M&A, AI, and the Art of Integration | Adam Ante, CFO, Paycor

These capabilities and so I think one of the most important things in this case is starting first with your people and saying who is on this team and let's make sure that we have the right understanding of the business process, the technical capabilities and our impact on the customer. Right? If we mess up the impact of the customer and we negatively impact it, it's going to ruin everything and it makes what could be a really great strategic and financial outcome on the business side, it makes it, you know, worth nothing. So, it has been part of the talk track every time we think about, all right, we have to bring these two organizations together. Unfortunately, there's overlap and roles. Let's make sure that we're intentional about it. Let's not be flip here. It's, you know, you're impacting individuals. You're impacting our products. You're impacting potential customers and let's make sure that we minimize that risk. That is the first thing that we get after.

Jack, thanks for having me. Glad to see you again.

Yeah, thanks Jack. So clearly there's going to be some clear financial goals that we're going after in terms of revenue growth and cost savings and synergies and an ability to unlock a new level of scale for our customers. I think the first thing to think about though is how the teams come together. Getting the organization lined up, making sure that you have the right folks on your leadership team that can rally around those priorities and start to execute against the strategic priorities and the initiatives that you're going to lay out to run those strategies and achieve those goals. The first thing is always the team. And then for us as we're thinking about, you know, what's first for us is really expanding our sales, continuing to invest in our sales, and then really focus on what we would call moments that matter for our customers. We want to build a flawless series of moments that matter to our customers so that they really engage well in the product and feel good about the service that we provide and the customer value proposition that we have for them.

Well, yes. So, as we're getting acquired by Paychex and going through this transaction, they have a really great CFO already, Bob Schrader, who's been the CFO for a couple years there and been with the organization for a while. So going into it, you know, they don't need another CFO. Especially as two public companies coming together and there's going to be, you want to create space for a lot of great folks who are in the organization to be able to move up and move on and continue to grow their careers. And so the first thing honestly that I was thinking as I went into the acquisition is that I would transition out of the organization and get into something else. I think actually my wife was expecting that we would plan some long summer vacation and that we would be in Florida or maybe she would drag us overseas or something. But in this case actually Paychex took the opportunity to say hey we really want somebody to run the business that has the experience with the whole organization that's a little bit more operationally and strategically focused. And the financial background I think really resonated with them as the senior leadership team and the board tried to think about where they wanted to take this strategic opportunity over the next 3 to 5 years and 10 years and beyond. And so they asked me to step into this leadership role and run the business as the managing director for Paycor broadly as a Paychex company. And so I was a little surprised but also extremely humbled and excited for the opportunity. And so that's for me the path and that's not always the path definitely for CFOs. I think when you go into transactions like this you're expecting that your role is going away and that you're going to go do something else and that's fine. That's part of the role. I think if you're expecting to go into a private equity firm, then yeah, you're going to have a continued role there usually and you're going to go run another transaction at some point. But when you're bringing two strategics together, I think the expectation is you're walking in is that they don't need another CFO. You should go do something else.

Well, so I'm going to run the Paycor business unit as like the line of business CEO in this case. Yeah.

I think so, for sure. You know, early in my career, I always followed my curiosities to understand how things worked. And I went after them with this sort of finance lens just because it resonated with me with a data lens and an economics lens. But I started getting deeper and deeper and deeper into the operations. And so I spend a lot of time already with our business leaders around the operations, around sales strategies, thinking about, you know, long-term strategies and how we build initiatives there and then how the operations work. So I do think that played a big role for me in this opportunity to continue to move on and move my career in sort of a different direction.

Yeah, there's clearly some cool finance milestones and at Paycor, we were able to do a couple that, you know, you never know if they're really going to happen. We were able to take the company public. I was able to go through a private equity transaction and a complete recap of the company. We were able to do Paycor Stadium naming rights with the Bengals, the NFL naming rights. These are all really cool milestone moments. I think some of the things that really resonated over my entire career as these milestone moments were some of the failures actually, some of the moments where I felt like I was behind or I didn't know what I was doing and I remember a specific example where we had acquired a company out in Colorado and so I was traveling to Denver every week for about a year and a half and wasn't really making the progress on the integration from a business standpoint that I personally wanted to. And they brought in another CFO, a line of business CFO who I reported to and she was fantastic. She taught me a lot but it really felt like a failure at that moment because I was learning how to run the business versus think about just the strategy side or think about the data, really working with the leadership team and it was a new muscle for me and so I felt like I was really failing. That was a milestone for me where I started to realize that running a business and operating a business is different than just running the financials in the background. So that was a really big milestone for me. One of the other big milestones was learning to take more ownership over the outcomes. Especially as a finance person that does a lot of forecasting and planning, it feels like sort of this foreign thing that all of the work is happening up in the future somewhere else in some other group. But when you take ownership there and I had this specific example where I felt like the product leader who I was working with to build a product business case wasn't taking the ownership that I was expecting and I actually read this book, I had just read this book called Extreme Ownership by Jocko Willink and that really changed my mindset from this moment of sort of receiving the financials, just thinking about the planning, just thinking about the forecasts and sort of the variance analysis to hey I actually need to own the outcome here with this person and so how do I start thinking about that. So I remember reading that book and in of itself was a milestone moment for me in my career.

I do think that I bend that way naturally just a little bit more. I think the book sort of helped it to come into light in terms of some of the specific thinking, the specific thought patterns and also think about creating tools and ways of working that enable you to have those conversations without overreaching or seeming like, you know, you could do that sort of stuff and come off as a jerk. You don't want to be a jerk. You want to be collaborative. So there's a way to drive ownership without taking everybody's stuff. And I think that's what that book really helped solidify for me and bring together. I think broadly I've always had this again desire to learn and get into things and understand why things work and how we can be doing things differently or how I can help make things different. And I think that book sort of helped me to clarify that and then address it and work collaboratively with folks more effectively.

I think that everybody could benefit from this idea of extreme ownership and stepping into other people's areas collaboratively with them versus sort of finger-pointing but working together well cross-functionally. I think everybody can and Paychex is a really big organization. They are a historic organization. They've been together for more than 50 years and they have a lot of different business lines and they have a relatively new leadership team that I'm really excited about. And so I think our leadership team is going to now learn to work together and help each other and help identify areas that we can be more effective. And so we're all going to have to take this extreme ownership sort of mentality. Otherwise, things just sort of fall apart because you look over there and you say, 'Oh, that's somebody else's responsibility or someone else will fix that.' And when you're working as a leadership team, especially when you're first forming, I think you can't do that. You have to be willing to get into it with other folks. You have to be willing to call things out and say, 'Hey, let's work on this together.' And I think extreme ownership really helps to again clarify how you might be able to work like that.

Yeah, the transaction itself has been going on in some sort of form for well over a year, year and a half, two years. And there's always conversations around this where you're talking to private equity firms or you're talking to other strategics, you're thinking about partnerships and you're always looking for those opportunities and you want to make sure that you have the right deal set up for your shareholders. You're always being intentional about your long-term growth prospects and so we're always having these conversations in some sense. And what had happened with this transaction is that Paychex had been interested in Paycor as an opportunity, had been evaluating the market, looking for opportunities. And so as they identified Paycor, they actually reached out and we had some conversations in the summer of '24 and the CEO of Paychex and the CEO of Paycor met and had lunch together and started talking about what the opportunities could look like if we were to come together. And that conversation really lasted a handful of months before we got a little bit more serious as a team and it culminated ultimately in a bid for the business after some diligence. And then at that point it sort of becomes really formal, right? And we take that bid and that work back to our board at Paycor and we work through what are the opportunities? How should we think about this bid? How should we think about the opportunities for Paycor in the market? And this was maybe right before Thanksgiving of '24 in November. And so at that point, we started to get deeper into the analysis and the diligence. We did a market check and we had to go out to a wide range of folks across other strategics and private equity firms to look for other potential buyers to make sure we were getting the best deal for the shareholders. And then after what could only be, it was like one day off over the course of 6 months, was Christmas Day of '24 that was really the only day we didn't work on the acquisition. Beyond that, it was full of diligence and conversations and going back and forth on the whole transaction. It ultimately culminated in the beginning of January the signing of the transaction between Paycor and Paychex. So Paychex ultimately won the bid and now we're working through the close. We have, hopefully we'll close the deal in the second quarter, the first half of the year is what we've been aiming towards and so we're on track to do that right now.

The process is super long and complicated and there's a big finance component of it, but it's also a lot of people and navigating and making sure that all of your constituents are sort of thought of well and considered. And so I think making sure that you're not rushing in with a simple finance lens and saying, you know, valuations here, this is what this is. And you can take a broader step back and think about, well, who are your shareholders? What do they care about? How are your employees going to be impacted? Who are the people navigating the deal itself? And trying to find advisers who can make sure that you have all of that thinking laid out so that you're being intentional about it. It's much more complicated than just the finance aspects of a deal this size. And that's why we're really excited about the transaction with Paychex. You want to find somebody that you can really work well with that is a cultural fit, that has a good strategic fit because otherwise it's going to be a mess after the transaction goes through and it's not going to be the best thing for the shareholders. And so making sure as a finance leader that you're thinking about those things alongside your CEO, your board, your shareholders and your employees where you maybe naturally don't lean in as a finance leader. You got to be really intentional.

There typically, like you said, Jack, it can happen any different ways. I think deals like this often come from, you know, your private equity owner or your board member, other leaders on the team. It might be through some sort of a partnership conversation that boils up. In this case, for us, it was really a top-to-top conversation that happened between our private equity partner and our CEO ultimately that led us to have the conversations. One of the things that was really important to us as we were evaluating this is that we didn't get this out into the general public of our employee base because it's not, most of these conversations don't amount to anything and because we've had lots of them over the years and you don't want to disrupt the business and get people worried while we, you know, don't know if we have anything to think about yet. And so we tried to really limit the number of people that needed to be involved. So it was really, you know, me as the CFO and our CEO, our chief product officer came in to talk a little bit more in depth about the product and the technology and then we had one key leader, Brandon Young, who runs my FP&A organization that we've worked with for a long time. We went through the IPO together and we spent a lot of time just working specifically on data pulling requests, diligence together. So it was really just a core couple of folks who knew about the deal and were working through the diligence aspects of it so that we could limit the disruption until we really needed to get deeper and deeper.

Absolutely. So it does work like that in a sense and we brought in a strategic partner, an outside partner, an investment bank to help us navigate this process. It's really complex, there's a lot of regulation around it. You want to be intentional. So, we made sure to bring in a partner and in this case, Goldman Sachs investment banking helped us out. And so, the first conversation really was with me and the CEO, a couple members of our board, a transaction committee and the partner at Apex where we talked with Goldman Sachs about all the potential investors, all the potential private equity firms or sponsors who might be interested. It's a pretty big list. And then that team starts to help us navigate you and they have conversations, they have connections with, you know, other board members or CEOs and CFOs and they start to navigate that and then what we would get back is a list of hey here's all the folks who are interested and let's have a conversation and that next conversation would be with me and the CEO or maybe sometimes just the CEO have those first pass conversations but yeah Goldman Sachs and then our board members and our partner at our private equity firm started that first pass with us to say who would be some of the best folks to reach out to whether they're other private equities or strategics and we partnered together to come up with who those best folks would be.

Yeah, I remember the day that ChatGPT dropped and I was in an investor meeting and one of the investors brought it up and said, 'Hey, have you seen this yet?' And I hadn't seen it. It was the first day and I remember from that moment though when I started the message that I was like, 'Wow, this is going to be different. This could really change some things.' And I started pushing actually right away back into our product organization. I remember some of the early conversations like, 'Hey, yeah, that's interesting, but it's going to be a little while.' And it has taken a while. Well, it's taken I guess 2 and a half years since that point. And, you know, we've made a ton of progress, but there still hasn't been a ton of B2B like internal process like complete reimagining because of this, but it's definitely been exciting and I think there's a lot of cool areas like research that we've been able to leverage internally, some of the co-pilot type things. But I think you're right, you have to be a little cautious. One of the first things that we did was we stood up an AI council that helped us just think about all of the different items that we should be considered of that we need to be thinking about from a regulatory perspective that we're still, you know, unpacking. How to think about the models and which models to use or maybe which ones to stay away from. And then how do we get it out into the organization effectively and responsibly? How do we start to get it into the product effectively and responsibly? And so that was our first step was really starting with that AI council. One of the things that I've also really gotten into though is to encourage people to try things and do things and, you know, we got to create the right security model around it so that we're not pumping data out into the live web but internally we're using these models and saying hey where can this work? How can we be a little bit more aggressive? Maybe let's try a couple things. So there have been some of those licenses where we tried to get a little bit more aggressive, pilot some stuff, see where we think the opportunity is. And it's one of the reasons why in some cases we say, 'Hey, let's go a little slower here. We're not seeing quite the benefit.' And there are some of the models that software applications came out with really high-priced AI fees right out of the gate. And we said, 'We're not doing that. We don't know what the benefits really could be. Let's pilot it. Let's slow it down.' And then you saw some of those applications actually change their AI pricing strategy afterwards and said, 'All right, let you know, maybe we're not going to get the same fees that we thought we were.' So, we've tried to be really intentional with this combination of piloting, trying, testing things, and then putting some money down on some things to make some progress, but be cautious.

Yeah. So I should say that Paycor is a human capital management software business that focuses on companies of all sizes from just a couple of employees to thousands and thousands of employees. And we manage HR software, payroll, talent, performance management, talent attraction. And we really focus on enabling our customers to get access to people, data, and expertise. That's how we think about it. People, data, and expertise. And I also think that the direction of software is changing. The application software is changing. At Paycor, we're thinking about that, saying where is AI going to take software so that we can leverage that to enable our customers with the same core workflow functionality, but maybe the experience is different, maybe that application layer is different, and maybe we can simplify it, maybe we can improve it. And so, we're really thinking about the way that application layer is going to change as customers' expectations are changing because of AI and the way that software works. So, we're really thinking about AI embedded within the product capabilities to make it easier to navigate, to make it more intuitive. We've released or we're about to release, we have it in pilot right now, an HR assistant that is a chat assistant that enables you to be able to access with your own business's voice, right, that knows your people, access to the information, access to data within this what can be a complicated regulatory and complex HR framework that employees have to manage through. So, we're starting with that HR assistant that ultimately we think will help employees navigate the system more effectively and engage in workflows for their employees. So, that's where we see that going over time and we're continuing to invest in that even while we're going through the integration work.

Yeah, I think for me it started with I don't know how this works. Wow, how does this work? And I started there because you can sort of put some prompts into these models and think that it's magic, right? It's magical. The experience could be magical, but it's not magic. And so I started down this path of how the heck does this thing actually work? And of course I'm still learning and I'm not really a software or a tech guy, but I like the software and I like to understand how the technology works. So I did start to get into it and actually there was a recent video that Andrej Karpathy released, who he is, it's on YouTube. It's like a three and a half hour video. He's a founding member of OpenAI. And he's founded his own lab now. And so he spent like three and a half hours going through how these models work. I think it's a really great overview. But that's where it starts in my mind is what is this software because it's just software, what is that software actually doing so that we could start to point investments in the right space. And right when things opened and we started to think more about LLMs a lot of the first question about investing was should we be building a model, let's go build a model. And of course as we've gotten over the last couple years building foundational models would have been a terrible investment for us we would have lost all of our money on that. There are some really amazing companies like Google and Facebook and X and OpenAI who have these foundational models and that's a race that we don't need to be in. The application layer and sort of the inference side of understanding how these LLMs work clearly started to become more and more where application software should be investing. How do we take the inference side of using these base models and then enable it for customers to do cool things that our customers need based on, you know, the services and the offerings that we're working through and that we're offering and then understanding how Agentic AI and this next evolution of leveraging different types of AI models for the most effective potential outcomes and then being able to build them into workflows and get these models to talk together. That really has become, I think, where the future of AI is going to go. And so I say that to say that if you didn't know how those models worked or the structure of the underlying technology, you just start pointing this thing at everything. You say, 'Well, maybe this LLM will do this and let's go try it over here.' And when you start to really get into it, you realize, hey, this is not a space that we should be investing in here. Let's try to point and look for some use cases where inference might enable us to be more effective. And then you can go into the business with a more targeted approach to your business case development and more targeted approach to getting the quality out that you need. Otherwise, you'll just be, you know, running up consultants and spending money and most likely the project won't succeed and you'll say AI isn't worth it. But it's just because you're missing in the right areas. You just got to be really focused and targeted and you have to understand the capabilities at its core.

Jack, you're describing more our customer success people than our FP&A people. Yeah. I think that you're describing core capabilities that exist between both our customer success and analysts that sit within our CX organization and the core FP&A capabilities that we have. So those teams working together really well are important. Understanding the data, getting the data in a way that enables you to make more and better business decisions around customer sentiment and stuff like that. That is what the core of that is. I wouldn't say that our FP&A team necessarily is closer to the customer than our success team. Our success team has been fantastically built up to have those individual interactions. The FP&A team really helps them to understand, well, how are those interactions potentially translating to, you know, what we might think about as churn or future losses or risk inside of the portfolio, giving us better visibility so that we can either get ahead of it or plan more appropriately for it. But them having a really good relationship, the CX team, our success team, and our finance partners enables us to make better decisions, I think, and they structure the data and our initiatives more effectively to get the long-term outcomes that we want.

It's definitely a risky and difficult part of bringing these two organizations together, right? Any two strategics, you're going to have natural overlap in roles. You're going to need to hit synergy targets. You want to be more effective longer term and there is a risk that you cut the wrong things, that you reduce capabilities. And so I think one of the most important things in this case is starting first with your people and saying who is on this team and let's make sure that we have the right understanding of the business process, the technical capabilities and our impact on the customer. Right? If we mess up the impact of the customer and we negatively impact it, it's going to ruin everything and it makes what could be a really great strategic and financial outcome on the business side, it makes it, you know, worth nothing. So it has been part of the talk track every time we think about all right we have to bring these two organizations together, unfortunately there's overlap in roles, let's make sure that we're intentional about it, let's not be flip here. It's, you know, you're impacting individuals, you're impacting our products, you're impacting potential customers and let's make sure that we minimize that risk. That is the first thing that we get after. So we're clearly spending a lot of time thinking through the tactics of the integration and how teams come together. But also with that same focus in mind across all of the teams, it has enabled us to say or encouraged us to say, let's not go too fast. Let's make sure that we're being intentional and let's make sure we're impacting the right things as best we can. And I have no doubt, you know, some things are going to be rough. We're going to miss something. And then how we quickly respond to that will be important. So keeping that customer lens first and that focus first is going to be important. And where we do have capabilities that maybe we're impacting and we say hey we need this capability somewhere else maybe it doesn't exist here in the go-forward state but we need to create that capability somewhere else so that to your exact point it can persist and we can have the right visibility of the customer, we make sure that we understand our impact on the customer and that we keep those things tied together with our success team so that that's actually something we're going through right now is making sure that we don't reduce capabilities that really help us provide a better customer service and a broader experience.

Paycor has built a fantastic modern what we would call mid-market platform, but we span, you know, 10 to multiple thousands employees. We've gone really deep inside of our talent solution, talent capabilities. We have a fully scalable payroll capabilities. So, the full suite of HCM solutions with this target market that we've been working towards over the last 5, 7 years and we're a 30-year-old company on top of that. I think one of the benefits that we bring is this natural marriage with Paychex where they have focused more primarily under 100 employees and within that small market going to market through their CPA partners. They're a 50-year-old company that focuses very clearly on enabling businesses to be successful. And so when you bring these two mission statements together with the capabilities, you have a complete view now where we can be the number one HCM provider in the entire market, right? With really deep capabilities and a full suite of products to small customers, mid-market customers, enterprise customers. And I think that that's really compelling. It's compelling where we've gone from about 3,000 employees on Paycor and 16,000 employees at Paychex to now nearly 20,000 employees combined. That gives our employees an opportunity to continue to expand their career, move into different roles, continue to grow across all these different areas of the business. And it also gives our customers this ability to continue to navigate through the products if they want to continue to grow their organization. And they feel like Paycor has deeper technology products that they want to get into, now they don't have to leave Paychex more broadly. And if some of the solutions that we offer aren't necessary for that customer, now they have a platform with Paychex that can be more effective. So, there's really a lot of great synergies for our customers up and down the stack. And then being able to wrap a service experience and product experience that even goes outside of HCM software because Paychex offers a complete suite of additional services and products is a natural win for our customers. So we're really excited about that marriage. I'm not sure that there's another better opportunity than for Paychex and Paycor to come together in this HCM market.

It wouldn't surprise me. No. It would be exciting and I hope that that's a direction that we continue to go or I could continue to go on my career having a bigger impact, caring about the customer and the employees with a deep understanding of the finance operations and how the business works.

I'm not sure. I would be open. I'm not sure that I would be surprised at anything. I think there's a huge amount of opportunity in front of us right now for me personally and for our team with Paychex and Paycor. So I'm really excited to see, you know, where this goes and I think there's a lot of really great work to be done around both this role and then with Paychex more broadly. So I actually, I might say that I might be surprised if 5 years there's a different place that I'm at. I think I probably would be.

Jack, really good to see you again. Great talk.