Xero to buy payments platform Melio for $2.5B

Cloud accounting platform Xero announced it will acquire payments solution provider Melio. 

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 $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. The purchase, strategically, will allow Xero to have a native bill pay solution all its own, versus relying on third party integrations (Melio has been integrated with Xero since 2023. )

Xero CEO Sukhinder Singh Cassidy said the purchase aligns well with a key pillar of the company's broader strategy centered around winning the "3 by 3." Cassidy last year said this refers to Xero's three largest market opportunities of the U.S., the U.K. and Australia, as well as the three "super jobs" of core accounting, accounts payable and receivable, and payroll.

"We're thrilled to announce we're acquiring Melio, a leading U.S. B2B payments platform that strongly aligns with our 3x3 strategy and U.S. growth ambitions. Adding Melio's world-class team, technology platform, and innovative AP solutions to Xero enables a step change in our North America scale and the potential to help millions of U.S. 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 U.S. SMBs, extend reach across customer segments, provide both direct and syndicated offerings, and deliver multiple revenue drivers," said Cassidy in a statement. 

Melio.com will continue to operate independently and support all small businesses in the U.S., said a spokesperson from Xero. Nothing changes in Melio's product. Meanwhile, in parallel, Xero will embed Melio's features into Xero's core platform. As part of Xero's commitment to an open ecosystem, the company will also continue to support other payments providers on our platform just as they have done before, in the event they would prefer not to switch.

The transaction is targeted to complete within six months of signing subject to conventional conditions precedent to closing, including satisfaction of various customary regulatory conditions and approvals for a business of this nature as described below. On completion, Melio's CEO and founder, Matan Bar, will be responsible for the combined U.S. business (reporting to the Xero CEO) that will bring together Xero and Melio's teams across accounting, payments and Melio's syndication network.

"Joining Xero is an incredible opportunity for the Melio team to further our mission to reinvent the way businesses pay each other," said Bar. "Having worked closely with the Xero team, we're 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 to create comprehensive product offerings for our collective, valued customer base."

All 600+ Melio employees in offices across New York and Tel Aviv will join Xero. Integration planning will commence immediately as the two companies explore how to bring their businesses together, with existing Xero teams already working closely with Melio. This includes adding Melio's capability to Xero's platform and GTM engine, continuing to invest in their standalone product, and exploring syndication opportunities.

The transaction will be effected by way of a merger of Melio Limited and a newly incorporated wholly owned subsidiary of Xero Limited. Completion is subject to conventional conditions precedent to closing, including satisfaction of various customary regulatory conditions and approvals for a business of this nature including change of control consents for relevant state money transmitter licenses and U.S. anti-trust approval; no "material adverse change" in the Melio business; and a valid shareholder vote by Melio shareholders approving the merger. 

As at the date of this announcement Xero has received covenants to vote in favor of the merger from more than the required number of Melio shareholders. Xero has agreed to pay a break fee of $37.5 million in the event that the acquisition does not close solely due to failure to secure HSR approval.