New Deluxe CEO focuses on solidifying shift away from legacy check business

As Barry McCarthy approaches his first anniversary as CEO of Deluxe Corp., he continues to shift the 105-year-old company from its legacy paper check business to its growing suite of services for small businesses and financial institutions.

"It has been a fantastic journey so far," McCarthy said. "The future opportunity for this company is incredible."

McCarthy said the Shoreview-based Deluxe will be making paper checks and business forms for a long time. Still, it will become a smaller unit as time goes on.

The company's previous and now retired CEO, Lee Schram, recognized the need to diversify the company. He made 25 acquisitions from 2010 to 2018 alone.

The small-business services, cloud-based computer-hosting services and promotional product business account for a growing majority of Deluxe's $2 billion in annual revenue — nearly 60% last year. In 2018, it had $150 million in profits.

The check business has fallen from $897 million to $810 million in annual revenue from 2010 to 2018 — and one reason there isn't more erosion is because it has taken more market share in that sector.

McCarthy said the company now must focus on organic revenue growth from the businesses it now has.

"We were very public when I first got here that we wouldn't do any acquisitions in the first half of this calendar year," he said. "We were very deliberate about that because we knew we wanted to do work on how the core of the company operates."

The company won't rule out future acquisitions, he said, but it also won't be solely dependent on them for continued revenue growth.

"The umbrella theme for what we are trying to do as an organization is come together as one Deluxe" McCarthy said.

McCarthy's first job out of college was at Procter & Gamble. He jumped to Wells Fargo to develop its ATM business then led a micro-payments company.

For the 14 years before he took the Deluxe job, he was at First Data Corp., the Atlanta-based maker of point-of-sales systems for merchants that processed debit and credit card transactions.

At First Data, McCarthy ran nearly every part of the business, both in function and geography. The company is one of the largest payment processing companies in the world and introduced McCarthy to small businesses and the pressures they face, he said.

He worked for seven different CEOs at First Data, through the company's leveraged buyout and later its initial public offering. First Data was subsequently acquired by Fiserv Inc. in a $22 billion all-stock transaction in January 2019.

"I got an incredible lesson in corporate leadership in good times and bad," McCarthy said. "I just learned a ton, and it has prepared me incredibly well for this task."

Cheryl Mayberry McKissack, new company board chairwoman and a board member since 2000, was on the search committees that found Schram and McCarthy.

"You need different people at different times to take the business in a different direction," McKissack said. "We think that Barry is absolutely the right CEO at the right time to do that."

How well companies integrate acquisitions is a key element of their future growth, said Aseem Kaul an associate professor at the University of Minnesota who studies strategic management and entrepreneurship.

"It's a common problem, many companies end up losing value in acquisitions because they fail to appropriately or fully integrate them," he said. "I think it makes sense to say, 'Well we've got all these pieces, let's put them together and see what we have.' "

Deluxe shareholders are waiting for results. The company's stock price was trading last week around $45.45 per share, down from a two-year high of $78.87 in January 2018. But it has been rallying and is up 26% since reaching a low point of $36.11 per share at the end of May.

McCarthy's challenge and opportunity is to let those customers who know Deluxe for one of its services to realize that they can help in many other areas.

"The company … has been operating as a series of independent silos, almost as a holding company," McCarthy said.

One way McCarthy is addressing that is by rebuilding the sales structure at Deluxe and by hiring in July its first chief revenue officer, Chris Thomas. Next year, the company will change the financial reporting of its business segments.

Another part of the cultural shift toward being what McCarthy calls a "trusted tech-enabled solutions company" is to get employees to act and think more like owners and entrepreneurs.

So earlier this year McCarthy granted nearly all of its 6,500 employees stock in the company.

Many of Deluxe's competitors providing small-business services struggle to find customers. Deluxe has an advantage in that it already has 5 million small-business customers and 4,800 financial institutions.

The company also supports 4.5 million small business websites. Those customers already trust Deluxe for at least one business service, but they don't always know about Deluxe's other products.

"We definitely have a brand opportunity, a communication opportunity, a significant sales opportunity just to take down the silos and operate the company as one Deluxe and sell solutions for the entire enterprise," McCarthy said.

Patrick Kennedy • 612-673-7926