Broadridge Completes DST Systems' NACC Business Buyout

Last Friday, Broadridge Financial Solutions Inc. (NYSE:BR) announced that it has closed its acquisition of DST Systems Inc.’s (NYSE:DST) North American Customer Communications (NACC) business. The two companies entered into a definitive agreement last month, wherein the said assets of DST System were to be acquired by Broadridge for a cash consideration of $410 million.

DST Systems’ NACC is the largest transactional printer in North America. The unit offers customer communication services including print and digital communication solutions, content management, postal optimization and fulfillment.

Notably, NACC generated $1.1 billion of revenues in fiscal 2015, which accounted for approximately 39% of DST Systems’ total revenue. The unit employs over 2,300 personnel and has four production facilities in El Dorado Hills, CA; South Windsor, CT; Kansas City, MO; and Markham in Ontario, Canada.

Broadridge intends to rename the NACC business as Broadridge Customer Communications and will integrate it with the Investor Communication Solutions segment. The transaction will allow it to boost its digital communications offerings and expand the scale of its print communications business.

Broadridge’s President and CEO, Richard Daly stated, “The addition of NACC, an industry leader, is a natural extension of our communications business and will provide immediate benefits for our clients through enhanced production capabilities and expedited delivery times”.

Broadridge believes that the deal will be immediately accretive to its bottom line. The company expects the NACC acquisition to be 1–3 cents accretive to GAAP earnings and 11–14 cents to non-GAAP adjusted earnings during the first year post completion. During the second year, the transaction will provide 9–13 cents accretion to earnings on a GAAP basis and 16–21 cents on a non-GAAP adjusted basis.

Apart from this, Broadridge also expects to achieve cost synergies of approximately $20 million within 18–30 months of the closing of the transaction.

BROADRIDGE FINL Price

BROADRIDGE FINL Price | BROADRIDGE FINL Quote

Broadridge is a leading global provider of technology-based outsourcing solutions to the financial services industry. The company offers a broad, integrated suite of innovative global solutions across the investment lifecycle along with a wide range of cost-effective and scalable solutions to the financial industry. The company’s systems lower clients’ capital investments in operations infrastructure, thereby allowing them to focus on core business activities.

Strength of the company’s products and services, led by the Investor Communications business, allows it to navigate through the ongoing economic challenges. We believe that these positives, combined with new product initiatives, will enable the company to counter macro headwinds to a large extent. They will also provide Broadridge an opportunity to grow further as and when the financial services market improves.

Furthermore, we are optimistic about Broadridge’s strategic acquisitions, product launches, share repurchase programs and regular dividend payment policies. We believe that the company’s close association with Accenture plc (NYSE:ACN) will be beneficial over the long term as well.

However, competition and pricing pressure remain major concerns.

Currently, Broadridge carries a Zacks Rank #2 (Buy). Another favorably placed stock in the Outsourcing industry is Automatic Data Processing, Inc. (NASDAQ:ADP) , carrying the same Zacks Rank as Broadridge.