Xero acquires Seattle's Monchilla in $4.1 million deal

New Zealand cloud accounting software provider Xero has paid more than $4 million cash for Seattle-based online payroll company Monchilla, in a move that it hopes will boost its US presence.

New Zealand-headquartered cloud accounting software provider Xero is expecting to boost its US online payroll presence with the acquisition of Seattle-based cloud accounting startup Monchilla.

The deal sees Xero cough up $4.13 million cash for the online payroll and cloud accounting software provider, along with 238,490 Xero Limited ordinary shares.

At the time of writing, Xero Limited's New Zealand Stock Exchange-listed ordinary shares were valued at NZ$17.10 each, or about $3,146,600 — bringing the total value of the deal to around $7.27 million.

The New Zealand company, which is dual-listed publicly in New Zealand and Australia, told investors that it had bought Monchilla from its founders, Jack Couch and Nanjuan Shi, and would continue to support the cloud startup's current customers.

However, Xero also said that Monchilla customers would eventually be transitioned from the US company's platform to the Xero platform, netting the New Zealand company a bevy of new US Xero users.

Couch and Shi will remain involved with the operation, and are expected to complement Xero's US product development teams and support its payroll strategy to further its growth in the market.

"We're thrilled to join the Xero team and work together to deliver a world-class, online payroll solution for small businesses in the US market," said Monchilla co-founder and CEO Jack Couch.

Xero CEO Rod Drury said that the move is part of the company's broader focus on expanding in the US market.

"Over the last year, with Australia and United Kingdom markets performing well, we have been focusing on delivering the best business software for the US market," said Drury in a statement (PDF). "The cloud accounting market is just beginning in the US.

"We were really impressed by the Monchilla team and how they have approached filing and payment of payroll taxes in the US. Combining this capability with the work our own team are doing will allow us to develop a world-class payroll experience for the US over the next 12 months," he said.

In Australia, Xero has worked to wrest customers away from market incumbent MYOB, with the New Zealand company announcing in September that it would indefinitely extend its free MYOB-to-Xero conversion service, Jet Convert, allowing MYOB customers to easily shift their accounting ledgers onto Xero's platform.

The move followed close behind the announcement by the Australian bookkeeping and accounting software provider that it had hit a record client milestone of 100,000 online subscribers.