Gevity HR Inc. of Bradenton, which handles human resource functions for thousands of small to midsized businesses, has acquired a key competitor, Epix Holdings Corp. of Tampa, for $36-million in cash.
With the addition of Epix's 2,100 clients and 30,000 employees, the deal makes Gevity by far the nation's largest provider of outsourced HR services.
Gevity, which had earnings last year of $15.4-million or 62 cents a share on revenues of $425.8-million, expects the acquisition to be immediately beneficial. Gevity projects an additional $70-million in revenue this year as a result of the addition of Epix's clients, increasing this year's earnings to a range of 98 cents to $1.10 per share.
Gevity's shares rose $2.85 on Monday to close at $28.58.
Erik Vonk, Gevity's chief executive, stressed that the acquisition would be seamless for Epix's clients, who will now rely on a new contractor to handle such details as payroll, insurance and workers' compensation paperwork. The acquisition will bring Gevity to a total of 10,000 clients and 135,000 client employees, more than half in service, construction and manufacturing companies.
"We felt this acquisition was worthwhile because the direct benefactors from day one are the clients," Vonk said. "They will not see any increases nor see any disruption in any insurance-related or administrative program. And they will be part of a much broader technology platform."
Gevity, which has 450 internal employees in Bradenton and 500 elsewhere across the country, will be hiring about 60 of Epix's 280 workers. One hundred more Epix employees have been asked to help out during a 90-day transition. The remaining 120 Epix workers were notified late Friday that their jobs had been terminated.
Epix was formed in 1998 through the merger of Tampa's Payroll Transfers Inc. and Employee Management Inc. of Woodbridge, N.J. Epix is privately owned by four investment groups, including one headed by Texas billionaire Robert Bass. It is expected to close its Tampa headquarters off Interstate 4, where 100 employees had been housed, within the next few months.
Gevity reportedly made a run at Epix about a year ago before negotiations broke off. In November, Gevity instead acquired a smaller competitor, TeamStaff Inc. of New Jersey.
Jim MacDonald, an analyst with First Analysis Securities in Chicago, said Gevity has an underutilized Oracle software system that allows it to handle insurance, workers' compensation and payroll for clients more efficiently than others in the HR outsourcing business.
"The fact that this deal utilizes Gevity's underutilized backend is positive," he said. "From a financial point of view, if they can maintain the client base, it's pretty attractive."
But MacDonald thinks Gevity paid richly for Epix's customers. When it acquired TeamStaff last fall for $7.3-million, the purchase price amounted to just under $500 per client employee. Under terms of the Epix deal, Gevity is paying $1,200 per employee.
"The space is a lot hotter than it was even a couple of months ago," MacDonald said. "But if the synergies work out, it could be a good price."
On Monday, Gevity's chief executive defended the price his company paid for Epix.
"We are paying slightly more, but Epix employees generate slightly more in professional service fees than TeamStaff client employees did," Vonk said.
As Gevity's executives started the process of absorbing its biggest acquisition to date, Epix's customers tried to figure out what it would mean to them.
Henry Gonzalez, who owns a Tampa plumbing company that has used Epix for the past four years, said he got a fax announcing the deal, with more details to follow. But after outsourcing HR duties for his 30 employees for more than 20 years, Gonzalez said change is nothing new.
"I was relatively happy with Epix," he said. "But we've gone through five or six companies since we started farming out payroll."
