Xero buys Hubdoc for up to $US70 million
Xero is buying a data capture solution, Hubdoc, for up to $US70 million in a mixture of cash and Xero shares, depending on its performance over the next 18 months.
The Hubdoc business was founded in 2011 and is headquartered in Toronto, Canada from where it serves customers in the US, Canada, Britain and Australia.
Its software is aimed at accountants, bookkeepers and small businesses to streamline administrative tasks such as financial document collection and data entry.
It collects bank statements, bills and receipts from more than 700 financial institutions, utilities and suppliers and provides seamless integration with accounting solutions such as Xero, one of more than 700 apps that connect with Xero.
Xero has only rarely bought businesses since it was founded in 2007, focusing mainly on organic growth.
Xero says Hubdoc will continue to operate as a standalone business within Xero and be led by its founders, Jamie McDonald and Jamie Shulman.
It says Hubdoc has been a Xero ecosystem partner since 2014 and will continue to be sold separately both to Xero and non-Xero customers.
“Over the longer term, customers can expect to see a deeper integration between Hubdoc and the Xero platform,” the company says.
Xero will pay $US21m in cash and $US49m worth of Xero shares up front for Hubdoc and says it has arranged new debt funding for the cash component.
The second tranche of $US10m in equity will be issued to Hubdoc’s shareholders in 18 months, subject to meeting agreed operational targets and conditions.
The first tranche of equity will be based on the weighted average price of Xero shares in the five trading days ended July 30 and the second tranche will be based on a weighted average price in a five-day trading period at the time of issue.
Xero expects the purchase to settle this month and says that, plus integration costs and continuing investment in Hubdoc’s growth is expected to reduce Xero’s earnings before interest, tax, depreciation and amortisation (ebitda) in the year ending March 2019 by about $NZ7m.
“Xero remains committed to managing its business to cashflow breakeven within its current cash balance without drawing down on its debt facility, excluding capital outlays for M&A such as the current transaction,” the company says.
Chief executive Steve Vamos says the Hubdoc acquisition “enables us to take the next step in delivering a platform that seamlessly connects small businesses with their financial data and their accountants and bookkeepers.”
It will accelerate Xero’s 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.”