Paper checks are on the way out but Deluxe Corp. still sees opportunities to use that traditional payment method to expand its business.
The Shoreview, Minn., provider of paper checks and small-business marketing services said Monday that it paid $98 million in cash for Custom Direct Inc., a Joppa, Md., direct-to-consumer check provider.
The acquisition should help Deluxe improve cash flow in its own direct-to-consumer check business, said Jeff Johnson, its treasurer and vice president of investor relations
The use of paper checks among consumers has declined significantly in recent years as electronic payment methods have become more popular.
Deluxe embarked on an aggressive diversification plan in 2006 to become less reliant on checks, acquiring companies that offer Web hosting, printing, signage and other business services.
Its direct checks business still accounted for 12.1% of its $1.34 billion in 2009 sales, which were down 8.5% from the prior year.
"Checks are in decline and will continue to decline, but that doesn't mean we want to get out of checks," Johnson said. "Checks are still important to us."
The Custom Direct acquisition provides Deluxe with a "financial engine" to help expand other parts of the company, said Charles Strauzer, senior managing director with CJS Securities Inc. in White Plains, N.Y.
"It takes a smaller competitor out of the marketplace and probably helps to rationalize the cost side of doing business even further," Strauzer said.
Deluxe said it expects the acquisition to result in about $60 million in sales and more than $15 million in operating cash flow this year.
James Van Dyke, the president and founder of Javelin Strategy and Research in Pleasanton, Calif., said Deluxe and Custom Direct could leverage each other's strengths to develop consumer products focused on security.