Online accounting software company Xero says it will spend $A1.5 million ($NZ1.85 million) to buy an Australian online payroll provider, Paycycle.
"The acquisition of Paycycle will accelerate Xero's growth in the Australian market and enhances Xero's online accounting offering for small businesses and their advisors," said the company's chief executive Rod Drury.
Taking over Paycycle also provided Xero with a specialist payroll development team while there was a shortage of skilled software workers.
Payroll specialist Stuart McLeod and IT specialist John Freeman founded Paycycle in 2009, and the company provided 750 customers with a user-friendly online payroll system that also managed employee leave, tax and superannuation.
Half of Paycycle's customers already used Xero.
"Feedback from our Australian partners and customers is that we need to provide a fully integrated Payroll within Xero to win Australia," said Mr Drury. "We've been working with Paycycle for some time and know they will fit in well with our team."
Xero will pay $A500,000 in cash and $A1 million in Xero shares, which will be vested over three years.
Mr McLeod said that the two companies shared values and the product synergies that had drawn them together and demonstrated a natural fit.
"Everyone is very excited about what the future holds for Xero," he said.
Paycycle would continue to be sold as a stand-alone product until early 2012, when it would be absorbed into the Xero platform.
Xero nearly tripled full year revenue in the year to March 30 to $9.3m, as it cut its net loss by almost $1m to $7.5m.
Paying business customers rose over the year from 17,000 to 36,000 across 100 countries by March 31, Xero said today.
From February, monthly revenue had been above $1m and was expected to grow strongly, while the annualised subscription run rate was about $14m. It had established itself inside 2200 accounting firms.
Operating expenses relating to suppliers and employees were up from $12.9m a year ago to $18m, Xero said.
That was mainly driven by growth in advertising and marketing, IT infrastructure costs from higher customer numbers and a full year of the Akamai content delivery service, and a rise in employee entitlements as staff numbers rose to 113 from 90.
The operation in this country continued its rapid momentum, while signs of a similar success pattern were apparent in Britain and Australia, giving confidence to further build teams in those markets, Xero said.
Xero said that it was the leading challenger to global business management software incumbents MYOB, Sage and Intuit.
"The incumbents' lack of operational experience in the new online market has meant they are yet to deliver a competitive global solution," Xero said earlier this year.
The company's share price was up 9c (4.19 percent) at 224 in late trade today after the takeover announcement.
