Xero to Acquire US SMB Payments Provider Melio for $2.5 Billion

In the high-stakes arena of fintech, dropping $2.5 billion isn’t just a headline; it’s a flex. And Xero, the New Zealand-born accounting software powerhouse, just made its boldest move yet: scooping up U.S.-Israeli B2B payments darling Melio in a play to dominate the American SMB battlefield. But is this the ultimate cheat code to plug its U.S. payments gap, or a high-priced shortcut with strings attached? Let’s unpack the journey, the math, and the madness behind this mega-deal.

From Startup to Swagger

Launched in 2018, Melio quickly carved out a sweet spot in the B2B payments game. While most U.S. SMBs were still fumbling with checks and ACH transfers, Melio offered intuitive accounts payable (A/P) and receivable (A/R) workflows, embedded directly into partner platforms like Shopify, Capital One, and Fiserv. This wasn’t just digitization; it was friction annihilation.

With $30B+ in total payments processed annually, 80,000 SMBs in the fold, and a sticky 90% retention rate, Melio stood out. It also diversified revenue streams across transactions, float income, subscriptions, and syndication partnerships, a rare feat in SaaS. Its final private valuation was $2B in 2022. Fast forward to mid-2025? A $2.5B exit (plus $500M in performance-based incentives) gets the job done, and in just seven years flat.

Let’s Skip the Line

Xero’s been running the table in Australia, New Zealand, and the UK. But in the U.S., a massive and fragmented market, it’s been the underdog. With only 7% of revenue coming from American soil and competitors like QuickBooks hogging the spotlight, something had to give. Enter Xero’s 3×3 strategy: triple the company’s size across three markets (U.S., UK, Australia) and three “super jobs” (core accounting, A/P & A/R, and payroll). Melio checks all three boxes, especially with its 13.4x revenue multiple tied to $187M in FY2025 annualized revenue. Sure, that multiple raised eyebrows, but in a $29B U.S. SMB payments TAM? It might just be worth the stretch.

How Accountants Are About to Level Up

This acquisition isn’t about glitzy PR or vaporware synergy slides; it’s about fixing the daily grind for accountants. Post-acquisition, Melio’s A/P and A/R tech will be natively baked into Xero’s accounting platform. That means no more awkward CSV imports, clunky third-party plugins, or tab overload. Just a clean, seamless interface where books and bank payments finally shake hands.

Accountants get:

• Streamlined workflows
• Real-time cash flow visibility
• One-click payments and receivables
• Embedded tools backed by major U.S. banks

And Xero? It gets higher ARPU, deeper LTV, and the chance to cross-sell to a customer base that suddenly sees accounting software as a payments command center.

Risky Business or “Big Brain” Move

To seal this deal, Xero launched a $2B equity raise, offering shares at a 9.4% discount, spooking markets and sinking its stock by 8%. The acquisition bumps Xero’s net debt/EBITDA to 2.3x, a notable departure from its historically conservative balance sheet. And let’s not forget the $37.5M break fee tied to regulatory hurdles like HSR Act approvals and state money transmitter licenses. If the deal tanks, Xero still eats that cost.

Still, there’s a real upside. Melio’s syndication model, already white labeling to 3,500 financial institutions, could catapult Xero into the inboxes of 18 million SMBs practically overnight. And with Melio’s CEO Matan Bar (a PayPal alum) staying on to run Xero’s U.S. arm, the play here isn’t just financial. It’s foundational.

The Final Take

Let’s keep it real; this isn’t a guaranteed slam dunk. Melio is scaling fast, but it’s not profitable. Xero is paying a premium, stretching its balance sheet, and betting big on U.S. integration. But the upside? Massive. If this works, Xero leaps into the U.S. mainstream, capturing both workflow ownership and transactional revenue in one shot. It becomes the all-in-one platform U.S. accountants have been begging for. If it doesn’t? The $2.5B shortcut could become a cautionary tale about fintech FOMO and integration overload. For now, this deal is spicier than a tax audit during busy season—and twice as bold. Watch this space: Because if Xero nails the landing, it won’t just be playing in the U.S. It’ll be calling the plays.