Xero Acquires Melio for $2.5 Billion - Likely the beginning of many more deals in the CFO Office space

We have an interesting and exciting development in the CFO Office software space. Xero, one of the world's leading small business accounting software vendors, has officially announced its binding agreement to acquire 100% of Melio for an upfront consideration of $2.5 billion. This deal also includes potential additional contingent consideration, deferrals, and rollovers of up to $0.5 billion payable to Melio employees over three years, largely tied to performance targets.

Melio, for those not familiar with the company, is a cloud-based fintech platform designed to simplify and automate accounts payable (AP) and accounts receivable (AR) processes for small and medium-sized businesses (SMBs), particularly in the US. It aims to modernize how businesses pay and get paid, reducing reliance on traditional, manual banking systems and paper checks. Essentially, Melio provides a single platform for managing both outgoing and incoming business payments.

Melio competes with several other platforms, such as Bill, AvidXchange, Stampli, and others on the accounts payable automation side of things. Melio’s offerings also compete with spend management platforms like Ramp, Spendesk, and Airbase. Furthermore, Melio competes with Intuit's QuickBooks online platform, which has built-in AP and AR features.

This acquisition is a major strategic move for Xero, particularly aimed at accelerating its growth in the U.S. market. It aligns with Xero's "3x3 strategy," which focuses on improving its core accounting, payroll, and payments solutions across its key markets (Australia, UK, and US).

By integrating Melio's robust accounts payable and receivable solutions, Xero aims to provide a more comprehensive and seamless platform for millions of U.S. small and medium-sized businesses (SMBs) and their accountants to manage cash flow and accounting in one place.

This acquisition marks one of the largest outbound deals for New Zealand-based Xero and highlights its strong commitment to expanding presence and deepening integrated offerings in the competitive U.S. SMB market. Xero, for all its prowess, operates in a tough competitive space against the likes of Intuit, which is an established and dominant player in the US market. The Melio acquisition will offer Xero a more comprehensive offering and put it in a much better position to compete more favorably, especially in the US Market.

The merger is expected to close within six months, pending regulatory approvals and Melio shareholder consent.