Deluxe Corporation (NYSE: DLX) got a lot of press this week. To the less discerning observer, it might have appeared that the 100+ year-old business services company was making some highly strategic, positive moves. But was it really? The first of three noteworthy news items came on Tuesday when Deluxe announced it had closed its acquisition of First American Payments Company, previously announced on April 22, 2021. The second news item also came on Tuesday when Synovus (NYSE: SNV) announced the launch of its new Accounts Receivables offering – Synovus Accelerate AR – and its distribution through its strategic partnership with Deluxe. And news item three came on Wednesday when Deluxe announced the hire of former Home Depot Home Services Division SVP Scott Bomar to be its new CFO. That’s a lot of new press for the century-old company and often a sign of a successful strategy-to-execution process. But for this observer, it amounted to a lot of noise that had the opposite effect, drawing attention to what is more likely the case of a real-time strategic failure.
Admittedly, I’m taking a very harsh position in comparison to the comments of my colleague below, whose observations and analysis go directly to the point, but whose conclusion as to corporate strategy is more generous. In the age of open banking, embedded finance, neobanks and cryptocurrencies, Paypal, Square, FIS, Global Payments, Fiserv, Plaid, and Coinbase, Deluxe’s claim that it’s “a Trusted Payments and Business Technology™ company” is ludicrous. To date, Deluxe’s core business has been, and continues to, be its check printing and issuance, forms, and remote data capture, none of which even begin to approach what would be currently considered “business technology.” In fact, in 2020, checks and forms accounted for 39.4% of Deluxe’s total revenue, and its long-term forecast is for a steady, single-digit decline. Deluxe surely improved its position to lay claim to being a true payments and business technology company with its acquisition of First American Payments Systems, but acquiring a credit and debit authorization and settlement switch isn’t a “needle mover” by today’s financial technology standards. Further, if the Synovus press release weren’t read carefully, one could conclude that the cloud-based AR offering also bolsters Deluxe’s claim to being a leading payments and business technology leader, but that’s simply not the case; the technology is Synovus’, Deluxe is a distribution channel.
On the February 24, 2020 episode of CNBC’s Mad Money, Deluxe CEO Barry McCarthy was touting Deluxe’s new “One Deluxe strategy” as the codification of Deluxe’s historically unwieldy collection of small business acquisitions into four distinct business lines: Checks (printing), Promotional Solutions (forms and accessories), Cloud Solutions (logo and website design, hosting), and Payments (remote data capture, payroll processing). The idea behind the strategy was to provide more ammunition for its sales engine by better communicating to Deluxe’s customers that it wasn’t just a check printing company, but an end-to-end business technology solutions provider. Given the fine-print descriptions of the siloed business units, one can’t help but ask a) is that a credible claim and b) is it a credible strategy?
I say no.
Though Deluxe CEO, Barry McCarthy attempts to positively frame the company’s market position as having “only” 39% of its revenue derived from checks, I can’t help but interpret those numbers negatively – that a substantial portion of Deluxe’s revenues are derived from a slowly declining business unit, whose core product and service offering is quietly and steadily sliding into obsolescence. Couple that with the projected long-term, single-digit growth in the Cloud and Promotional units, and modest double-digit growth in Payments, and the conclusion is pretty clear: a failed strategy for growth, and perhaps viewed from the perspective of a few more years, an abject strategic failure of management.
For all the strategic faults of Deluxe, there is a pathway forward that might present meaningful upside to shareholders and stakeholders alike (Deluxe Corporation employs roughly 5,000 people). Deluxe possesses two extremely valuable assets: goodwill via 100 years of a respected and trusted name, and 4,600 financial institution clients. It wouldn’t surprise me in the least to see both strategic and financial sponsor interest in the next few years. With the right vision, strategy, and execution, these assets could be leveraged for tremendous value creation.
– Adam T. Hark, Managing Director, Wellesley Hills Financial, LLC