Deluxe Returns to Catalogs with NEBS Acquisition

Deluxe Corp. exited the catalog industry when it sold its Current and Paper Direct titles to Taylor Corp. in 1998. Deluxe was going to focus on offering financial services, such as electronic payments.

But the Shoreview, MN-based checks marketer has changed its focus again: Now it wants to provide goods and services to small businesses. To that end, Deluxe on May 17 agreed to acquire Groton, MA-based New England Business Service (NEBS) for about $745 million. Deluxe will pay $44 a share in cash and assume NEBS’s outstanding debt, which is estimated at $160 million.

“There are 23 million small businesses in the U.S.,” Deluxe chairman/CEO Lawrence Mosner said during a conference call shortly after the deal was announced. “The combined Deluxe/NEBS business serves almost 25% of that number, plus there’s a tremendous opportunity for growth.”

The $551.2 million NEBS operates not only a namesake catalog, which sells checks, business forms, envelopes, labels, and, merchandising aids to small businesses, but also the RapidForms, McBee, Chiswick, Safeguard, Russell & Miller, Holiday Expressions, Main Street Collection, and Company Colors catalogs. NEBS’s products includes promotional products; packaging, retail, and warehouse supplies; and personalized apparel. Most of its brands market through a combination of catalog, direct mail, and Internet; some sell via a direct sales force and dealers as well.

Deluxe consists of three business units: Deluxe Business Services, which prints checks, forms, and related products for small businesses and home offices through financial institution referrals, business alliances, direct mail, and e-commerce; Deluxe Financial Services, which supplies checks and merchandising services to financial institutions; and Direct Checks, which sells personal checks under the Checks Unlimited and Designer Checks brands to consumers. All told, Deluxe prints checks for roughly 8,000 of the nation’s banks, credit unions, and financial services companies.

The $1.24 billion Deluxe estimates that the combined Deluxe/NEBS company will generate about $2 billion in revenue next year.

‘A strategic offer’

NEBS chief financial officer Dan Junius says that the company was never on the block. “We were approached; we weren’t for sale,” he explains. “We had a business plan in place, and the company was performing well. The driver of the offer for us was that it was a strategic offer that was compelling to our shareholders. It adds a strategic vision for the business we’ve built and will provide opportunities for our employees in the long term.”

Junius says the companies had been in discussions for much of the past year, with more serious negotiations beginning toward the end of last year.

Michael Petsky, CEO of Petsky Prunier, a New York-based investment bank specializing in direct marketing M&A advisory services, points out that Deluxe’s offer for NEBS is 1.1 times trailing 12-month (TTM) revenue and 11.7 times TTM earnings before interest, taxes, depreciation, and amortization (EBITDA). “These are healthy but not unrealistic multiples,” he says, “for a niche-leading cataloger like NEBS in the small/medium-size business marketplace — especially to a strategy buyer like Deluxe.”

The deal will likely involve some consolidations. Mosner estimated that Deluxe will save more than $25 million annually beginning next year due to synergies between the two companies. These synergies will include eliminating redundancies between the information technology, product procurement, and other support functions. NEBS has 4,000 employees, Deluxe has 5,400 employees.

Although there’s no consolidation plan in place yet, Junius says that company realignments are likely. For instance, the business services segment of Deluxe is expected to be relocated to NEBS’s Groton headquarters. At the same time, Junius says, “it’s premature to assume that all of NEBS will remain in Groton.”

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