Investors rendered a wait-and-see verdict on Thursday's news that Deluxe Corp., the big check printer, was further diversifying into small-business services with its $124 million acquisition of Canada's Hostopia.com, an Internet-services company.
Deluxe, which sells for half its year-ago price, was off 2 cents per share, to $19.62 on heavier volume than normal.
"This is one of Deluxe's larger acquisitions, but a fairly small step toward extending management's strategy to diversify away from the check business, which is still two-thirds of Deluxe revenue," said Piyush Sharma, senior research analyst at Longbow Research. "It's a 'tuck-in' and another right step in the diversification. They will have to make more such acquisitions." Deluxe agreed to pay $10.55 a share in cash, about double what Hostopia.com has traded for lately. Hostopia, which trades on the Toronto Stock Exchange, is a "private label" provider of online marketing and transaction services with $32 million in revenue.
"We are very excited with the prospect of providing Hostopia's industry-leading, private-label Web services to our small-business customers and collectively growing our product and service offerings as we move forward together," Deluxe CEO Lee Schram said. "While we have substantial knowledge and expertise in selling to the small-business market, we believe that Hostopia's ability to attract new customers and provide additional services to that market will increase the power of our offerings."
Hostopia has grown revenue by 20 percent-plus annually since 2005.
Deluxe said the deal dovetails with its long-term strategy of broadening products and services to small businesses to promote and grow their enterprises.
Sharma said he expects the deal to be neutral to Deluxe's 2008 earnings and to add slightly to next year's profit. Analysts expect the Shoreview-based company to earn about $2.75 per share this year on revenue of $1.6 billion.
Hostopia services about 300,000 small business, about half of which are in the United States.
