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Commentary & Analysis

FREE: Deluxe Corp. to Acquire New England Business Service (NEBS)

Deluxe Corporation (

By WhatTheyThink Staff
Published: May 25, 2004

Deluxe Corporation (NYSE: DLX) recently announced its intention to acquire New England Business Service (NEBS) and expects to close the transaction within 60 days. Deluxe, a company with $1.2 billion in annual revenues, operates in three business segments; business services, financial services and checks. The segments serve financial institutions, small businesses and consumers. New England Business Service, with $700 million in annual sales, provides business products and services to small businesses. NEBS has more than 4000 employees across its businesses. The acquisition will enable Deluxe to grow more rapidly and profitably and deliver value to its customers and shareholders. Deluxe anticipates the merger will offer increased opportunity to serve small businesses and financial institutions by leveraging shared services. The merger will offer the opportunity for Deluxe to expand its non-check revenue, expand its product mix, serve more customers and provide more services to small business customers.

Deluxe will pay $44.00 for each NEBS share and will assume NEBS' outstanding debt of $160 million. The $44.00 offers a 28% premium over NEBS average share cost over the past 30 days. The acquisition will be financed through a combination of long and short-term debt. The combined company is expected to add $0.35 - $0.45 in EPS and $115-130 million in EBITDA to Deluxe's financial performance in 2005. The combined companies are also expected to generate $25 million in annual cost saving in 2005.

Beyond the financial benefits cited during today's call, Deluxe and NEBS compliment each other in culture, mission and values placed on employees, and customers. Deluxe will utilize the synergies and talents of both companies and in addition to the cost savings generated, the combined company will realize economies of scale, share best practices and will implement lean manufacturing practices.

Raine Analyst's Note: Deluxe has demonstrated in the past their prowess in strategic acquisitions as it relates to the rigor they follow for the M&A process and due diligence to protect and grow shareholder value. Raine believes this same process was conducted for the NEBS acquisition. On the surface it looks like a consolidation of offerings and customers, however a deeper look reveals that this truly can be complimentary in nature for the two organizations. For example, NEBS has worked for years on web automation for order entry and online customer approvals which will be a great assist to the Deluxe Business Services business unit. This is one of the largest and highest profile acquisitions Deluxe has done in many years so it will be interesting to track the integration and future growth performance of the combined entity.

Q & A

  1. Although guidance was given for the combined company for 2005, no specific additional guidance was given for Deluxe's performance for the second half of 2004. The acquisition is expected to have a neutral or minor negative impact of a few cents on EPS. No projection was given on the impact on Deluxe's cash flow.
  2. Deluxe does not anticipate any regulatory approval issues to arise in the U.S., Canada, U.K., or Europe due to the acquisition.
  3. Deluxe's competitors in the check market are Clark, American, John Harland and Liberty. Competitors are also office supply companies and local printers. Deluxe does not anticipate anti-trust issues with the acquisition as its officials believe the check market is fragmented and NEBS check business is only a small part of its overall business. Listeners on today's call were reminded that regardless of check competitors, the acquisition is a way for Deluxe to expand its non-check revenues.
  4. Deluxe stated during the call that it followed its previously announced acquisition strategy when making the decision on NEBS in that it would look for acquisitions that were adjacent to its current space, leveraged its core competencies, and was accretive to earnings and cash flow. Deluxe has been aware of NEBS for a long time and began a series of conversations and negotiations in pursuing the acquisition.
  5. The acquisition is not dependent upon financing as Deluxe's commitments are in place. The acquisition will be financed through short and long-term debt with about 3/4th long-term debt.
  6. Due diligence on the deal has been completed and a definitive agreement has been signed.
  7. In melding the two companies, Deluxe's intention is to create the most efficient and operational organization as possible with the merger and it plans to utilize NEBS talent. No determinations have been made with regard to reductions or additions in the company's workforce.
  8. Factors determining the timing for the closing on the transaction are the HSR and the number of shares tendered by the shareholders.



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