In a move that will further boost its penetration into the payroll market, Intuit has signed a deal to acquire online payroll service PayCycle for approximately $170 million in cash.

The acquisition, which is expected to close in the third quarter, will help Intuit build on its own payroll services for small businesses, including Intuit Online Payroll and QuickBooks Payroll, by buying the privately held payroll concern.

PayCycle, based in Palo Alto, Calif., will also help Mountain View-based Intuit expand its payroll customer base to include more small businesses, accountants and financial institutions.

Intuit said that the deal would "provide hundreds of thousands of accountants with the ability to easily and profitably offer services as stand-alone payroll providers for their small-business customers."

Nora Denzel, senior vice president and general manager of Intuit Employee Management Solutions, said that the acquisition would also enable Intuit "to develop and deploy the next generation of online payroll tools more quickly."

The acquisition is part of Intuit's ongoing "connected services" strategy, which is designed to give customers online access to its products and services. Intuit currently derives more than half its total revenue from connected services.

The QuickBooks parent said that the deal would advance its move into the Software-as-a-Service market for small business. The company expects to accelerate the growth rate of its overall payroll business as a result.

PayCycle's partnerships with financial institutions are expected to extend Intuit's customer base and expand its partnerships for delivering payroll solutions to more small businesses.

Intuit said that it expects the acquisition to reduce its earnings by approximately 2 cents per share in the fourth quarter of fiscal 2009, but does not expect the acquisition to have a material effect on fiscal 2010 earnings.

After the transaction is complete, PayCycle will become part of Intuit's Small Business Group. PayCycle CEO Jim Heeger will serve as a strategic advisor to Intuit for six months to help ensure a smooth integration of the two companies. He is Intuit's former CFO.

Shortly after announcing the PayCycle purchase, Intuit announced that it was laying off roughly 300 employees - about 4 percent of the software publisher's 8,200-member workforce. An Intuit spokesperson said that the layoffs were not related to the PayCycle buy, and that any employee decisions related to that acquisition would be determined once the deal closes.

(c) 2009 Accounting Today and SourceMedia, Inc. All Rights Reserved.

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