Specialist Computer Holdings has bolstered its SCS payroll outsourcing business with the acquisition of Hays Payroll Services, in what is rumoured to be a seven-figure deal.

"There is a strong cultural match," said Ron Vickers, chief executive of SCS. "Our customers will benefit from the combination of our commitment to driving cost reduction and improving performance and [Hays'] skills and services."

But Robert Morgan, chief executive of outsourcing consultancy Morgan Chambers, said that SCS must drive down costs and improve services to prosper in the payroll services outsourcing market.

"No one is making money in this market because it's so competitive," he said. "There were more than 200 companies providing payroll outsourcing a few years ago and now this has reduced to 90."

Dave Meaden, public-sector managing director at Northgate Information Services, said: "HR activities [such as payroll] are areas where companies are trying to take advantage of private expertise. But you must have a comprehensive offering."

karl_flinders@vnu.co.uk