Xero makes largest-ever acquisition, buying Planday

Xero chief executive Steve Vamos with founder and director Rod Drury. Photo / File

Xero is making its largest-ever acquisition.

The Wellington-based, ASX-listed company will acquire Planday, a maker of workforce management software, for an upfront payment of €155.7 million ($259m) and a possible earnout of up to €27.8m if revenue targets are hit - for a total potential consideration of €183.5 million. Net cash was $177m, supplemented by undrawn credit of $150m.

Planday, which bills itself as "advanced employee scheduling software made simple", is used to manage some 350,000 staff across the UK and Europe. Its customers on the continent include Burger King, Eurocar, Nespresso and Best Western.

"There is a significant opportunity because penetration of [labour-scheduling] products – like cloud accounting – are really in the early stages," Xero chief executive Steve Vamos said.

"This is an area, like cloud accounting, where there are a number of players doing a nice job, but there is a long way to go before anyone can say the opportunity has been capitalised on."

The Planday purchase continues a recent Xero strategy to accelerate growth and diversify from its accounting software roots, through acquisition.

In August last year, Xero bought Australian invoice-financing startup Waddle in a deal worth up to A$80m. Waddle lets a small business take a secured loan against its accounts receivables - helping to tide it over until an invoice is paid.

Xero said in an ASX filing that the acquisition, expected to close before June 30, will "contribute approximately three percentage points of additional operating revenue growth in FY2022. Transaction, integration and operating costs are anticipated to have "a modest negative impact" on Xero's FY2022 operating earnings.

Approximately 45 per cent of the upfront payment will be payable in Xero shares and the balance in cash. Any earnout payment will be 50-50 cash and scrip.

Xero reported 2.5m customers for the six months ending September 30. Net profit for the period was $34.5m (from the year-ago $33.2m) as revenue rose 21 per cent to $410m.

Xero shares closed down 2.65 per cent to A$119.00 yesterday for a market cap of A$17.5b.

After topping A$100 for the first time in August last year, Xero shares spiked to an all-time high of A$157.99 in January before pulling back.

Despite the dip, the stock is still up 48 per cent over the past 12 months.