Xero has announced plans to purchase Australian cloud-based invoice lending platform Waddle for AU$80 million, as part of the accounting firm's strategy to expand in the small business market.
As part of the deal, Xero will offer an upfront cash payment of AU$31 million and subsequent earnout payments based on product development and revenue milestones of up to AU$49 million.
Co-founded in 2014 by Simon Creighton and Nathan Andrews, Waddle has existing agreements with banks and lenders in Australia and the UK to ensure small businesses are able to easily gain access to capital.
Xero CEO Steve Vamos said the acquisition would help small businesses address their financial needs.
"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," he said.
"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."
Post-acquisition, Xero said it would continue to explore how Waddle can be used to facilitate small business access to capital, beyond invoice financing.
The transaction is expected to be completed before the end of the 2020 calendar year.
Xero anticipates the transaction, integration, and operating costs will have "minimal impact" on its FY21 earnings before interest, tax, depreciation, and amortisation (EBITDA).
Xero returned to profit in May after it banked NZ$3.3 million for the full year to 31 March 2020, an improvement of NZ$30.5 million after last financial year's net loss of AU$27.1 million.
The company attributed the improved results to ongoing growth in operating revenue, improved gross margin, and disciplined management of operating costs. The company added digitisation of tax and compliance remained a significant driver during the financial year.
At the time, the company acknowledged that trading in the early stages of FY21 had been impacted by the COVID-19 environment.
"The continued uncertainty surrounding COVID-19 means it would be speculative for us to say anything more at this time on its potential impact on our expected performance for FY21," it stated.
"Xero's ambition is to be a long-term oriented, high-growth business. We continue to operate with disciplined cost management and targeted allocation of capital. This allows us to remain agile so we can continue to innovate, invest, support our customers, and respond to opportunities and changes in our operating environment."