Xero (ASX:XRO) share price dips amid acquisition news

The company is boosting its presence across the North American market…

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The Xero Limited (ASX: XRO) share price ended in the red on Thursday. This came after the company announced an acquisition this afternoon.

At the closing bell, the cloud accounting platform provider’s shares were swapping hands for $142.06 apiece, down 0.79%.

Xero set to acquire TaxCycle

In today’s statement, Xero advised will acquire leading Canadian tax preparation software company, TaxCycle for C$75 million (A$80.98 million).

The latest addition to the Xero portfolio comes as management seeks to drive growth in the Canadian market. This will provide the company with immediate access to an established Canadian income tax solution and customer base.

Based in Calgary, TaxCycle’s software enables Canadian accountants, bookkeepers, and tax preparers to manage and file income tax returns for their clients. The last figures indicate that almost 4,000 tax firms, and 16,000 individual accountants and bookkeepers use this service.

Calgary has a rapidly growing technology and small business community, with the start-up ecosystem valued at C$2.7 billion (A$2.92 billion). Furthermore, the market is on track to grow by 1,000 new tech companies in 2030.

Last month, Xero acquired United States-based Locate Inventory, expanding its profile across North America.

The TaxCycle deal is expected to be completed by 31 December 2021.

Consideration of C$70 million (A$75.59 million) will be settled through 71% in cash and 20% in shares in Xero. In addition, TaxCycle employees will be granted C$5 million (A$5.40 million) in restricted stock units that mature between one and three years.

Xero noted that transaction, integration, and operating costs are likely to have a minimal impact on its earnings before interest, tax, depreciation, and amortisation (EBITDA) for FY22.

What did management say?

Xero CEO Steve Vamos commented:

This announcement marks an important step in Xeroʼs commitment to extend and enhance our product offering for Canadian customers and partners by providing a product that meets Canadaʼs unique tax requirements.

We know tax compliance is a major driver for small businesses and their advisors to use Xero. This acquisition will provide us with immediate and long-term benefits in Canada and aligns with our strategy to drive cloud accounting adoption globally and deliver the best compliance experience in all our markets.

Xero share price snapshot

Since the beginning of the year, the Xero share price has lost around 3% in value. In contrast, the S&P/ASX 200 Index (ASX: XJO) has risen by around 12% over the same time frame.

As the 24th largest company on the ASX, Xero has a market capitalisation of roughly $21.3 billion.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Xero. The Motley Fool Australia owns and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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