Xero, a New Zealand-based accounting software firm, has reached an agreement to acquire Melio, a payments provider, for USD 2.5 billion.

The Deal and Its Benefits

By integrating the payment solution into its existing accounting software, Xero aims to enhance its offerings and support both businesses and their accountants in managing cash flow more effectively on one platform. This move will also accelerate the expansion of Xero into the U.S., where it currently derives approximately 7% of its sales.

Xero forecasts that this acquisition could double its projected 2025 financial sales by 2028, thanks to a shared vision for growth and strategic synergies between the two companies. The acquisition will combine Xero’s accounting capabilities with Melio’s accounts payable and receivable solutions.

Market Reaction

In anticipation of the deal, Xero’s shares were temporarily suspended from trading while the company sought USD 1.23 billion in institutional investor support to finance the purchase. Analysts have offered mixed views on the transaction, with some seeing potential strategic benefits and others noting complexities that need to be managed over time.

An RBC Capital Markets analyst suggested that the acquisition offers value by expanding Xero’s U.S. presence through a rapidly growing payments provider, making it strategically sound in the long run. However, successful integration of the businesses will be key to realizing the strategic synergies.

Previous Collaborations

Xero has been exploring ways to expand its offerings and support global business operations through various partnerships. For instance, earlier this year, Xero partnered with Ebury to drive optimal automation and financial control across international markets, aiming to help businesses scale their operations more effectively.

Additionally, Xero collaborated with Atoa to optimize payments for UK-based businesses, incorporating Instant Bank Pay into its offerings to reduce fees and improve payment processes.