Xero’s Bold US Expansion: $2.5B Acquisition of Melio Set to Transform SMB Payments
Xero Limited has agreed to acquire Melio Limited, a leading US SMB bill pay platform, for US$2.5 billion, marking a significant leap in its US growth strategy. The deal is backed by a substantial A$1.85 billion equity raise and aims to accelerate revenue and market presence by FY28.
- Xero to acquire Melio for US$2.5 billion via cash, scrip, debt, and cash reserves
- Acquisition aligns with Xero’s 3x3 strategy to triple US revenue and scale
- Melio’s platform integrates accounts payable with payments for US SMBs
- Funding includes a fully underwritten A$1.85 billion institutional placement
- Expected FY28 revenue synergies of ~US$70 million and improved financial metrics
Strategic Leap into US SMB Payments
In a landmark move, Xero Limited (ASX, XRO) announced a binding agreement to acquire Melio Limited, a fast-growing US small and medium business (SMB) bill pay platform, for an upfront consideration of US$2.5 billion. This acquisition represents a pivotal step in Xero’s ambitious 3x3 strategy, which targets accelerated growth in its three core markets, US, UK, and Australia, and across three key service pillars, Accounting, Payroll, and Payments.
Melio’s platform, known for seamlessly integrating accounts payable workflows with a broad array of payment options, serves over 80,000 US SMB customers. Its rapid revenue growth, with a compound annual growth rate of 127% from FY21 to FY25, underscores the platform’s strong market traction and the growing demand for integrated financial solutions among US SMBs.
Funding the Ambition
The acquisition will be funded through a combination of a fully underwritten A$1.85 billion institutional placement, issuance of approximately US$360 million in Xero shares to Melio shareholders, a US$400 million unsecured revolving credit facility, and US$600 million from Xero’s existing cash reserves. The equity raise involves issuing around 10.5 million new shares at a 9.4% discount to the last closing price, reflecting a significant capital commitment to underpin the deal and associated transaction costs.
Xero’s balance sheet is expected to remain robust post-transaction, with a pro forma net debt to EBITDA ratio of approximately 2.3x for FY25. The company anticipates continued positive cash flow generation, facilitating meaningful deleveraging in the medium term.
Unlocking Synergies and Market Potential
The combined entity is projected to more than double Xero’s FY25 group revenue by FY28, excluding anticipated revenue synergies estimated at around US$70 million. These synergies stem from cross-selling opportunities, enhanced go-to-market capabilities, and operational efficiencies, including cost savings in sales, product development, and general administration.
Melio’s syndication model, which partners with financial institutions and vertical SaaS platforms such as Fiserv, Capital One, and Shopify, offers Xero a powerful channel to extend its reach to millions of US SMBs. This integration promises to deepen customer engagement by uniting accounting and payments on a single platform, addressing a critical need for US SMBs who prioritize integrated financial software solutions.
Leadership and Integration Outlook
Melio’s co-founder and CEO, Matan Bar, will lead the combined US business, reporting directly to Xero’s CEO, Sukhinder Singh Cassidy. Both leaders emphasize the complementary nature of their offerings and the shared vision to revolutionize how US SMBs manage cash flow and payments. The integration is expected to complete within six months, pending regulatory approvals including US antitrust clearance.
While Xero maintains its FY26 operating expense guidance excluding acquisition impacts, the company signals ongoing investment in Melio’s payments product and plans to embed Melio’s features into its core platform, aiming to create a market-leading solution for US SMBs.
Bottom Line?
Xero’s acquisition of Melio marks a transformative step in its US expansion, but successful integration and regulatory clearance will be critical to unlocking its full potential.
Questions in the middle?
- How will Xero manage integration risks between its platform and Melio’s technology?
- What regulatory hurdles remain, particularly regarding US antitrust approval?
- How might the equity raise and share issuance impact Xero’s share price and shareholder value in the near term?