Dedicated Payroll Service Provider

Critical reframe: The 84% EBITDA margin is the seller's margin, not the buyer's. This buyer (Singapore-based, full-time at Meta, zero payroll expertise) must hire a CIPP-qualified payroll manager immediately. Post-manager EBITDA is ~GBP 112k (61% margin) — still exceptional, but a fundamentally different business than the listing implies.

Deal Structure (modelled at two price points)

P&L Comparison

Returns (Scenario B — GBP 310k)

Downside Scenarios

Break-even attrition: ~45% before Year 1 FCF turns negative. The 84% pre-hire margin creates a wide financial cushion — but the probability of high attrition in a sole-operator retirement sale is elevated.

The automation thesis here is capacity expansion, not cost cutting. AI enables a hired manager to handle 150+ clients (vs ~80-100 unaided) and eventually scale to 200+ without additional headcount.

Month-by-Month Plan

Build vs Buy

Software Platform: Binary Deal Condition

Recommended Terms

1. Share purchase (mandatory) — 150 HMRC PAYE agent re-authorisations under asset purchase is unworkable
2. Price target: GBP 250-280k — anchored to post-manager EBITDA of GBP 112k (2.2-2.5x real EBITDA)
3. Seller financing: GBP 50-75k at 0% for 24 months — tests seller confidence
4. Earn-out: 25% of price over 18 months, client-retention linked — >90% retention triggers full payment
5. Clawback: >15% attrition in Year 1 reduces deferred consideration proportionally
6. 12-month seller consultancy (paid, GBP 2-3k/month) — seller introduces GM as "my chosen successor," available by phone/email for client questions
7. Completion timing: May-June 2026 — post tax year-end, avoid April P60 season

Key Negotiation Points

• •Seller almost certainly doesn't appreciate that 84% margin doesn't transfer to a remote buyer — negotiation leverage exists
• •"Offers invited" with no floor = maximum buyer optionality
• •Retirement seller may prefer structured payout over uncertainty — seller financing is likely achievable

Preconditions (resolve before engaging further)

• ☐Listing still active — URL returned 404; contact Daltons to confirm availability
• ☐Software platform disclosed — cloud with API (proceed) vs desktop (walk away)
• ☐Seller transition period — 6+ months paid consultancy (proceed) vs clean break (walk away)
• ☐Share purchase confirmed — seller agrees to sell shares, not assets
• ☐Client concentration — no single client >15% of revenue

Financial DD

• ☐3-5 years of management accounts and filed statutory accounts
• ☐Revenue trend verification (is GBP 183k stable, growing, or declining?)
• ☐Fee structure breakdown (fixed monthly, per-employee, or per-payslip)
• ☐Bad debt history and payment collection process
• ☐Outstanding loans, director loans, related-party transactions
• ☐Tax returns and HMRC correspondence — any disputes or penalties
• ☐Working capital and cash flow pattern (monthly billing cycle)

Legal DD

• ☐Company legal structure (Ltd, LLP, sole trader) and Companies House filings
• ☐Client contracts — terms, notice period, change-of-control clauses
• ☐HMRC PAYE agent authorisations — in company name or personal name?
• ☐ICO registration and Data Processing Agreements with clients
• ☐Professional indemnity insurance — level of cover, claims history
• ☐Regulatory registrations and compliance history
• ☐Intellectual property (client databases, software customisations)

Commercial DD

• ☐Client size distribution (average employees per client, revenue per client)
• ☐Client retention rates (last 3-5 years)
• ☐Payroll frequency split (weekly / fortnightly / monthly)
• ☐Client complexity profile (any CIS, IR35, international?)
• ☐Auto-enrolment status — all 150 clients fully staged?
• ☐Online presence and reputation (if any)

Employment DD

• ☐Confirm staff count (sole operator or any part-time / subcontractor support?)
• ☐If any staff: employment contracts, pension, TUPE implications
• ☐Key person dependencies documented
• ☐Seller's transition willingness and terms

IT/Systems DD

• ☐Full software stack inventory (payroll platform, BACS, email, file storage)
• ☐Cloud vs desktop — migration requirements if desktop
• ☐API availability for automation integration
• ☐Data backup and disaster recovery
• ☐Cybersecurity posture (handling sensitive payroll data for 150 clients)

Target falls within the comparable range. At 1.3x T/O (GBP 238k), it would match the cheaper end. At 1.9x T/O (GBP 347k), it matches the NE/Yorks comp. True market pricing likely converges around GBP 280-350k (2.0-2.5x post-manager EBITDA).

What All Personas Agreed On

1. The 84% margin is the seller's, not the buyer's. A CIPP-qualified payroll manager (GBP 35-50k) must be hired immediately, reducing EBITDA to ~GBP 112k (61%). All financial models should use post-manager EBITDA.
2. The automation thesis is "capacity expansion, not cost cutting." There is no existing labor to eliminate. AI enables the hired manager to handle 150+ clients and scale to 200+.
3. Share purchase is mandatory. Asset purchase requiring 150 individual HMRC agent re-authorisations is unworkable.
4. The business quality is real. 100% recurring, 150 clients, 20+ year relationships, zero premises — these are genuine strengths regardless of buyer profile.
5. Software platform is a binary deal condition. Cloud with API = proceed. Legacy desktop = walk away.

What They Disagreed On — And How It Resolved

1. Integration feasibility (I=2 to I=7, settled at 3-5)

The central debate: is hiring a payroll manager a "routine staffing decision" (Analyst) or a "structural risk" (Ops/Risk)?

Resolution: Ops won the argument, Analyst won the math. The evaluation/verification gap is real — the buyer cannot assess whether the manager is running payroll correctly, because the buyer doesn't understand payroll. However, the financial cushion (61% margin, survivable at 20% attrition) means the downside is "tight Year 1" not "catastrophic loss." The risk is genuine but bounded.

The Analyst conceded I=7→5, acknowledging the supervision gap. Ops moved I=2→4, acknowledging the unknowns are confirmable. Risk held I=3. Veteran held I=3.

2. Automation timeline (Month 2-3 vs 12-18 months)

The Engineer argued month 2-3 quick wins (email parsing, exception flagging) are workflow automation around the payroll software, not touching actual calculations. Ops and Risk argued any automation in the first 6 months risks errors during fragile transition.

Resolution: Both are partially right. Low-risk workflow tools (email parser, reminders) are feasible at month 2-3. High-value automation (exception flagging, RTI validation, auto-enrolment compliance) requires 9-12 months of stable operation. The valuable automation is the slow automation.

3. First acquisition suitability

The Veteran argued the MSP (M1, GBP 580k revenue, GBP 345k) is a clearly better first acquisition for a software engineer — the buyer can directly evaluate IT service delivery, probe technical candidates, and apply the zofiQ/GC automation playbook. The payroll bureau is better suited as a second acquisition after building the GM model.

The Analyst countered that the payroll bureau's lower IRR (33% vs 75%) comes with lower transformation risk — returns are from genuine cash flows, not dependent on successful automation.

Resolution: Veteran's opportunity cost argument is persuasive. With 10 PASS listings in the pipeline including better buyer-skill matches, this specific business doesn't need to be acquisition #1. The business is good — the sequencing is wrong.

Verdict: Investigate (conditional) — proceed to initial broker call only

The business has genuine quality: 100% recurring revenue, exceptional margins even after adding a manager, 150 diversified clients with 20+ year stickiness, zero premises overhead. At the right price (GBP 250-280k), the financial model delivers 33% IRR from real cash flows.

However, the buyer-operator mismatch is significant. The buyer cannot supervise payroll quality, cannot evaluate manager competence on substance, and is 8 time zones away with a full-time job. Three of five personas scored integration at 3/10.

Specific Next Actions

1. Contact Daltons broker — confirm listing is still active (URL returned 404). If sold/withdrawn, stop here.
2. First call: resolve the 5 preconditions — software platform, seller transition terms, share vs asset, client concentration, completion timing. Any single "no" is a walk-away.
3. If all 5 pass: request NDA and information memorandum — verify financials, client book, HMRC compliance
4. Parallel: begin payroll manager recruitment — engage Hays Payroll / Robert Half, identify CIPP-qualified candidates in the seller's region
5. Compare against pipeline — the MSP (M1) and West Somerset accounting (A2) are likely better first acquisitions for this buyer's skill profile. Assess all three before committing to any.

What Would Upgrade This to Promising

• •Seller confirms 12-month paid transition with earn-out
• •Software confirmed as Staffology or BrightPay Connect (cloud + API)
• •No client >10% of revenue
• •Price lands at GBP 250-280k with seller financing
• •Buyer identifies a strong CIPP-qualified payroll manager candidate pre-offer

What Would Downgrade This to Pass

• •Seller wants clean break (<3 months transition)
• •Software is desktop-only (Moneysoft, old Sage)
• •Any client >25% of revenue
• •Price exceeds GBP 350k
• •Buyer cannot source a payroll manager candidate before making an offer

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