Vensure Made 100 Acquisitions (Here’s Why It Actually Worked)

Venture Employer Services recently closed their 100th acquisition, most of these coming in the last 5 and a half years. In today's episode of Payroll Land, I'm going to break down for you how they laid out this strategy for us a little over 2 years ago, what this means for you, what this means for the industry, and how we can leverage insights from acquisitions like this to grow our own payroll, HR, and PEO bureaus. Thanks for joining me. I'm looking forward to going on an industry deep dive along with you. Welcome to Payrollin', the show where you will learn how to operate and grow your payroll business from the most dynamic minds in the business. If your company offers payroll services, this is the podcast for you. And now, here's your host, Matt Vadie. Let's go! All right, so here's the cool thing. As I started digging into this, I realized that the CEO of Venture laid this out for us, what his strategy was, about 5 years ago in a podcast interview that nobody paid much attention to. I think it had 200 views on YouTube. It's something that now looking back makes it very obvious. I've had a lot of conversations with people in the industry about, hey, where are they going with this? If you're making 100 acquisitions, if you're raising this much capital, if you're investing this much capital in the industry, what is your endgame? Are you going to IPO? Are you going to sell? What are you trying to do? Well, 2 years ago— and sorry, I realized just a moment ago I said 5 years ago— Alex Campos and Gary Noak sat down for an interview with an organization called WorkTech. Listening to it now feels like they gave us the roadmap. They weren't really describing the present, they were outlining the future. And today we're going to look at what they said, what's happened since, and what it means for the payroll industry and what it means for you specifically. All right, so here's what we know. So directly pulled from this interview I have, Venture is formed in 2004. If you're not familiar with Venture, they have made a couple of marquee acquisitions over the last few years, including Prism HR, ExecuPay. They're acquiring not just PEOs to gain market share in the local markets. They're also acquiring the biggest software players, both in the direct market play, like Namely, who they've also acquired, but also in the white label market, like Prism HR, who's their tech stack, who they white label for the PEOs that use it. And what they do is kind of interesting because they don't just acquire these companies and then make them all Venture. They, you know, when I was at ADP, they used to have a thing, they'd say whenever they acquired somebody, they wanted to wash them red. So immediately the acquisition was to become ADP-ified as quickly as possible. So if they acquired a small payroll bureau or even a mid-sized payroll bureau, they wanted to make sure that it was clear that this was now ADP and they wanted everybody on board all rowing in the same direction. Well, Venture has a very different mindset mindset and philosophy and how they're going about it, and that they're making— if you go to the website, for example, of Namely, you will see it's namely a venture company. So they're doing this a little bit differently, and I think you'll see why as we start to go through this strategy and pick it apart. And I like the strategy personally, especially because they're doing it even with the PEOs at the ground level. So for example, we have a PEO here in South Carolina, not too far from me. I'm not going to give them any props because they're technically a competitor, but when you go to their website after they were acquired by Venture, and now says the same acronym for the business, a venture business. And so they're doing it in a way that's a little bit unique compared to most of the major players when they make acquisitions. Now, sometimes these bigger companies will make acquisitions and keep some of the old branding if it's powerful enough, but rarely the way that Venture is going about it now. All right, so let's go back to this, this story arc here. So Venture's formed in 2004, Alex invests in 2008, 2017, they sell 50% to Solomere Capital. In 2021, Stone Point Capital comes in with, I think I've got the numbers here, about a $2.3 billion round if I'm not mistaken. And so at this point now, you've just got everything you need. There's clear belief that, hey, we've got product market fit, we can take this to the next level. And in 5.5 years, they've completed just under 60 acquisitions since then. And this was up until 2022, and 90% of those were in the payroll PEO space. So this is coming directly from that interview with Alex. And before that explosion, so 2017, you're looking at, just to give you an even more detailed look at the growth curve and what this looked like, 2017, less than 50,000 Worksite employees. And it's funny, and as I put together the notes and I'm using AI to help me cull the notes together, it's like, you know, they were relatively small business with less than 50,000 Worksite employees and $1 billion in payroll. Yeah. With normal billings in the PEO space, less than 50,000 employees means they were about probably an $80 to $100 million company. So they were no small potato back in 2017. But in 2022, at the point of this interview, you're going from 50,000 worksite employees in 2017 in a 5-year period. Now they're at about 900,000 worksite employees and $30 billion in payroll. So I don't do public math, as you're well aware if you listen to this podcast regularly, but if you were to take those 900,000 worksite employees employees times 150 PEPM times 12, you know, you're looking at about close to $2 billion in admin revenue. And that's excluding— now listen, when they're putting in these 900,000 worksite employees, I think that's where it's going to get a little bit muddy in terms of the numbers is, so for example, if they're on Namely, and we're going to talk about the strategy of where Namely fits into this, well, they're not getting 150 PEPM on that. And I'm just using some general PEO billing rates. And if you're not as familiar with the PEO model, we're not going to go into that necessarily on this podcast, but it's worth getting familiar with. PEOs charge a premium because they do a ton. They do the HR, they do the benefits administration, they lock you into a group, take on a lot of risk, help out with compliance, all that stuff. So the billings are much higher, but they have other products that have much lower billing. So I don't know if that 900,000 worksite employees also includes worksite employees from ExecuPay, for example. So they make that ExecuPay acquisition. Well, worksite employee at ExecuPay is probably getting $5 pep 'em because that's a dirt cheap software that's being resold by players as deep as I'm fairly certain ExecuPay was the platform that Sam's Club was using to provide payroll. So if you don't think this industry's commoditized yet, just know that you could be waiting in line at Sam's Club and get payroll for your small business. So anyhow, all right, so this type of growth doesn't happen by accident. You know, that's private equity, that's strategy, and that is execution. You have to give it to them. The interesting thing about this is, again, I'm, I'm sort sort of looking at being so involved in IPPA and having such great relationships with so many of you that listen to this podcast and beyond, I get to talk to people who work there. You know, I've got friends that work for Prism when they were acquired by Venture. I've got friends that work for Venture. I've got friends that work for other groups that have been acquired by Venture, and they're all in different places, and it sounds like chaos from the inside, right? So this is the thing, is there's a great Brent Beshore quote, and I'm going to butcher it, but he says something along the lines of, every business from 30,000 feet looks fine and dandy, And on the ground, it is absolute chaos all day, every day. And so while it's a very reassuring quote and understanding from somebody, Brent Beshore, if you're not familiar with him, look him up, fantastic follow. He's kind of the modern-day Warren Buffett, has a lot of quirky one-liners. He's an investor in a ton of businesses and just a fun guy to follow and read his stuff. Very simple to digest, but it helps prove the point of even though these people on the ground, so let's say I was meeting with this person from Prism HR at the most recent IPPA event, and they're talking about it's absolute chaos and the strategy's unclear and they don't know what the heck's going on and why they're doing this. When you zoom it back out to 30,000 feet, all kind of clear, right? And so some of this is laid out for us between Gary and Alex in this interview, and some of it is just something you can glean by watching the market movement. Going back to that interview, and I'm not going to touch too much on Gary. Gary was with F.W. Davidson, who was acquired by Prism, and then he took over as president of Prism when Prism was acquired by Venture. And so they were having issue where one-third of its customers had been acquired and 40% of those were by venture. So think about this. So Prism HR is a white label PEO software. And mind you, there's only 3 or 4 real players in the white label PEO software market because there's only 500 PEOs. So how many different platforms can you have? But so he's looking at his book of business and recently we found the information, not to jump around too much, but there's only 500 PEOs today. Well, there were 900 back in 2018. So let that settle in for a moment. We've had nearly half of the industry acquired, and that goes into why this Venture podcast exists, why this Venture 100th acquisition is so important. You're talking about an industry with only 900 players to start that's now down to 500 as a result of M&A, and there's still obviously new ones starting. So they continue to be pulled into these greater entities. Venture is the biggest in terms of that M&A side. So that, that's part of the significance of I think it's important that we talk about this, look at this and understand it as people in the industry. All right. So Gary's president of Prism HR. He looks at his book of business and realizes of the bureaus they serve, 40% of those, a third of them had been acquired. So you're looking at your book of customers, you're a software provider, you realize a third of them have been acquired and nearly half of those ones that have been acquired were by venture. So now you say, man, if my customers are being acquired at this rate, I don't really have a distribution. I can't quite backfill the way I can because a startup CEO is not going to bring as quickly the worksite employees that these existing CEOs that are getting acquired are. So that's a hard treadmill to be on. You're very vulnerable. And so this acquisition makes perfect sense. Now, if you're venture, you have a different Achilles heel, and that's that you are the only large player that doesn't own any of your core tech. So at that point, they're white labeling a software with massive numbers prior to this acquisition. So they've got hundreds of thousands of worksite employees on something that they're paying to license. And so it was kind of an inevitable merger. Prism had the tech, but they're losing the margin and they're losing the customer base. Venture had the margin and scale, but didn't own their technology. And so together they're creating more margin, more stability, more product power, more consolidation control. Good things to have, right? If you're looking at big M&A, and oftentimes these marriages look good on paper. This is one I think has looked good all around. But, you know, again, from the chaos on the ground of the people that are frontline warriors, they talk about, well, they didn't stop there, right? They acquired the Execupay platform, they acquired the Namely platform. So why, why do they keep acquiring all this stuff? Well, he tells us about Namely and why that acquisition makes sense in the interview. So Gary says, hey, PEO clients graduate somewhere between 70 and 300 employees. And namely had a PEO graduation program. Now let's unpack that for a second. If you're a PEO, you often get this question, and we are a PEO, I have a PEO, what's the sweet spot for employer size? And the real sweet spot is like 20 to 40 employees. You've got HR issues, you don't quite have the budget for a full-time HR person. And even if you do, they can't wear all of the HR hats. They can't be a ben admin, they can't be doing HR generalist stuff, they can't be a specialist, generalist, they have, they have to be a super generalist. So a PEO makes a ton of sense for that, you know, you could expand that to 10 to 100 lives. But again, if you're going to really narrow the lens, it's, it's kind of that 20 to 40 lives are the real sweet spot where you can save them money on their benefits because they're being subject to open market rates on the ACA plans, the metal plans, and they're age-banded and all that fun stuff. Once you get over 50, you get a little bit of market market poll, you can go out and get some of your own plans. You're not age-banded anymore. Now look, the groups we have over 50, our rates are still competitive, but it changes. Every group is different, man. There's 10 life groups that do better on the open market, and there's 10 life groups that we save them $100,000. So not $100,000— you can't save $100,000 on 10 people. There's not a premium there. Anyhow, you get what I'm saying. So they're graduating. So if I'm a PEO, and that's what we do, like, we, we've had this happen. We've had groups that go, hey, look, man, We're up to 75 people. We've got a full-time HR person. We need a little bit something different in terms of technology and we need to grow. We need to graduate. Well, Namely had made their platform because if you're familiar with Namely, they were trying to serve that sort of mid-market, that 100 to 500 employee space. They were very aggressive there and they had a program they called the PEO graduation program. And so Alex, in a quote from this interview, says, they're not graduating away from our service, they're graduating away from our technology. So they have small business software. These customers they need something a little bit more mid-market. So the acquisition of Namely, while on the outside you go, man, why, why do they do that? It doesn't fit. Well, it fits perfectly. It solves their graduation churn problem. It adds mid-market HCM tech. It creates a single continuum for their people. Now that I'm sure they can look, run a report every month and go, hey, who's growing to the point where that we might want to start marketing the graduation program to them. And now they've got a way to keep this business and reduce churn. I talk to founders in the payroll, HR, and accounting industry every single day, and they all tell me they need more of one thing. It's not more money. It's not more AI tools. It's more time. How do I get more time? Well, I hired a virtual assistant through OutsourceScale.com that helps me manage my inbox, manage my calendar, handles administrative tasks for me, helps support my marketing efforts, and much, much more. The cool thing about Outsource Scale is that they actually train the virtual assistants on the latest and greatest AI tools to make sure that they can't only do that administrative work for you that you need to get off your plate, but they're doing it in the most efficient and effective ways possible. I've been so happy with my assistant from Outsource Scale that I've actually added multiple other teammates to our other companies through them. Their pricing starts at only $7.99 a month, and they make it super easy to get a new teammate onboarded and part of your team. Team very quickly. Check them out today at outsourcesscale.com. And, you know, they realized that the real competitive battlefield wasn't about payroll. It was about understanding and being able to control the entire life cycle of the client. All right, so let's look at how they executed the blueprint. What has happened since? So you go from 60 acquisitions in 2022 to 100 announced most recently. So 40 acquisitions in about 24 months which roughly comes out to one acquisition every 2 to 3 weeks. I'm going to pass out. One acquisition every 2 to 3 weeks. Again, does it look and feel like chaos on the ground? That's because it is chaos on the ground. And the thing about hyperscale is there's no way to not have chaos on the ground. So if you're interested in scaling your business and that is something, and you use that word scale with its true intention, which is not 20% growth, it's not 30% growth, it's not 40% growth. We're talking hundreds of percentiles of growth. You have to be ready for chaos. As a matter of fact, it's one of the things I just remember most distinctly from Hoffman's book Blitzscaling is that, hey, if you are going to scale a business, you have to get used to letting fires burn. And for a lot of us, that is a challenging thing to do. When you own a small business that is growing at a healthy rate, 40% is a target growth clip for That is a healthy growth clip that will have you doubling every 2 years, but that's not scale. That's very healthy growth, but not scale. And so this is a coordinated roll-up they're pulling off and they have team and infrastructure behind it. Now going back to the 2 rounds that they've raised, what's the fuel behind this thing? So they raised $500 million from Stone Point in that initial round, and then they raised $2.2 billion in refinancing and growth facilities. So it doesn't really get into the particulars of that round, probably some debt-based and some equity-based. But if you raise $3 billion in financing and you can buy a company every month for years, and that's what they did, right? And so the challenge is this. Now they're into a place where you say, hey, how do we integrate the technology? And this is something they allude to in the interview. They talk about common components for the PEO and HCM, shared UI, user experience, user interface and user experience, single sign-on, bidirectional migrations, work and tracking performance, time analytics, all unified. So today, you know, I think I'm getting mixed messages on how singular that has become. Again, from talking to people inside the company, users of the products, folks like that, I think that that's always going to be a problem. You know, again, I was at ADP when we made some of the bigger platform acquisitions that now make up the Workforce Now product. And even in the early years, and still probably to today with Workforce Now, I mean, you've got the underlying tech with a different user interface over top of it. It always it's had it someplace in there. It's very hard, very, very hard to completely wrap a piece of technology in a user interface that's going to make you as the user realize or not realize that there are underlying different pieces of technology on the backend. All right, so where are they going now? So they're moving into AI. So this, the interesting thing about this is the 100th acquisition was a, I don't know how to pronounce this, it's C-R-E-A-I, Creai, Creai, I don't know, But now they're talking about, they make this acquisition of CreaAI. If you go to their website, Venture is a client of theirs, and basically it looks like it from all the jargon you kind of rifle through on the website that this is a business that does AI implementations for organizations to make them more optimized, to make them more efficient. And so the thing that I can't quite understand from this acquisition, and it might be more clear to someone else, is this purely a position almost like an acquihire of, look, we just need this at such scale internally because we're growing so quickly. We We need all of your resources, all of your time, all of your energy to optimize our internal infrastructure, which would make perfect sense for a business of this size and this scale. Or is it something that's going into the product mix that will be something they'll be reselling and packaging up in a unique way? My guess would be on the former, not the latter. But there's any number of ways this could go. So what does this mean for our industry today is the question. What does this mean for us? One of the things that they're looking at is not just, you know, this— I think the next obvious step you'll see here is where we're seeing a lot of companies go, like Deal, D-E-E-L, is global distribution. You're seeing, you know, a lot more 25-person companies with employees in Israel, India, Philippines, and 3 US states is now becoming the norm. And so starting to see more international plays. I think you'll see more cost pressure in places with high-cost areas is where they're going to focus their time and energy to try to drive costs and efficiencies out. And, you know, I think it's going to be a really interesting time in in terms of how we see this group particularly impact the market. Because again, if you go to— they've made 100 acquisitions inside of the PEO space, 90% they claim to be PEOs. We've got 500 remaining PEOs. Where do they stop? How much of this can they get? And I think they're paying well. And if you're a PEO and you can get, you know, these— I've seen the multiples for PEOs grow over recent years in terms of what they're selling for. And I think a lot of that reason because they're pushing the market up. So what should we do as independent payroll bureaus and PEO owner bureaus? You know, one of the things I think that we talk about, and you're going to be exhausted, you're going to know, you're going to know right where I'm going with this first one, and that's become irreplaceably niche, man. So Alex, the CEO of Venture, starts in the staffing industry. He uses that to get them big into contingent labor in the early going to get a strong foothold. I've talked to people on his team that now they made acquisitions in the Hollywood and in the film space, they go incredibly niche and they're willing to go deep into and dominate niches. And I can tell you that companies, payroll and PEO bureaus that perform well in niches sell at higher multiples. And that's just a fact. And so if you can dominate a specialized vertical, again, we've always gone back to the examples of organizations like ConstructionPayroll.com and there are ones out there, you know, we saw a really big acquisition in the nanny payroll space a few years back. Dominate a specialized vertical. If there's any common thread you pull from every episode of Payrollin', you're going to hear it again and again. It's niche down, niche down, niche down. So you've got the ability to say, hey, we are the payroll provider for construction, home health, multi-location restaurants, churches. Man, churches are such a huge industry to dominate. You know, we've talked about dentists, surgery centers. You know, you'd be shocked how many plastic surgery centers there are in the United States. There are so many niches you could crawl into and never have to go anywhere else. You know, look, and the second thing is obviously build your business to sell, even if you're not going to sell it. If you've you've never read the book Built to Sell by John Warlow, it's such an easy read. It's a parable type book and they just walk through how and why it makes sense to build your business around systems and processes and how it's going to help your margins, how it's going to help your lifestyle, how it's going to help you. And you know, you obviously have the E-Myth Revisited book you can read about this. It is so easy to say, but you have to continue to refine and sharpen the sword in terms of being able to be acquired on favorable terms because you have clean books, strong EBITDA, low client concentration, a solid tech stack, a clear graduation path, whatever those things are, like make your business defensible. It is not going to help you to be super wide and shallow. You need to be deep in niches and deep in terms of your ability to defend your business. So, you know, I do also think that there is a lot of value. We've seen acquisition multiples go up, not necessarily from owning your own platform, but now you're starting to see more of tech-enabled services. So We are in an industry where we are tech-enabled service providers. If you have a really good customer onboarding automation tool that you've built on top of something else, right? So I know people who've built really good customer onboarding workflows on top of the Zoho infrastructure. I know people that have built them out inside of no-code tools like Replit or Lovable. If you have some strategic tools inside the organization that make the engine hum And, you know, if you're in the payroll and PEO space, you know, things can get clunky easily. But if you can strap things together with some custom code, if you can put an interface over the top of a couple systems that makes it easier for your clients to get certain pieces of information, this is really, really good. Having a narrow ICP. So for example, going back to the nonprofits, like we have a specific group of nonprofits. Think back to the episode with Chris Caputo where he talked about when they really really started to explode is when they found this certain reporting that union construction companies needed in the Northeast. We found a niche recently that has a very specific type of reporting that is very complicated. And once you understand it and you bleed with it, you come in and you say, hey, we can do XYZ report for you. You have their attention. Like Matt Ummholtz said on here, you're talking like a native, not a tourist. And so that creates not only the ability to go out and acquire business in a narrow ICP, but it also creates predictable process for your team so train them how to speak like natives, not tourists. And then you can effectively create your own sort of micro roll-up if there are other groups you want to acquire and bring into this. So now I know, hey, if I'm going out looking for acquisition targets or people to add or services to add, they're specific to these industries and these challenges and these technology tools that I can build. All right. So let's wrap it up here. A couple of questions for you to ask yourself this week. What's my Achilles heel? As an organization, is it my tech? Is it my niche? Is it my margin? Is it my processes? I think, you know, again, going back to that interview with Alex, he said that publicly and then he solved it. Can my best clients stay with me as they grow? You know, we had this problem where we actually had a growth path for our clients after they leave the PEO and we did not market it to them. Being savvy enough to understand and not kind of bury your head in the sand that people are going to need other services than what you offer. Can you make sure that they're aware of that when they need it? And am I recession resilient or recession exposed. So if every downturn— some of y'all got a taste of this back in COVID. I talked to some of you guys that were, your headcount got cut in half or more. Granted, not for a long time, but for some time during COVID We did not have that issue because we're tied to white-collar industries that tend to be recession-resistant and they can be flexible in terms of natural disasters. So are you recession resilient or are you recession exposed? So in this case, the 100th acquisition isn't the real story. The real story is that 2 years ago, they told us exactly what they're going to build, and then they built it. This is an execution, this is a recession resilience scale and optionality built business that seems clearly patterned for IPO if you ask me, but nobody asked. Anyhow, if you made it this far into the episode and you enjoyed this, please make sure you hit that subscribe, that like button. And if there's any way I can help you to grow your payroll bureau or PEO, Let me know. Appreciate you.