Merger adds up to growth for Payroll+

FORT COLLINS – A New Jersey company backed by private equity funding has acquired Fort Collins-based Payroll+, apparently the first step in an effort to amass a string of small payroll service firms in the Mountain States region.

PayChoice, located in Moorestown, N.J., closed the acquisition of the 11-year-old Payroll+ in April. Financial terms of the deal were not disclosed.

Dave Fry, co-founder of Payroll+, which serves about 700 client businesses, will stay on as general manager of the Fort Collins office. The company will adopt the PayChoice name later this year.

With the purchase of Payroll+, PayChoice instantly gains a profile in Colorado in the payroll and benefits administration sector. Payroll+ has been averaging about 24 percent annual revenue growth over the past three years, Fry said. The business, which has 20 employees, reached $1.5 million in sales last year. Its client base ranges from the northern Denver suburbs to Boulder and Fort Collins.

With PayChoice’s deep pockets – the company is drawing from about $80 million in private equity capital to execute its growth plans – Fry expects his branch office to expand its sales area and staff size in the near future.

“We will definitely have people in Colorado Springs,” he said, “and we will be looking to have a sales presence in Wyoming, Idaho, Utah and Arizona.”

The underlying strategy behind PayChoice’s growth plans – and the reason Payroll+ was targeted for purchase – starts with a software company called Payroll Associates LLC.

Payroll Associates makes payroll management software licensed to about 300 payroll companies. Payroll+ was the largest of these licensees in the Mountain States region.

Early last year three high-powered private equity funds – Great Hill Partners, Baird Venture Partners and North Hill Ventures – created a new business called PAI Group Inc. Its first move was to buy Payroll Associates LLC in April 2005. At the same time PAI Group disclosed plans to roll up licensees to the Payroll Associates software, creating a major payroll service bureau called PayChoice.

The first round of PayChoice acquisitions was announced in December, when the company bought five payroll service firms in five different states.

At the time, a PayChoice official said, “This is a logical extension of our core payroll software business. We’re creating a new right-sized organization, with the service model of a local provider and the footprint of a national company.”

The acquisitions have continued, and Payroll+ is now the 10th company in the PayChoice fold. Payroll+ is the westernmost outpost for PayChoice, and will be the launching point for expansion in the West.

“We do have the intention of purchasing or merging with other licensees in Colorado,” Fry said.

According to PayChoice officials, the payroll service sector is prime for its consolidation strategy. The company said it’s out to seize the middle ground between major service companies, such as ADP, Paychex, InterPay and Bank of America, and numerous small independents.

“The very large companies, who often have extensive offerings, can often be somewhat material,” PayChoice said in a prepared statement. “The very small payroll companies may care, but not have the horsepower to compete effectively.”

According to information on the PayChoice Web site, there are about 5,000 payroll companies nationwide. However, few of those firms have revenues of $10 million or more.

“There are lots of small companies out there,” Fry said, “but it’s really hard for smaller companies to provide the level of technology needed to compete in the marketplace.”

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