PAYX

Paychex runs payroll and HR compliance for roughly 840,000 businesses, mostly American small and mid-sized firms. It pays one in eleven US private-sector workers and moved some $1.3 trillion last fiscal year.

The detail that convinced us fits in one sentence: contracts can be cancelled on thirty days' notice, and retention still holds at 82–83% year after year. Nobody is locked in by paper. Clients stay because switching payroll providers means re-implementing tax compliance processes, retraining staff, and risking expensive errors on something that has to be correct every two weeks. That is a behavioural lock, not a legal one — the kind that survives recessions.

Operating margin was 38.6% in fiscal 2026, return on invested capital around 27%.

Let us be honest about growth. Revenue jumped 17% in 2026, but the Paycor acquisition contributed about 12 points of it. True organic growth is closer to 5%. The deal loaded $4.2B of debt onto the balance sheet, taking interest expense from $105M to $269M. And a share of earnings comes from interest on client funds in transit — income that depends on rates, not on skill. We are buying a compliance annuity, not a growth story, and we paid for it as such.