The market has reacted positively to Xero Limited’s (ASX: XRO) announcement of its acquisition of Tickstar. What does this mean for the Xero share price?
Xero is one of the fastest-growing accounting and business software providers in the globe.
This recent acquisition follows up Xero’s recent purchase of Planday as it focuses on driving the adoption of cloud accounting around the world.
Tickstar and acquisition details
Tickstar was established in 2007 and is based in Stockholm, Sweden. Tickstar possesses e-invoicing infrastructure, which will enable Xero to provide its customers with a well-established network facilitating faster and more secure transactions.
The price tag in Swedish krona (SEK) is up to SEK 150 million split into an upfront payment of SEK 60 million and performance payments of SEK 90 million.
The upfront payment will be made up of 50% in cash and 50% in Xero shares.
The performance payments will be based on product development and performance milestones. Xero notes this will be capped to 50% in Xero shares with the remainder paid in cash.
Management remains focused on the future
It is encouraging the see Xero’s Chief Product Officer, Anna Curzon emphasise Xero’s long-term strategy of improving its core product, “The acquisition of Tickstar is an important step in our strategy to help small businesses digitise more of their workflows and get paid faster using cloud-based technologies. As more governments around the world adopt e-invoicing, Tickstar’s technology will help our customers comply with existing and future legislation and realise the many benefits that e-invoicing brings.”
My thoughts
I think this is a sound strategic play to capitalise on the long tailwind of government adoption of e-invoicing. People tend to underestimate the time and difficulty of building such online infrastructure, so it makes sense for Xero to tap the expertise of an established e-invoicing player in the market.
I like how Anna Curzon noted the new technology will help customers, which remains the cornerstone of Xero’s strategy. This will only make it harder for existing customers to switch as the overall platform improves.
My Rask Media colleague, Patrick Melville provides a good overview of the benefits of high switching costs for Xero.
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