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Xero buys Canadian booking software firm Hubdoc for up to US$70M

Wednesday 1st August 2018

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Xero has bought Canadian booking software firm Hubdoc for up to US$70 million in cash and shares, continuing its shift away from keeping development in-house. 

The Wellington-based accounting software maker will pay US$21 million in cash and US$39 million in Xero shares, with a further US$10 million of scrip up for grabs if certain targets are met in 18 months, it said in a statement to the ASX. The shares rose 4.4 percent to A$44.66, valuing Xero at A$6.2 billion. 

The cash component will be paid for through a new debt funding arrangement, and the transaction is likely to trim NZ$7 million from earnings before interest, tax, depreciation and amoritsation in the year ending March 31, 2019 due to transaction and integration costs and investing in Hubdoc's growth. 

Xero has tended to avoid acquisitions in its decade of global expansion, purchasing three payrolls and invoice management firms between 2011 and 2013. Under the stewardship of new chief executive Steve Vamos it stopped developing in-house US payroll products, partnering with Gusto which already services the entire US, as a means to install a sharper investment focus.

"The acquisition of Hubdoc enables us to take the next step in delivering a platform that seamlessly connects small businesses with their financial data, and their accounts and bookkeepers," Vamos said in a statement today. "This acquisition accelerates our ability to streamline the collection and classification of the data small businesses and their advisers need in order to focus on driving better business outcomes." 

In May, Xero closed in on reporting its maiden profit, with positive ebitda. It has been focusing more closely on improving its efficiency, with wider gross margins coming from the cheaper hosting costs using Amazon Web Services. 

It today said it's committed to breaking even on a cash flow basis without drawing down the debt facility with its existing cash balance. That excludes capital spending on mergers and acquisitions such as today's transaction. 

Hubdoc was founded in 2011 and services customers in the US, Canada, the UK and Australia. It will continue to operate as a standalone business led by co-founders and co-CEOs Jamie McDonald and Jamie Shulman. 

Xero said an attraction for the deal, which is expected to be completed next month, was Hubdoc's data capture capability as it collects bank statements, bills and receipts from more than 700 financial institutions, utilities, telecom providers and suppliers, that integrates easily with Xero's platform. 

That was "a key element of Xero's code-free accounting strategy which enables small businesses and their advisers to focus on growing their business," the company said. 


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