Xero Acquires Payment Processor Melio for $2.5 Billion Deal

Cloud accounting leader Xero expands U.S. footprint through strategic Melio acquisition to serve small business payment needs

Three Key Facts

• $2.5 billion acquisition announced: New Zealand’s Xero Ltd agrees to purchase U.S. payments processor Melio Ltd in cash and equity deal, with potential additional $500 million in performance-based payments
• Revenue growth projection doubles by 2028: Xero expects the acquisition to more than double its group revenue by 2028 compared to 2025 figures, tripling North American revenue immediately
• Major U.S. market expansion strategy: Deal positions Xero to compete directly with Intuit in the fragmented $29 billion U.S. small business payments market through integrated accounting and payment solutions

Introduction

Cloud accounting software provider Xero announces one of the largest fintech acquisitions in recent years, agreeing to purchase U.S.-based Melio for $2.5 billion upfront. The transaction represents a strategic pivot for the Wellington-based company as it attempts to scale rapidly in the competitive American small business market.

The deal combines Xero’s cloud-based accounting platform with Melio’s accounts payable automation and payment processing capabilities. This integration addresses a critical gap in Xero’s U.S. offerings, where roughly 78% of small and medium-sized businesses prioritize unified accounting and payment solutions.

Key Developments

Xero structures the acquisition through multiple funding sources, including a $1.2 billion institutional placement, $360 million in Xero shares to Melio shareholders, a $400 million credit facility, and $600 million from existing cash reserves. The deal values Melio at approximately 13.4 times its annualized March 2025 revenue of $187 million.

Melio’s valuation reflects significant growth from its previous funding rounds. The company raised $250 million in September 2021 at a $4 billion valuation during the tech boom, then secured an additional $150 million at a reduced $2 billion valuation by late 2023.

The transaction includes performance-based earnouts potentially worth an additional $500 million over three years. These payments target specific growth metrics and will be distributed among Melio employees as retention incentives.

Market Impact

Xero shares enter a trading halt as the company executes its $1.9 billion institutional placement to fund the acquisition. The stock last traded at A$194.21 on the ASX following a record run-up prior to the announcement.

The acquisition immediately positions Xero as a more formidable competitor to Intuit in the U.S. market. Melio currently serves 80,000 American small businesses and processes $30 billion in annual payment volume through direct relationships and syndication partnerships.

Financial analysts describe the deal as “fully priced,” noting the premium multiple for a company reporting $154 million in recent free cash flow losses. However, Melio’s 127% compound annual growth rate from fiscal 2021 to 2025 supports the strategic rationale.

Strategic Insights

The acquisition accelerates Xero’s “3×3 strategy,” which targets tripling both revenue and customer base by 2028 across Australia, the United Kingdom, and the United States. The U.S. represents Xero’s most challenging market, where it has historically struggled against established players like QuickBooks.

Melio’s embedded payment infrastructure creates new revenue opportunities beyond Xero’s traditional subscription model. The company’s partnerships with financial institutions reach approximately 3,500 U.S. banks that collectively serve 18 million small businesses.

The deal reflects broader industry consolidation as fintech companies seek to offer comprehensive financial management platforms. Companies increasingly demand integrated solutions rather than managing separate accounting and payment systems.

Expert Opinions and Data

“We’re acquiring Melio, a leading US B2B payments platform that strongly aligns with our 3×3 strategy and US growth ambitions,” states Xero CEO Sukhinder Singh Cassidy. She emphasizes that adding Melio’s technology platform enables “a step change in our North America scale and the potential to help millions of US SMBs.”

Melio co-founder and CEO Matan Bar, who previously led product development at PayPal and played a central role in creating Venmo, will oversee the combined U.S. operations under Xero. His leadership experience in scaling payment platforms provides strategic continuity for the integration.

Industry observers note that Melio’s syndication model differentiates it from direct competitors by powering payment infrastructure for major brands including Fiserv, Capital One, and Shopify.

Xero projects maintaining a pro forma net debt-to-EBITDA ratio of approximately 2.3 times following the acquisition, with positive cash flow supporting debt reduction over time. The company expects regulatory approvals, including U.S. antitrust clearance, within six months.

Conclusion

Xero’s acquisition of Melio represents the company’s most aggressive expansion strategy to date, fundamentally reshaping its competitive position in the American small business market. The deal transforms Xero from a pure accounting software provider into an integrated financial management platform with significant transaction-based revenue potential.

The success of this acquisition will largely determine whether Xero can achieve its ambitious growth targets and establish meaningful market share against entrenched competitors in the $29 billion U.S. SMB payments sector.