Deluxe agrees to acquire NEBS

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Deluxe Corp., the world’s largest check printer, agreed last month to buy New England Business Service for about $800 million. The acquisition, which is expected to close within 60 days, will significantly increase St. Paul, Minn.-based Deluxe’s footprint in the small-business segment and expand its product mix.

Groton, Mass.-based NEBS provides business products and services to small-business customers through catalogs and direct sales. Its products include forms, labels, safety supplies, office furniture and business gifts. It also offers custom printing, logo design and payroll services for small businesses.

"NEBS is a leading company in the small-business space with product and service offerings that are adjacent to our business," Deluxe CEO Larry Mosner said during the conference call in which the company announced the deal.

The timing is right for diversification as more companies and individuals pay their bills electronically. "The speed of adoption of electronic bill paying is causing Deluxe to look for alternatives to its traditional check printing business, as the demand for checks will likely begin dropping sharply," said Donald R. Libey, managing director of Libey-Concordia, an investment banker specializing in the catalog industry.

If Deluxe can rapidly expand its product line and markets and develop a fully integrated catalog and Internet business, it could dominate the small-business market, Libey said. "Both companies meet the demand for shareholder value growth by joining," he said. "NEBS achieves a premium value for its shareholders and an exit strategy for what was rapidly becoming a mature business with very limited acquisition targets."

Each company should benefit from the union. Deluxe will gain access to NEBS’ 3 million small-business customers and instantly broaden its product mix, while NEBS can now tap the resources of a company with $1.2 billion in annual sales.

"We believe it is a compelling acquisition both strategically and financially," Mosner said, predicting the combined company would generate $2 billion in revenue. "It will enable us to grow more rapidly and profitably than we could if we each remained standalone companies."

Deluxe had been in the market for a strategic acquisition that would bolster its position in the small-business market. "That segment has shown growth, so it made sense to broaden our product offering beyond the check offering to small businesses," said Stuart Alexander, VP-investor relations and public affairs at Deluxe.

Mosner said the deal "will create a company with one of the most comprehensive product and service offerings for small businesses."

In addition to a large customer base of small businesses, NEBS brings its direct marketing expertise to the table, as well as its roster of direct salespeople. "NEBS’ strength is in the area of direct marketing, direct mail and direct sales," said Craig Barrows, general counsel at NEBS. "[Deluxe] did not have a sales force that actually calls on customers, and we do. "

Barrows added that Deluxe does not currently do the "sophisticated prospecting through the mail that we do." That prospecting includes building sophisticated buyer models. "The view is that we both bring strengths the other one didn’t have in approaching the market," Barrows said.

The combined company will consolidate some areas for cost savings. Mosner forecast during the conference call announcing the deal that the combined company would realize $25 million in cost savings in 2005, by eliminating redundancies and leveraging shared services. NEBS currently employs 4,000, while Deluxe has 5,400 employees.

Alexander said it was too soon to discuss where redundancies might be found. "It is premature to talk about that until the transaction closes and the integration teams are assembled," he said.

It’s also too early, Alexander said, to discuss whether NEBS and its subsidiaries, which include RapidForms, McBee, Chiswick and Safeguard, will retain their names. "That is all to be determined," he said. "Certainly we’d retain the brands that have strong equity such as the NEBS flagship brand. That doesn’t mean there’s not an opportunity for brand consolidation."

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