Analysts at Stifel and BMO Capital Markets cut the stock rating of Paycor (NASDAQ:PYCR) HCM, in response to Paychex's (NASDAQ:PAYX) move to acquire the company for $22.50 per share. This acquisition price represents a 19% premium over the unaffected price of Paycor's shares.
Stifel downgraded Paycor from Buy to Hold and set a new price target of $22.50, aligning with the acquisition price.
BMO analysts have also downgraded Paycor's stock to Market Perform from Outperform and adjusted their target price to the acquisition price of $22.50 per share.
The valuation implies an enterprise value to next twelve months' (NTM) revenue multiple of approximately 5.5 times and reflects an 18% discount compared to Paycor's peers' current trading multiples.
“This revenue multiple is within the range seen recently for software transactions with targets of generally similar financial profile as Paycor's low-teens recurring ex float revenue growth and positive FCF even excluding float,” BMO analysts said in a note.
The analysts also commented on the potential impact of the acquisition on Paycor's peers, advising caution in extrapolating Paycor's valuation to other companies due to its unique ownership structure.
They highlighted Paychex (NASDAQ:PAYX)'s interest in expanding HR advisory services and PEO solutions to Paycor's customer base, which aligns with industry trends of companies seeking to increase customer wallet share.
Separately, Stifel analysts believe that the acquisition is a positive outcome for Paycor shareholders, especially given the overhang of Apax (HN:IBC)'s significant ownership.
They expect the broader software M&A market to remain active, while public M&A in the Human Capital Management (HCM) space may be subdued due to a limited number of available targets.
“While we are not aware of any ongoing or potential M&A transactions, we continue to focus on the following framework: companies with >13% expected revenue growth, trade under 8x out-year revenue, and have an EV under $10B as the most likely acquisition targets,” Stifel said.