Xero announced it has entered into a binding agreement to buy 100% of Melio Limited and its associated entities. Melio is a leading SMB bill pay platform that seamlessly integrates Accounting and Payments, providing US SMBs and their accountants and bookkeepers with easy-to-use accounts payable (AP) workflows and many payment methods, helping them gain more visibility and control over their cash flow.
Acquiring Melio delivers a step change in Xero’s US value proposition and scale, accelerating its 3×3 strategy and global aspirations.
Problem being addressed: This deal addresses a major customer need in the US by uniting Accounting and Payments on a single platform for customers. It’s a powerful strategic fit, aligning with Xero’s 3×3 strategy, and it brings Melio’s world-class team and platform to Xero.
Deal terms: The deal is expected to be funded through a mix of cash and equity. The upfront consideration will be US$2.5 billion (A$3.9 billion) in cash and equity. Plus, contingent consideration, deferrals, and rollovers are payable to Melio employees of up to $0.5 billion, payable over three years. The majority is linked to delivering against specific pre-agreed outperformance targets, and the remainder is subject to the passage of time, annual business objectives, and continued employment.
Deal benefits: Payments are essential to Xero’s 3×3 strategy, and Melio enables Xero to accelerate this strategy. It also allows SMBs, accountants, and bookkeepers in the US to complete the key Jobs to be Done (JTBD) seamlessly in one platform, enabling access to more fulsome ARPU economics.
The syndication model provides Xero with the opportunity to offer Accounting and Payments on a longer-term basis, in a single platform, to millions of US SMBs by extending partnerships with providers such as Fiserv, which powers approximately 3,500 financial institutions that serve around 18 million SMBs.
Melio’s US presence provides a step change in Xero’s US value proposition and scale, driving a nearly threefold increase in Xero’s North American revenue and ARPU on day one.
Deal timeline: The deal is expected to be completed within 6 months of signing, subject to customary conditions precedent to closing, including the satisfaction of various regulatory conditions and approvals applicable to a business of this nature, as described below.
Management change: Upon completion, Matan Bar, Melio’s CEO and founder, will be responsible for the combined US business (reporting to the Xero CEO) that will bring together Xero and Melio’s teams across Accounting, Payments, and Melio’s syndication network.
KEY QUOTE:
“We’re excited to welcome Melio’s world-class team to Xero and look forward to working together to deliver on our shared goals once the transaction completes. 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, creating a market-leading Accounting and Payments offering that maximises value for our US customers.”
Xero CEO Sukhinder Singh Cassidy
