Xero Limited has entered into a binding agreement to acquire Melio, an SMB bill pay platform. The acquisition is expected to be funded through a mix of cash and equity. The upfront consideration will be $2.5 billion in cash and equity consideration. Additional contingent consideration, deferrals and rollovers are payable to Melio employees of up to US$0.5 billion payable over three years. The majority is linked to delivering against certain pre-agreed outperformance targets, and the remainder subject to the passage of time, annual business objectives and continued employment.
Xero CEO Sukhinder Singh Cassidy said,
“We’re thrilled to announce we’re acquiring Melio, a leading US B2B payments platform that strongly aligns with our 3×3 strategy 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 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.”
Melio co-founder and CEO Matan Bar called Xero an incredible and opportunity for his firm.
“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.”
Accounting and payments are the critical needs for US SMBs, with ~78% placing high importance on having these software offerings integrated. The US SMB Payments TAM represents a $29 billion opportunity, which is growing and supported by digitization of A/P whitespace for business-to-business payments and increasing demand for software solutions that help customers save time and manage cash flow
The acquisition allows SMBs, accountants and bookkeepers in the US to complete the key jobs in one platform, enabling access to more fulsome ARPU economics. The syndication model provides the opportunity for Xero to offer both accounting and payments longer term, in a single platform, to millions of US SMBs by extending partnerships with providers such as Fiserv.
Xero said Melio’s US presence provides a step change in its US value proposition and scale, driving an approximate three-fold increase in Xero’s North American revenue and ARPU. The union extends and improves customer segment reach further beyond small businesses (1-20 employees) to self-employed and medium-sized (employing 20+) businesses.
It also provides new channels to reach customers, many of whom are pre-accounting, including through a differentiated payments syndication offering across bank and vertical SaaS partners, with the potential to expand that offering over time. Xero’s business can diversify into a subscription plus transactions revenue model.
