In one of New Zealand’s biggest outbound deals, the Wellington-headquartered accounting software giant Xero has agreed to buy New York payments provider Melio for US$2.5 billion.
Listed on the Australian Securities Exchange (ASX), Xero also has offices in Australia, the United Kingdom, the United States, Canada, Singapore, and South Africa. Xero dominates its home markets but has been trying to grow its presence in the US, where it says it makes about 7 per cent of its sales.
The deal also fills a gap in Xero’s offer by adding payments to its accounting software while enabling both parties to scale up.
Melio joins Xero
US fintech firm is a leading bill pay platform for small and medium businesses (SMB) that integrates accounting and payments, offering American companies and their accountants and bookkeepers easy-to-use accounts payable (A/P) workflows and a wide choice of payment methods.
Acquiring Melio delivers a step change in Xero’s US value proposition and scale, accelerating its global aspirations. It also brings the US fintech firm’s world-class team and platform to Xero.
The acquisition is expected to be funded through a mix of cash and equity. The upfront consideration will be US$2.5 billion in cash and equity consideration. Additional contingent consideration, deferrals and rollovers is payable to Melio employees of up to US$500 million payable over three years. The majority is linked to delivering against certain pre-agreed outperformance targets, and the remainder is subject to the passage of time, annual business objectives and continued employment.
Sukhinder Singh Cassidy, Xero CEO, said: “We’re thrilled to announce we’re acquiring Melio, a leading US B2B payments platform that strongly aligns with our strategies and US growth ambitions.
“Adding Melio’s world-class team, technology platform, and innovative A/P solutions to Xero enables a step change in our North America scale and the potential to help millions of US-based SMBs and their accountants better manage their cash flow and accounting on one platform.
“Xero and Melio are highly complementary – together they complete the key jobs to be done for US SMBs, extend reach across customer segments, provide both direct and syndicated offerings, and deliver multiple revenue drivers.
“We will continue to invest in Melio’s Payments product and leverage Xero’s go-to-market expertise to accelerate growth in Melio and Xero in the US. In parallel, we will embed Melio’s features into Xero’s core platform.”
The US SMB Payments Total Addressable Market (TAM) represents a US$29 billion opportunity, which is growing and supported by digitisation of A/P whitespace for business-to-business payments and increasing demand for software solutions that help customers save time and manage cash flow.
Matan Bar, Melio Co-founder and CEO, added: “Joining Xero is an incredible opportunity for the Melio team to further our mission to reinvent the way businesses pay each other. Having worked closely with the Xero team, we’re excited by our shared purpose to scale in the US and combine Xero’s accounting capabilities with Melio’s accounts payable and receivable solutions to create comprehensive product offerings for our collective, valued customer base.”
The deal is targeted to be completed within six months, subject to regulatory approvals. On completion, Bar will be responsible for the combined US business and report to Cassidy.
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