Accounting software giant Xero Ltd is moving into lending to small business through invoice financing, announcing plans to acquire Sydney startup Waddle for up to $80 million.
Xero (ASX: XRO) said the acquisition of the cloud-based lending platform aligns with its strategy to grow the small business platform and to address critical small business financial needs.
“Waddle’s best-in-class cloud-lending platform, combined with small businesses’ invoice data, will enable the delivery of tailored invoice financing solution,” Xero said in a statement to the ASX on Tuesday morning.
“The acquisition positions Xero to partner with lenders globally, to better serve small businesses’ working capital and other financial needs.”
Waddle, co-founded in 2014 by Simon Creighton and Nathan Andrews, makes it easier for banks and fintechs to lend to small businesses by leveraging their accounting data and automating many of the manual processes in invoice financing.
Waddle has agreements with UK and Australian banks and lenders in Australia and also operates a small direct lending portfolio used primarily for product development purposes. It’s issued more than $330 million in loans since launching in mid-2015 and also partners with MYOB and Quickbooks.
Xero said it plans to explore how to facilitate small business access to capital, beyond invoice financing in the wake of the deal.
The company will pay A$31 million initially for Waddle, with $49 million in subsequent earnout payments based on product development and revenue milestones for a total price of $80 million. Any earnout payments are expected to be settled 50% in ordinary shares in Xero and 50% in cash.
Completion of the transaction is expected before the end of 2020 and is subject to satisfaction of closing conditions. Xero says the transaction, integration and operating costs are anticipated to have minimal impact on its FY21 EBITDA.
Waddle has been a Xero ecosystem partner since 2016 and will continue to offer services to customers and partners, including other accounting software providers.
Xero CEO Steve Vamos said the acquisition was an important step in the company’s strategy to help small businesses better manage cash flow and gain access to working capital.
“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,” he said.
The news little likely push the company’s share price above $100 for the first time in morning trade today, after closing at $98.49 on Monday.