DELUXE CORPORATIONS

Deluxe Corporation was the dominant player in the highly concentrated and
competitive check printing industry. Deluxe sales and earnings growth , however had been
in a slow decline as the company struggle to fight relentless wave of technological change.
Since the advent of online payment methods and rising popularity of credit and debit cards ,
consumers usage of paper checks had fallen steadily. With a $300 loan and an idea for the
first personalized flat-pocket check book and holder, W. R. Hotchkiss founded Deluxe in
1915 in St. Paul, Minnesota. The company went on to develop many more innovations,
helping beat out the competition and become the industry leader it is today. Now, more
than 95 years later, Deluxe is a $1.4 billion company with locations in the United States,
Canada and Ireland. Deluxe is a growth engine for small businesses and financial
institutions as well as one of the top check producers in North America. Through the years,
they have built a reputation as a company that combines innovation with integrity. A
dynamic organization that favours collaboration and flexibility. A knowledge leader that's
smart, versatile, forward-thinking and contemporary. An indispensable partner for growth.
The finding of the case study , under the level of flexibility , the cost of debt goes up
as leverage and the threat of bankruptcy increase.The cost of equity rises at an increasing
rate as the debt ratio increases. The WACC initially falls, but the rapidly increasing cost of
equity and debt cause WACC to increase when the debt ratio goes above 60%.
Under The Target Bond Rating , Assuming bond rating = default risk, higher debt
ratio lead to higher default risk, bond rating represent level of default risk , AAA = smallest
default risk and B = biggest default. Under The Mix of Debt & Equity is Optimal Capital
Structure which is 60% Debt & 40% Equity , debt with lowest cost of capital, 10.44% and
highest firm value, $191.95 millio. Under the ability to service debt EBITDA Coverage Ratio(
2.93x ).Industry Average (5.4x).Deluxe manage to have financial flexibility with two type of
financing which is through debt and equity. This capital structure composition can be use to
reach the optimal value of the business. The company also need to maintain the bond rating
in order to obtain the financial stability.