Xero Acquires Melio

Xero Limited has just announced that it has completed the  acquisition of Melio Limited and its associated entities (collectively Melio). Melio is a leading US SMB bill pay platform that seamlessly enables customers to manage their cashflow by offering SMBs and their advisors easy-to-use accounts payable (A/P) workflows and a wide choice of payment methods.

Xero CEO, Sukhinder Singh Cassidy, said: "We are delighted to welcome the Melio team to Xero. The combination of our world-class teams and technology will help customers to better manage their cash flow and streamline their operations on one platform. We are confident in our execution and eager to complete our integration work to deliver this compelling value proposition to our customers. This acquisition is a significant milestone in our journey, and we are excited about the opportunities it creates to accelerate our
growth."  

Melio CEO, Matan Bar, said: "Joining forces with Xero is a natural next step for Melio. We share a common  vision of empowering small businesses to succeed. By integrating our platforms, we can create a seamless  experience for businesses to manage their finances, from accounting to payments. We are thrilled to  complete this acquisition and look forward to what we can achieve together for our customers."

Melio has traded in line with Xero's expectations through the first half of Xeroʼs Fiscal Year 2026₁.

Xero reiterates its aspirations related to the Melio transaction that:

• The combined business is expected to significantly accelerate US revenue growth and gives Xero the  opportunity to more than double its FY25 group revenue in FY28 excluding anticipated revenue  synergies_2,3
• This outcome is expected to support our aspiration to deliver greater than Rule of 40 outcomes for the group in FY28_4,5,6

One-off costs and other impacts from completion

• There are two non-recurring impacts associated with the transaction that Xero expects to incur in its H1 FY26 results. These impacts will be excluded from Xeroʼs definition of free cash flow and adjusted EBITDA which reflect underlying operating performance, however they will impact reported EBITDA.
• Transaction costs totaling NZ$52 million to be recognised in operating expenses
  A non-cash FX translation gain on acquisition funds raised of NZ$78 million to be recorded in Other expenses and does not impact Xeroʼs operating revenue or operating expenses

The impact of these one-off items from the acquisition is excluded from Xeroʼs FY26 operating expense to revenue guidance. Xeroʼs  guidance that total operating expenses as a percentage of revenue is expected to be around 71.5% in FY26 remains unchanged. This ratio is expected to be higher in H1 FY26 versus H2 FY26₇.

Xero expects an estimated value of $350-490 million of amortisable intangible assets to arise from the acquisition. These will have a useful life of 6-8 years on average, and the related expenses will be recognized as an operating expense from H2 FY26 onwards, as per disclosure on page 34 of the Investor Presentation lodged with the ASX on 25 June (Investor Presentation).

Funding and completion details

The upfront consideration totaling US$2.5 billion_8,9 for the acquisition has been funded through a combination of cash, debt, and the issuance of new Xero shares. The funding components are:

• Cash totaling ~US$1.8 billion: This comprises the proceeds from the already completed A$1.85 billion institutional placement and A$129.5 million Share Purchase Plan, and US$0.5 billion of cash from Xeroʼs balance sheet
• New Debt Facility totaling US$0.4 billion: Xero has fully drawn the facility The facility is split into two equal tranches of 3 year and 5 year tenures, with an opening margin of 1.5% and 1.7% respectively above a market reference rate₁₀
• Newly issued shares to the value of ~US$0.36 billion: These shares will be issued to existing Melio shareholders
  • The issue price & number of shares issued to Melio shareholders will be calculated using the average of the daily VWAP₁₁ of Xero shares for the five consecutive trading day period ending 2 business days prior to issuance
  • This issuance is expected to occur following Xeroʼs H1 FY26 results announcement

Summary of Relevant Plan Terms

The Plan allows the Board (or any committee or person to which the board duly delegates its powers and authorities) to make grants of awards of shares, options and RSUs to employees (including any officer or director) of the Xero Group or any other person designated as eligible to be a participant by the Board, including consultants and service providers. Xero has elected to designate grants made under the Plan pursuant to the Capital Gains Tax Track under section 102 of the Israeli Income Tax Ordinance [New Version], 5721-1961.

The exercise price (if applicable) and payment terms for awards are determined by the Board at the time of grant.

The Board has broad discretion to determine the appropriate treatment of unvested awards in certain circumstances including cessation of employment or a change of control. In both those cases, and among other discretions and rights, the Board may decide to vest/lapse unvested awards. If the Board does not exercise this discretion:

        (a) in a change of control scenario, unvested awards will vest pro-rata based on the proportion of the vesting period that has passed at the time of the change of control and the extent to which any applicable conditions have been satisfied;

        (b) and on cessation of employment, unvested awards will lapse on the date the participant ceases to be an employee.

Awards are subject to malus and clawback provisions, which apply to vested and unvested equity awards. These provisions give Xeroʼs

Board broad discretion to adjust, lapse/forfeit, or require repayment of equity awards to ensure no unfair benefit is obtained.

For Additional Information

Xero attached further information as Appendices (to their formal Press Notice) concerning other completion details including; the granting of an ASX waiver for Xeroʼs assumption of Melioʼs existing Shopify warrants (as disclosed in the Investor Presentation) and disclosure of the relevant terms of the Xero Limited Share, Restricted Stock Unit and Option Plan for Israeli Participants. Such attachments can be reviewed as part of the the official Press Release which can be found HERE.  

Disclosures & Footnotes

Disclosures:

Feature content made available by Pepper Communications (peppercomm.com) on behalf of Xero. This content is reproduced, adapted or otherwise summarized by Insightful Accountant for informational and educational purposes. Feature headline graphic was generated by Insightful Accountant using artificial intelligence (AI). Insightful Accountant is not responsible for any of the original Xero content provided within this feature.

Xero is a global small business platform that helps customers supercharge their business by bringing together the most important small business tools, including Accounting, Payroll and Payments — on one platform. Xero’s powerful platform helps customers automate routine tasks, get timely insights, and connects them with their data, their apps, and their accountant or bookkeeper so they can focus on what really matters. Trusted by millions of small businesses and accountants and bookkeepers globally, Xero makes life better for people in small business, their advisors, and communities around the world. 

Melio serves US SMBs and accounting firms with accounts payable, receivable and cash flow management solutions. Headquartered in New York with offices in Tel Aviv, Israel. Founded in 2018, Melio has scaled rapidly to serve over 80,000 customers. Melio’s leading platform integrates with and maintains partnerships with financial institutions, allowing businesses to sync payments data and avoid manual entry. Melio also acts as a technology service provider for vertical SaaS platforms and financial institutions including Capital One and Shopify, and distribution partners including Fiserv through a syndication model. This enables Melio to potentially reach millions of small businesses to provide embedded accounts payable products.

Any other trade names used within this article may refer to products registered, trademarked, or otherwise held by their respective owners. They are referenced solely for informational and educational purposes.

This feature is NOT sponsored content. The article is provided for informational and educational purposes. Publication of this article does not represent a formal endorsement by Insightful Accountant. The author's opinion and commentary (if any) may differ from that of Insightful Accountant. 

Note: Registered Trademark ® symbols have been eliminated from the articles within this publication for brevity due to the frequency or abundance with which they would otherwise appear or be repeated. Every attempt is made to credit such trademarked products within our respective article footnotes and disclosures.

Footnotes to feature disclosures (source Xero):

1. Period covers April 1 2025 to September 30 2025
2. Anticipated FY28 revenue synergies are expected to be ~US$70 million (refer to page 27 of the Investor Presentation lodged with the ASX on 25 June (Investor Presentation) for further details). Assuming constant currency conversion of NZ$/US$ 0.57, NZ$/AU$ 0.91 and NZ$/GBP 0.46
3. Xero FY25 revenue was NZ$2,103 million. This statement applies to FY28 only and no implication should be made relating to any other financial year
4. In the interim period prior to FY28, Xero expects to deliver below Rule of 40 outcomes on a pro forma basis (pro forma refers to adjusting for inorganic revenue growth benefits from the time of transaction completion by comparing to a prior year revenue base that fully incorporates Melio's revenue)
5. Assessed including both expected revenue and expected cost synergies outlined on page 27 in the Investor Presentation
6. Rule of 40 aspirations relate to Xeroʼs results at the Xero Group level, in line with Xeroʼs definition of Rule of 40 (for further details refer page 46 in the Investor Presentation)
7. Refer to page 39 of the Investor Presentation for further details
8. Total does not add through due to rounding
9. Net of completion adjustments and taking into account Melioʼs closing cash position
10. These margins are based on the pro forma leverage of the combined group, with a margin grid increasing / decreasing the margin based on the leverage of the group
11. Volume-weighted average price