WELLINGTON: Xero Ltd, a cloud-based accounting software firm, has agreed to buy Melio Payments Inc for US$2.5bil as the New Zealand company pushes deeper into the US market with its biggest-ever acquisition.
The cash-and-stock deal for Melio includes as much as US$500mil in additional performance and other payments over three years, according to a statement yesterday, confirming an earlier report by Bloomberg News.
The combined business is expected to accelerate US revenue growth, possibly more than doubling Xero’s group revenue by its 2028 financial year, it said.
“Probably the most critical to a build versus buy decision, you look at the competitive nature of the market and you work backwards for your ambitions and say look am I going to get there fast enough?” Xero chief executive officer (CEO) Sukhinder Singh Cassidy said in a phone interview.
“Once the platforms are integrated we can go after acquiring customers faster.”
Melio co-founder and CEO Matan Bar will be responsible for the combined US business. Before creating Melio, he led PayPal’s consumer peer-to-peer payments group.
“This is not a founder who’s at his first rodeo,” Singh Cassidy said. “He’s already built one company to be a large global player, and stayed to realise the vision.”
Melio’s valuation hit US$4bil in 2021 after it raised US$250mil in an investment round co-led by Thrive Capital and General Catalyst.
Last year, though, it was valued at US$2bil in a US$150mil funding round led by Fiserv Inc, according to a statement.
“Having worked closely with the Xero team, we’re excited by our shared purpose to scale in the United States and combine Xero’s accounting capabilities with Melio’s accounts payable and receivable solutions,” Bar said.
With offices in New York, Tel Aviv and Denver, Melio provides payments software to small businesses in the food, beverage and construction industries, according to its website.
Xero provides accounting software for invoicing, payroll and other functions, primarily to small businesses.
In addition to a home office in Wellington, New Zealand, Xero has a head office in Melbourne, Australia, plus other locations in both countries as well as offices in the United Kingdom, the United States, Canada, Singapore and South Africa, according to its website.
The company’s Australia-listed shares have gained 15% this year, giving it a market value of about A$30bil (US$19bil).
Xero is New Zealand’s biggest company by that measure, according to data compiled by Bloomberg.
Singh Cassidy said she’s very confident that Bar “understands the complexity of running a business that’s going to increase in scale inside a large organisation, while having the maniacal focus and passion and pace of a founder”.
E&P Capital analyst Paul Mason said Xero’s plan to purchase Melio could boost earnings from payments over time if it is successful at cross-selling the US-based company’s service to its user base. — Bloomberg
