Deel Gets Serious About Global Payroll With Acquisition of PaySpace

Background

Deel announced its acquisition of South African-based payroll and HR technology and services provider PaySpace for an undisclosed amount. The addition of the African and Middle East specialist is reminiscent of a similar move Deel made in late 2022, adding PayAsia’s APAC specialized HR and payroll technology, services, and expertise to its portfolio and planting the Deel flag in the growth region.

The two organizations are no strangers, as PaySpace has supported Deel as its ‘go-to’ service partner for the African continent and leveraged the solution to fuel its own internal HR and payroll needs. The acquisition of PaySpace is part of enabling Deel’s aggressive global growth plans and will fuel its ambitions for developing an entirely direct, natively enabled global employment platform where comprehensive multi-country payroll capability is an essential underpinning and service offering.

The news comes on the heels of Deel acquiring Munich-based Zavvy, adding its people enablement platform and learning and development tech to the Deel stack.  The solution supports employers in developing and retaining skills and talent through a highly personalized AI-enabled experience. It also inches Deel closer to its vision of becoming the premier one-stop-shop for global employment solutions.

Why it makes sense and what it means for Deel.

Deel’s sights are squarely set on becoming the provider of choice for global workforce solutions. To accomplish this, it must continue developing and expanding its one-stop-shop ecosystem of global employment technology and services.  The Zavvy acquisition is a great example of Deel’s commitment to rounding out its offering and advancing beyond the core side of global EOR and global HCM (human capital management).

However, a robust multi-country payroll with cross-border payments capability is table stakes in any modern global employment or HCM solution and will play an essential role in differentiating Deel and its global employment offering while facilitating its ambitious growth plans en-route to an eventual IPO.

The move pairs Deel’s more than 130 locally owned country entities (including payroll teams in over 70 countries) with a native gross to net calc engine set capable of supporting over 40 countries across Africa, the Middle East, Europe, and Latin America, including key markets like the U.K. and Brazil. With its acquisition of PayGroup Limited (PayAsia), which brought localized capability for Australia, New Zealand, India, Philippines, Singapore, Malaysia, and Japan, Deel now has over 50 native country calc enginges, plus the U.S. and Canada currently in development.  

PaySpace also brings with it 14K customers managed under its payroll services and produces nearly 12M pay slips annually, supported by nearly 300 FTEs with offices in Mauritius and South Africa. The combined organization is estimated to support over 40K customers and over 300K workers globally.

With the PaySpace technology and localized calculation engines underpinning Deel’s global employment solutions, it now has the necessary pieces to scale its global payroll ambitions. This will help Deel retain its EOR customers and engage larger multinational employers seeking managed payroll support for long-tail locations. 

The addition of a viable managed global payroll services capability not only increases Deel’s ‘shots on goal’ with a wider, more mature audience of buyers, it also creates greater ‘stickiness’ and value amongst its existing customers, where it can better support their full growth journeys. From market entry enabled by global EOR to permanent entity consulting and establishment, and up to support for future long tail populations through managed payroll services.  The potential ARR retention and added value proposition will also help to insulate Deel from the inherent churn of short-term global EOR engagements.

Lastly, PaySpace arms Deel with a highly localized offering and capability in two key emerging markets including Africa and Brazil and plants the Deel flag in six major continents.  The pairing with its existing footprint and capabilities in APAC and beyond provides Deel a strong market position, and value proposition as a highly capable emerging markets provider that can support global footprints with comprehensive global employment and payroll solutions.

What It Means for the Marketplace

Technology-enabled managed global payroll services are increasingly in demand, driven by multiple factors (modernization, compliance, globalization, lack of skilled expertise, etc.). Thus, organizations up and down the market are investing in modern payroll solutions to advance the critical process for their organizations and drive improved business outcomes to enable their strategic ambitions.

The move to acquire PaySpace is well timed, and pairs with Deel’s market momentum as managed payroll services are already the fastest growing segment of Deel’s business, which has been profitable since late 2022 and achieved a $500M ARR milestone.

With most pure-play global EOR (employer of record) providers lacking any native multi-country payroll capability (the vast majority operate as aggregators), the addition of PaySpace to the Deel stack positions it at the top of the league amongst its peers in terms of native payroll capability.  A capability that is on par with some of the largest managed payroll providers, including those that have since enabled global EOR on top of, and as a complement to, their existing global payroll capabilities.

The move also underpins an ambitious strategy that aims to enable a comprehensive one-stop shop for all things global employment.  To that end, Deel has been quietly expanding its solutions and services well beyond its core of global EOR and contractor payments.  The firm has enabled deeper global HR capabilities that include support for immigration, background checks, localize benefits, workspace support, performance management, and equity. 

Further, in 2023, Deel launched its own PEO (Professional Employer Organization) offering (in partnership with VensureHR), which is a natural fit for its ecosystem of employment solutions and offers emerging organizations more ways to support their human capital needs along their growth journey (from start-up to multinational corporation) through a single vendor platform.

More importantly, Deel is the only global EOR provider with a U.S. PEO solution in development, a multi-country payroll engine set spanning over 50 countries, enabled through a platform built natively on fintech and designed for compliant global employment and money movement. 

The outlook for Deel.

First, Deel has immediate plans to co-innovate alongside PaySpace and thus aims to establish a virtual innovation center to begin developing additional native gross-to-net calculation engines for over 100 countries. 

While the boost to Deel’s multi-country payroll capability is enabled by the addition of PaySpace’s technology, services, and expertise, it will need to navigate its go-to-market (GTM) strategy carefully in expanding its targeting for the service to potential upmarket, and non-EOR buyers.

Global EOR is not global payroll – although similar in many ways, they are different solutions, serving different purposes, each driving different business outcomes.  While Deel has had success with the uptake of its managed payroll services, to attract complex upmarket buyers and compete amongst the biggest brands in global payroll, it will require a refreshed GTM, sales, and service enablement approach that takes aim at a different value proposition than its legacy global EOR solution.

While Deel will likely not require significant development to enable its platform for global payroll services, it will need to invest in broadening and maturing its HCM technology integrations, partnerships, and marketplace inclusion beyond the few down-market HCM players it connected to early on (e.g., Hibob, BambooHR, Personio, and UKG).

Although Deel offers a nearly ‘open API’ approach, it currently lacks deep integrations and marketplace inclusion with any major HCM technology platform, something it will need to accelerate with firms like Workday, SAP, and Oracle to expose its brand to a deep set of modern HCM platform adopters seeking to advance payroll in line with their HCM technology investments. This will be essential in positioning it’s expanding capability upmarket and against competing global payroll solutions, particularly as many of the top global payroll providers are already deeply entrenched with long-standing relationships across the HCM technology marketplace.

To differentiate, Deel is doubling down on its technology, continuously expanding its solutions, and enabling an entirely direct delivery model.

‘Direct’ vendor operating models regularly outperform indirect or aggregator models in global payroll buyer research, as organizations fundamentally tap into a single value chain of technology, services, expertise, and support.  All of which is controlled by a single vendor and orchestrated through its technology and resources.  The direct model offers a turnkey technology-enabled global operating model powered by highly localized and integrated platform technology that can provide a single data source for deep country-level insights, highly consistent and compliant results, and improved service experience.

Looking ahead, Deel is in a great position, meeting the market demand with the pieces necessary to fundamentally offer ‘more’ (range of employment solutions, value/ROI, and global employment expertise and infrastructure) than its pureplay global EOR peers, with no signs of slowing down. 

Deel will lean on its highly effective strategy and lessons learned that helped it succeed in disrupting the global EOR marketplace to ensure it is ‘differentiating and disrupting’ to win in a hyper-competitive payroll services market dominated by global payroll giants.