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Highlights

  • Xero completes a fully underwritten AUD 1.85 billion institutional placement at a 9.4% discount.

  • Proceeds will fund the acquisition of U.S.-based payments platform Melio.

  • Despite the share price drop, Macquarie reiterates “Outperform” rating with an AUD 204.00 price target.

Xero Ltd (ASX:XRO) shares fell sharply on Thursday after returning from a trading halt, declining 9% to AUD 176.06 at the time of writing. The drop comes as the company announced the successful completion of a major capital raise to support its strategic acquisition plans in the United States.

The cloud accounting software provider raised AUD 1.85 billion (USD 1.2 billion) through an institutional placement, issuing approximately 10.5 million new shares to sophisticated and institutional investors. The shares were priced at AUD 176.00 each, representing a 9.4% discount to Xero's last closing price.

Funding the Melio Acquisition

The funds will be used to finance Xero's acquisition of Melio, a fast-growing U.S.-based payments platform focused on helping small businesses manage bills and accounts payable. Melio currently serves around 80,000 customers and generates USD 187 million in annualised revenue.

Commenting on the placement, Xero CEO Sukhinder Singh Cassidy said:

“We’re very pleased with the strong support we’ve received from both existing and new institutional investors. We can’t wait to welcome Melio’s world-class team to Xero… and look forward to creating a market-leading Accounting and Payments offering that supports our 3×3 strategy and US ambitions.”

Following the placement, Xero also plans to launch a share purchase plan (SPP) targeting an additional AUD 200 million, offered at the lower of the placement price or a 2% discount to the five-day VWAP at the time the offer closes.

Broker View: Macquarie Backs Acquisition

Despite the short-term dip in share price, analysts at Macquarie have responded positively to the acquisition. The broker noted that Melio significantly improves Xero’s potential in the U.S. — its largest total addressable market, worth an estimated USD 29 billion.

Macquarie views Melio as an under-monetised business that is well-positioned for growth, highlighting that its strategy of low pricing is aimed at driving higher volumes. The broker expects long-term margin upside through a mix shift toward higher-margin syndication and subscription revenues, alongside scalable payment operations.

In line with this outlook, Macquarie has reaffirmed its "Outperform" rating on Xero shares and maintained a AUD 204.00 price target.