Australia-listed Xero to acquire fintech Melio in over $2.5 billion deal
By Byron Kaye and Rajasik Mukherjee
(Reuters) -New Zealand accounting software giant Xero agreed to buy U.S.-Israeli payments provider Melio for as much as $3 billion, the companies said on Wednesday, accelerating the Kiwi firm's push into the U.S. with the country's biggest outbound deal in over a decade.
The deal fills a gap in Xero's offer by adding payments to its accounting software while enabling both parties to scale up. Australia-listed, New Zealand-headquartered Xero dominates its home markets but has been trying to grow in the U.S. where it says it makes about 7% of sales.
The deal "enables a step change in our North America scale and the potential to help millions of U.S. (small-to-medium businesses) and their accountants better manage their cash flow and accounting on one platform," said Xero CEO Sukhinder Singh Cassidy in a statement.
Xero will pay $2.5 billion in cash and equity consideration and an additional contingent consideration, deferrals and rollovers payable to Melio employees of up to $500 million payable over three years.
Founded in 2018, Melio is headquartered in New York with offices in Tel Aviv. It says it serves 80,000 customers.
It forecast the buyout - the biggest outbound acquisition by a New Zealand company since 2011, according to LSEG data - would double its 2025 financial sales by 2028.
Melio co-founder and CEO Matan Bar said he was "excited by our shared purpose to scale in the U.S. and combine Xero's accounting capabilities with Melio's accounts payable and receivable solutions".
Shares of Xero were suspended from trading on Wednesday as the A$30 billion ($19.5 billion) market capitalisation company asked institutional investors for A$1.85 billion to help pay for the purchase.
Analysts gave a cautious endorsement of the deal.
"There is much to like in terms of bulking up U.S. exposure with a leading, fast-growing payments player and longer term the proposed deal makes sense," said RBC Capital Markets analyst Garry Sherriff in a client note.
"It will take time to process the intricacies of the deal and the pathway forward."
E&P analyst Paul Mason said the buyout price "looks pretty full for the stand-alone business but works if you think the company can pull off strategic synergies around greater distribution."
($1 = 1.5387 Australian dollars)
(Reporting by Byron Kaye in Sydney, Rajasik Mukherjee in Bengaluru and Steven Scheer in Jerusalem; Editing by Maju Samuel, Sonali Paul, Lincoln Feast and Jane Merriman)
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