Online accounting software provider Xero announced it acquired Seattle-based online payroll company Monchilla to expand its payroll offerings to small businesses in more U.S. states.

Xero’s current integrated payroll offering, based on the acquisition of Australian online payroll provider Paycycle in 2011, serves seven states. The company plans to rapidly accelerate that geographic reach in 2015 with the acquisition.

“With Monchilla, we will leverage all the work they’ve done to expedite that process,” said Jamie Sutherland, Xero’s president of North America. “We will absolutely accelerate our ability to offer payroll across 50 states. That is the number one thing I hear, is ‘When is payroll coming to our state?’”

The deal integrates Monchilla’s technology with payroll in Xero to give customers, including the Monchilla base Xero will continue to support, improved business-to-government connectivity and the ability to electronically file, calculate and pay payroll taxes in U.S. states in 2015. Once that integrated functionality is available, Xero plans to move existing Monchilla customers to the Xero platform.

The Monchilla team will also join Xero, with Monchilla’s two cofounders Jack Couch and Nanjuan Shi taking leadership positions with Xero’s payroll team. The total purchase price for Monchilla was $4,127,688 in cash and 238,490 Xero Limited ordinary shares to be issued to the founders at closing.

“It was an obvious choice for us to join Xero and our combined expertise will ultimately help us build a more rounded out, intuitive payroll solution to fuel our customers’ growth,” stated Monchilla cofounder and CEO Jack Couch. “No other company is building an elegant and full-featured accounting and payroll app. And when more business owners experience what it’s like to set up payroll in just a few minutes directly within their Xero accounting app it will be a permanent game-changer.”

The transaction also supports Xero’s U.S. growth strategy, according to Sutherland.

“We think we’re the number one challenger to Intuit,” he said. “In many respects I think we’re leading the charge in innovation. We develop a lot of things we’re seeing Intuit emulate. It feels good, but we’re not stopping. We’re continuing to hire and have lots of cash in the bank… You can expect a wall of innovation in the next six to 12 months.”

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