Xero shares jump 21% after $147 million investment

Wednesday 25th February 2015

Shares of Xero jumped 21 percent after US-based institutional funds invested $147.2 million via a share issue, doubling the cloud-based accounting firm's cash on hand. It also announced Dell executive Russell Fujikoa will lead its US business.

The stock climbed $3.75 to $22, the highest it’s been since September, after the Wellington-based company announced Silicon Valley venture capital firm, Accel Partners, had invested $132.9 million at $20 per share through a number of funds it manages. Matrix Capital Management, Xero's largest institutional investor, topped up its own investment with an additional $14.3 million. The investment boosts the company's cash balance to $285 million, from around $140 million beforehand.

The news comes after Xero's stock rose sharply last week. Last Thursday, the stock market operator and regulator issued a 'please explain' notice asking Xero to confirm it was disclosing all material information after the share price rose some 16 percent in two days. The tech firm confirmed it was, without issuing any further explanation to the gain in its shares. The stock came under selling pressure last year, with its share price dropping from a high of $45.99 in March to as low as $15, as investors mulled the outlook for growth, particularly in the US.

Xero chief executive Rod Drury told BusinessDesk last week's gain in the share price was unrelated to today's announcement.

"We're pretty confident it's not (related). We kept it super tight and we keep a good close eye on the register, so we're very careful about that," Drury said. "What we did know was that some people speculated that we did have a large seller exit the market, and off the back of an awesome Xerocon event and lots of media we did see it go up, but then it came down again yesterday."

The software developer wants a million customers, and is targeting growth in the US market where it sees the potential to take market share of an estimated 29 million small-to-medium sized business owners. The extra cash may be used for a possible US initial public offer, as well as further acquisitions of smaller software as a service businesses, Drury said.

"We didn't need to go and raise money, we had enough money for our plans, but we were able to price it at a premium," Drury said. "It should just give investors, partners and customers a huge amount of confidence."

Last year the company said its execution in the North American market hasn't matched expectations and it is making key leadership changes after its North American chief executive Peter Karpas left the business in September just six months after joining.

Today the company announced former Dell executive Fujioka will replace Karpas, while Graham Smith will join the Xero board as an independent, non-executive director.

BusinessDesk.co.nz

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