PE firms (including platform companies).

If I were looking at PEOs today, I'd ask industry contacts where they think the industry is on the consolidation curve and how much deal competition they see. I'd also consider focusing on niche/industry-specific PEOs that serve growing industries. Going small helps with competition, serving a growing industry makes it easier to grow, and having a defensible niche makes you a more attractive bolt-on acquisition for a larger PE platform.
commentor profile
Reply by an intermediary
in New York, NY, USA
PEOs are too commoditized at the moment and it's hard to find a differentiator. Many companies like Trinet & Rippling are expanding their market share and a lot of others are building features that make PEOs obsolete
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