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Xero share price hits record high following $80 million Waddle acquisition

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The Xero Limited (ASX: XRO) share price is pushing higher this morning after the announcement of an acquisition.

At the time of writing the business and accounting software provider’s shares are up 3% to a record high of $101.31.

What did Xero announce?

This morning Xero announced the acquisition of Waddle for up to A$80 million.

Founded in Australia in 2014, Waddle is a cloud-based lending platform that helps small businesses access capital through invoice financing. Its platform allows a range of banks and fintechs to more easily lend to small businesses by leveraging their accounting data and automating many of the manual processes typically involved in invoice financing.

Management believes the acquisition aligns with its strategy to grow the small business platform and to address critical small business financial needs.

It expects Waddle’s best-in-class cloud-lending platform, combined with small businesses’ invoice data, to enable the delivery of tailored invoice financing solutions to small businesses.

What are the terms of the deal?

Xero has agreed an upfront cash payment of A$31 million and subsequent earnout payments of up to A$49 million based on product development and revenue milestones. Any earnout payments are expected to be settled 50% in Xero shares and 50% in cash.

Completion of the transaction is expected before the end of calendar year 2020 and is subject to satisfaction of closing conditions. Transaction, integration, and operating costs are anticipated to have minimal impact on Xero’s FY 2021 EBITDA.

Xero’s CEO, Steve Vamos, commented: “The acquisition of Waddle is an important step in our strategy to help small businesses better manage cash flow and gain access to working capital. Waddle’s lending platform has the potential to enable a wide range of banks, fintechs and other lenders to better support small business financial needs. We’re excited about the benefits Waddle can bring to many of our customers and banking partners.”

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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