The Xero Ltd (ASX: XRO) share price has dropped 6% since 24 June 2025. The ASX tech share has revealed a major acquisition – the US-based Melio, a small and medium business bill pay platform that integrates accounting and payments.
The upfront price is US$2.5 billion for a business that, as of March 2025, had annualised revenue of US$187 million. Management are hopeful this business can help Xero unlock a stronger position and growth rate in the US.
It's a big purchase price and the business is aiming to raise around A$2 billion from a capital raising with institutions and retail investors.
The question now is – is the Xero share price attractive following this deal? Let's take a look at what leading broker UBS thinks.
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Bullish view on Xero shares
UBS pointed out that Melio achieved revenue growth of 40% in the prior 12 months, with a free cash flow loss of around US$88 million.
The acquisition price values Melio at a revenue multiple of 9.7x when including around $70 million of revenue synergies which Xero expects to be realised by FY28. The purchase price may cost another US$0.4 billion depending on various elements.
UBS said the acquisition strongly aligns with Xero's strategy by increasing its North American presence via payments and a "syndicated accounting offering."
Melio has 480,000 customers with average revenue per user (ARPU) of US$49 per month, with the US company's customer profile similar to Xero's, which could bode well for Xero shares.
Xero thinks the payments space is a US$29 billion total addressable market (TAM) opportunity, out of which accounts payable makes up US$14 billion, with 90% of the small and medium business accounts payable TAM not yet using software.
Xero thinks there are significant opportunities to serve customers of businesses like Fizerv, which powers around 3,500 financial institutions in the US, serving 18 million small and medium enterprises. These self-employed and micro businesses often require a payments method before even adopting an accounting solution, driving cross-selling opportunities for Xero.
UBS noted Xero wants to more than double its FY25 revenue.
Price target
UBS currently has a price target of A$215 on the software business. A price target is where the broker thinks the business will be in 12 months from now.
In other words, the broker is suggesting the Xero share price could rise by 17.5% over the next year.
That suggests the ASX tech share could deliver pleasing returns from here.
