Accounting software giant Xero (ASX: XRO) has announced the acquisition of cloud-based invoice lending platform Waddle in a bid to grow its small business offering.
Invoice financing is a form of short-term lending in which a business receives an advance of funds it has already invoiced to customers. It is considered a business loan with a reduced risk because the funds are secured by the outstanding invoices and can help small business improve cash flow, pay suppliers and reinvest in their operations earlier than they could otherwise.
Founded in Australia in 2014, Waddle’s lending platform service enables banks and financial tech companies to lend funds more easily to small businesses by leveraging their accounting data and automating many of the manual processes typically involved in invoice financing.
Waddle has been a Xero ‘ecosystem partner’ since 2016 and has existing agreements with banks and lenders in Australia and the United Kingdom. It also operates a small direct lending portfolio used primarily for product development purposes.
In an announcement today, Xero said the acquisition positions it to partner with lenders globally and it aims to explore how to facilitate small business access to capital beyond invoice financing.
“The acquisition of Waddle is an important step in our strategy to help small businesses better manage cash flow and gain access to working capital,” Xero chief executive officer Steve Vamos said.
“We’re excited about the benefits Waddle can bring to many of our customers and banking partners,” he added.
The acquisition terms call for an upfront cash payment of $31 million and subsequent earnout payments based on product development and revenue milestones up to a $49 million limit. This makes the potential consideration for the 100% purchase of Waddle total $80 million.
Any earnout payments are expected to be settled 50% in ordinary shares in Xero and 50% in cash.
The transaction is anticipated for completion before the end of the calendar year and is subject to satisfaction of closing conditions.
Xero said the transaction, integration and operating costs are expected to have minimal impact on its earnings before interest, tax, depreciation and amortisation (EBITDA) for the 2021 financial year.