Xero flags move into lending with A$80m Waddle acquisition

ASX-listed Xero has acquired Australian invoice-financing startup Waddle in a deal worth up to A$80 million.

Waddle lets a small business take a quick secured loan against its accounts receivables - helping to tide it over until an invoice is paid.

In a market filing, Xero indicated the move could be part of a broader push into financing.

"Post the acquisition of Waddle, Xero will continue to explore how to facilitate small business access to capital beyond invoice financing," it said.

"The acquisition positions Xero to partner with lenders globally, to better serve small business' working capital and other financial needs."

Simon Creighton (a one-time IBM solution architect) and Nathan Andrews (a former software developer for the Reserve Bank of Australia) founded Waddle in 2014 and initially positioned the company as a fintech disruptor. But after a successful deal with the Royal Bank of Scotland, it switched tack last year and began to partner with major banks across the UK and Australia during 2019. The startup closed a A$4m funding round the same year.

The Sydney-based Waddle has been a Xero ecosystem partner since 2016.

Xero says the deal will have no material impact on its 2021 ebitda.

It involves an upfront cash payment of A$31 million, plus another A$49m (for a potential total of A$80m) if product development and revenue targets are hit. Xero anticipates any earn-out payments will be in a 50/50 mix of cash and scrip.

Xero shares closed yesterday at A$98.49 - an all-time high that gives it a market cap of just over A$14 billion.

In a mid-month update, the cloud accounting company said the pandemic had slowed growth, but that it was still making net gains in subscribers in every territory.