US Pitney Bowes Stamps Another Acquisition
Pitney Bowes has announced it has closed on what might seem like a tiny deal: $49 million in cash for DDD Co., a Maryland-based document creation and distribution company. But it is the latest in a two-year-long, $800 million string of small purchases that Pitney Bowes has made to transform its long-time image as merely a maker of postage meters.
The 83-year-old company has embarked on a three-pronged approach to change. Each acquisition has quietly built on the integrated mail and document services it has begun to provide to corporations like media giant Cox Enterprises and oil major BP, as well as to the U.S. Justice Department, the World Bank and, yes, even the United States Postal Service. Among Pitney Bowes' other purchases: Danka Services International, a global provider of document retrieval, and PSI, the largest presorter of mail in the United States.
"Our customers—which include many of the largest corporations in America–understand what we've been doing," explains the company Chief Financial Officer Bruce Nolop. "But it's been kind of frustrating to get others to change their image of us."
Little wonder: Pitney Bowes was founded in 1920 when Arthur Pitney and Walter Bowes merged their Universal Stamping Machine Company with American Postage Companies to bring the postage meter to market. The machines meant no more trips to the post office because businesses could use them to stamp on their own postage, in the form of an American eagle.
"It was one of the greatest business models ever invented," contends Nolop. The reason: Only three companies ever got approval from U.S. postal authorities to make the machines, and with so little competition it is still a huge cash generator for Pitney Bowes. Today, Pitney Bowes still has 80% of the U.S. postal meter market.
Very little about that piece of the business will change, except that the company will outsource the making of the machines. But Pitney Bowes hopes its acquisitions will help it become the dominant player in the still very fragmented $250 billion document management industry.
In some cases, it will run mailrooms for large corporations. In other cases, it will revamp the handling of certain kinds of mailings for clients: It reengineered the way Aetna mails out its checks and explanations of benefits; for Merrill Lynch, it designed software to better process customer statements. It will even manage the electronic delivery of important documents. Pitney Bowes has done just that for Harvard Business School, which once handled requests for its 12,000 case studies by hand.
Pitney Bowes has only about 2% of a global document management market. There is a host of competition in this very fragmented business, including equipment suppliers like Xerox, Danka Business Systems, Bowne & Co. and Lason, as well as companies that service that equipment, like Archer Management Services and R.R. Donnelley, as well as other meter companies like France's Neopost and Francotyp-Postalia.
How is Pitney Bowes' attempt to recreate itself doing? Service income today represents about 24% of revenue, up from 13% in 2000. The market seems to recognize this as real progress. The stock, which had traded as low as $30 per share in March, was at $42 per share recently.
Is there still value here? At the beginning of the year the company reauthorized another in a series of buy-ins of its own stock. It may continue that buying. "We'll have to see what are our other opportunities," says Nolop.
