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Payroll and human resource (HR) outsourcing service provider Paychex Inc. (PAYX - Snapshot Report) recently announced the takeover of the expense management business (“ExpenseWire”) of Rearden Commerce Inc. for an undisclosed sum.

Rearden Commerce develops e-commerce applications, which allow customers to purchase its products or services online. In 2008, the company acquired ExpenseWire, a leading provider of real time expense management solutions. The online solutions streamline and automate the processes associated with the filing, review, approval and reimbursement of employee expense reports. The solution helps organizations to monitor and manage travel expenses of their employees as well.

Paychex has been using the software since 2008. Paychex agreed to resell the app along with its web-based Expense Management suite, which is mostly similar to the ExpenseWire solution. Now that the business is completely owned by Paychex, it can retain the entire earnings out of the business.

Expense Management is an integral part of Paychex’s HR Services segment. Hence, we believe that the addition of new capabilities would attract professional employer organizations, thus generating revenue growth.

Earlier this year, Paychex acquired online and PC-based time and attendance solutions provider, Icon Time Systems Inc. for an undisclosed amount. The acquisition has supported growth within Paychex’s Payroll Service segment.

The company’s initiative for boosting its revenue growth through acquisitions is encouraging. Also, the improving trend in SMB IT spending could pave the way for Paychex in the coming quarters. But we can see that low hiring in the small and medium business (SMB) sector (leading to lower checks per client) and lack of new business wins has come in the way of solid revenue growth.

We also remain concerned regarding stiff competition from Automatic Data Processing Inc. (ADP - Analyst Report) and Intuit Inc. (INTU - Snapshot Report).

Currently, Paychex has a Zacks #4 Rank, (Sell), while both Intuit and ADP have a Zacks #3 Rank (Hold).

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