Dive Brief:

• Bill-pay company Melio has agreed to be purchased for $2.5 billion by the New Zealand accounting software provider Xero, the two companies said in a joint Tuesday press release.
• Melio’s CEO and co-founder Matan Bar will lead the U.S. business and report to Xero CEO Sukhinder Singh Cassidy after the transaction has closed, which is expected to take place before the end of the year.
• “Xero and Melio are highly complementary — together they complete the key jobs to be done for US SMBs, extend reach across customer segments, provide both direct and syndicated offerings, and deliver multiple revenue drivers,” Cassidy said in the release.

Dive Insight:

New York-based Melio, which was founded in 2018, has built a business catering to small and mid-sized business, providing digital accounting and payment services via its software tools. The company has about 80,000 business clients, who processed some $30 billion in payments for the fiscal year ended March 31, generating annualized revenue of $187 million, according to the release. 

Last year, it raised $150 million in new “strategic funding” from the payments processor Fiserv and Capital One bank’s venture arm, among other investors, and was valued at $2 billion as part of the investments. The company has also attracted investments from Tiger Global Management and Thrive Capital.

In 2023, Melio teamed up with Shopify to support Shopify’s bill pay services, an accounts payable service that enables its merchants to pay and manage their business expenses, the company said in a press release at that time. The collaboration was Melio’s first embedded finance service with a commerce site, according to the announcement. 

In 2021, Bar told Payments Dive that as he was initially researching plans for starting Melio’s business he had been “shocked” that U.S. small businesses were still so paper-based. He quickly recognized it as a business opportunity and came to understand that small businesses owners like wine shop and dental office operators were intimidated by even the industry jargon, such as “accounts payable automation solutions,” he said.

The Melio business, which also has offices in Tel Aviv, received a growth boost during the COVID-19 pandemic as businesses across the U.S. immediately searched for digital tools that would allow them to work remotely and shift away from paper processes.

In a 2022 opinion piece for Payments Dive, then Melio chief operating officer Tomer Barel, who is now the company’s president, seemed to be pointing to his company’s services when he wrote about how among “America’s 32 million small businesses, there is a pressing need for simplified financial systems that allow employers to save time and money.”

Xero agreed to a break-up fee of $37.5 million if the acquisition fails to win Hart-Scott-Rodino antitrust approval, according to the release.