UPDATE March 8: Xero has raised a further $15.6 million through its Share Purchase Plan (SPP), bringing the total capital raised in recent months to $35.6 million, the company said in a statement to the NZX this afternoon.
The SPP appears to have exceeded expectations. On February 2, Mr Drury said he expected the offer to bring in $5 million to $10 million.
Following a $20 million private placement in February (detailed below), the SPP was initiated to enable existing shareholders to increase their shareholding at the same price of $2.75.
Xero [NZX:XRO] was flat in late trading at $3.13.
Xero 12-month chart courtesy CapitalIQ. Click to zoom.
Xero raises $20 million, buys practice management company
Feb 2: Online accounting software company Xero has raised $20 million to fund global growth, offered a shareholder purchase plan and acquired a practice management company.
In a busy day for announcements on the NZX, Xero [NZX: XRO] said it had raised $20 million through a placement to strategic investors, including independent director, Rich Lister and Trade Me founder Sam Morgan, independent chairman Sam Knowles, director and co-founder of MYOB Craig Winkler and Valar Ventures, the New Zealand investment vehicle of Paypal co-founder and Facebook investor Peter Thiel.
Xero said the placement would assist in accelerating its growth in large overseas markets, including Australia, the United Kingdom and the United States, as growth in regions outside New Zealand had been one of the main drivers behind the company’s forecast of doubling its 2011 revenue of $9.3 million for the year ended March 31. It said 50% of its committed monthly revenue, which was $1.75 million or $21 million annualised, came from offshore.
The placement price of $2.75 per share represented a small premium to the volume weighted average share price of Xero at the time the investors were approached, Xero said.
Xero’s board also offered a shareholder purchase plan in addition to the placement to give New Zealand-based shareholders the opportunity to acquire new Xero shares under these same terms. Shareholders on the share register by close of business on February 14 could subscribe for up to $15,000 of additional shares, the maximum amount permitted under NZX Listing Rules, it said, at $2.75 per share.
$5m - $10m more to come
Xero chief executive Rod Dury said the SPP was open ended, but he anticipated it could raise a further $5 million to $10 million.
Asked if the new placements would dilute the value of Xero shares, Mr Drury said. "That's the trade-off [for raising money through issuing new shares]. But it's a relatively small dilution."
Xero also said it had taken full ownership of software developer Max Solutions Holdings, after investing $200,000 in 2010 to take a 15.9% stake in Max Solutions, the company behind WorkflowMax, an online job, time and invoice management solution, which would be added to Xero’s portfolio of products.
The total cost of the acquisition was $2 million cash and $4 million of Xero shares, vested over three years, Xero said.
“Max Solutions founders Gavin George and Chris Spence will become part of the Xero team and will bring with them all other Max Solutions staff.”
Xero shares [NZX: XRO] were up 3.74% to $3.05 in midday trading.
Comments and questions
...just waiting for all those 'hater' comments to come regarding Xero...you guys not working today or something?
I was going to say the same thing. Perhaps we can improvise? "Damn those handsome devils for tripling the share price"...
This sounds good to me:
Its good they offer the SPP so that small investors get the same opportunity as the big insiders.
It sows the big insiders are happy with the business model and are confident it will pay off.
It puts cash in the bank to give users confidence they can keep up the development and pay for the server hosting.
"It shows the big insiders are happy with the business model" - yeah, just like Walker Wireless and Wellington Drive
Ok - share price performance is good, and we must give credit for that. But Xero is becoming a serial capital raiser, and profits at the end of the day have to be made. Still no sign of them and comments made recently have to make you wonder. So the insiders have taken their shares I have always thought at some stage while there may not be short term profits there would be profits in the medium term (Which we are now past) or a corporate takeover - but the number of shares on issue being issued is starting to make me wonder whether the wait will be worth it. I can see more upside in Diligent than Xero.
Facebook was also a serial capital raiser and has only in the past couple orf years turned a profit I think. $1b profit on a $100B valuation.
A shift away from growth and Xero could easily turn a $2.7m profit on a $270m valuation. The question is when do you turn the switch from being a growth company to earning a profit. They have determined they want to crack the US first.
Not currently a shareholder as I think the potential growth is valued into the price but do keep an eye on it as a happy user.
Come on Guys - Rod is hanging out on Twitter waiting for some real abuse here before he jumps in and kicks the hornets nest.
The increase in the number of shares is starting to look like the number of shares issued by Allied Farmers! I suppose Xero could consolidate the shares, say, 1 for 100. But the shareprice looks solid in Xeros case. ie over 3 cents.
Just because Sam Morgan and Sam knowles etc have invested doesn't provide a guarantee of success. Just because Sam Morgan made a fortune by copying the EBay concept in the NZ market doesn't make him a successful investor either.
Only $2M of the capital raising is for Max Solutions so $18M for funding the core business - so soon after the last capital raising says to me the company is bleeding. Rod Drury's spin around the last capital raising inferred that the funds raisied then would keep them going for more than about 3 or 4 months - and once again it continues to consume funds with no commensurate result within the business.
This is no Facebook or google - it isn't a unique product and therefore is only competing with existing accounting product on the market.
Nothing has changed - ZERO has still under delivered.
of course that depends on your definition on underdelivered. I am long at an average of .88c and I find it hard to reconcile the current price with undelivery???
I'm so glad the 'haters' decided to start hating (took your time though)...we were all getting lonely without yous fullas
I am not sure of your retirement deatils but maybe you were retired early.
As a banker you would have been expected to be able to read financial accounts and make lending judgements on company projections. You would also be asked by clients to assess lending proposals with statements of position that had shares in the assets section. You would see these statements with shares bought for low prices ( like 88cents ) and valued in the statement at $3. You would then value the shares at Xero because thats where they could end up if the company in question at some stage in the future was viewed as a failure due to non performance.
The moral here is that the share price has no reflection on the long term value unless it performs - at some stage judgement day arrives. The moral here is tyou must have been a bloody useless banker
Sam Knowles is a retired banker and retired early too didn't he
Do you actually own shares Anonymous or did Rod run over your cat some time in the past. Why so vitriolic?
In my humble opinion, Xero is a completely different proposition to what NZ investors are used to. The founders have set out from the beginning to create a high growth INTERNATIONAL cash cow. From a small NZ base that takes time, but when its all in place then there will be little ongoing cost, and huge monetary rewards for those with the stomach to ride the growth years out.
Historically NZ IT companies are tiddlers on the world stage, thats why our startups are easy meat to US cashed up funds. Previously we have had the bright ideas, but no money to implement them or GROW them to significant scale. Xero has deliberately set out to create a mundane utility product that every company needs & will pay an ongoing fee to access, brilliant. Low maintenance, high market access, steady cash flow for ever more, & with anonymous international access across the world.
NZ needs far more of these simple, but far reaching cash cows. These will reverse the negative fund deficit. Its not inconcievable for Xero to have inward cashflows of $1 billion pa. within 5 to 8 years, ahla Facebook.
Without a doubt shareholders will be rubbing their hands with glee and are probably the ones who say this is a successful company.
However after 5-6 years of trading, numerous capital raising initiatives, a government handout and media hogging by its CEO one has the right to ask what is the cash being spent appropriately and when will a profit be made?
Also very tired of Drury saying everyone else should change because he says they should e.g. Tax laws re storage of records and Air NZ should lower there fairs to the regions. Either become a politician or put your money where your mouth is.
Yes Google and Facebook took years to make a profit but they were not created by serial entrepreneurs. They were techies who wanted to create something cool.
Investors love winners and making a quick buck. There is never a long term commitment. At a certain point Drury will sell out because that is what he does, Morgan son and father will also sell up because that is what they do. Father and son will then will say they should pay more tax but will not.
Over the hype of Xero especially the bias that the media gives it.
I am a shareholder and I am rubbing my hands together with glee. I don’t count them as being successful yet but there is a good possibility that they may be and possibly wildly so.
If the Government is going to hand out money then I for one would rather it went to a company like Xero which is employing a bunch of talented New Zealanders as opposed to the many other untalented New Zealanders the Government supports who consume a far greater portion of our resources than they deserve.
Also if you are given a platform from which to showcase your product why would you not do it? As a Shareholder I expect my CEO to be banging the drum.
I am not really sure why you are tired of things like Tax laws being questioned. Surely as technology emerges that can make a difference to the way we do things it should be investigated. I would definitely like to rid myself of the seven years worth of business crap stored in my garage on the off chance that IRD wants to put me through the ringer. Why shouldn’t electronic storage be the way forward?
As far as I am aware Drury has put his money where his mouth is several times. It’s just that this time the public gets a chance to share in the journey.
Facebook is not cool. It is a shameless tool to gather personal information for multi Nationals in order to market to their consumer base more effectively. It may have been cool for 12 minutes way back at the start until someone saw the revenue potential. Those poor Techies are now multi billionaires and I am sure they live in agony every day for selling out the dream....
Xero is not a pointless Facebook style timewaster. It is a product that actually manages to make a mundane but essential task a lot more palatable...fun even.
Love or hate the Morgans, their businesses are still going and in the hands of people who saw still more potential and what Business person doesn’t deserve the right to enjoy the fruits of their labour at some point. If Drury sells out then a lot of people will make a lot of money and the product will still be available.
What is your alternative scenario? Perhaps you should outline your plan for success.
When Xero IPOed it was overpriced in my view - but what Rod and the team has done is delivered for shareholders. Think 42 Below Vodka they generated a 40 - 50% return for shareholders - Xero is at 200%(?).
As an investor I am not worried about sales or profits but on the equity value. Like dairy farms if the Chinese will pay $220m for 16 farms and I can sell to them, then I do not care if other people (NZers) think they are only worth $180m.
So for investors in Xero a good return, probably inline with the investment risk.
As a comparable look at the NZ venture capital investors they are sitting on 80 cents in the $. So the choice - VC funds and a 20% loss or Rod and a 200% gain.
That is the performance Xero has provided.
The question for investors now is can the shareprice be sustained. If you think yes then buy if not sell. As an investor you have an investment decision to make every day.
I think you proved my point that our opinions are based on different perspectives. As a shareholder your opinion will be blinded, similar to the parent of a child who commits murder. You will still keep supporting it while you have an invested interest.
The loudest in the class is not always the smartest, no one can argue with this.
I said Mark et al created something cool, it is no longer cool so we agree.
With Xero bleeding money I suspect every month they claim a GST refund. Add to this the deferred tax loses and the government grant there we the tax payer have been funding this company since birth. I would prefer the government not put money into losers, both personal and corporate.
I am all for electronic storage however see no reason why it cannot be stored here. Trade Me has 2 huge data centres in NZ. Google has multiple data centres around the world which they pay for. Drury wants the Government to change the law so his business does not have to spend money on NZ hosting costs. Off shore hosting provides demand for his Pacific Fibre project.
Similar to the any investment the general public is not in a position to purchase shares. Share prices are inflated by the very people who are rewarded by it. And for some reason when it goes belly up we all pay for few peoples greed.
Good on the Morgan’s for selling Trade Me for $700mil but really who will pay for this? The customer will through excessive fees as Fairfax need to recoup the sale price. There is a difference between fairness and greed.
Well said
Paper profits aren't realised profits. There are no offers for the whole company at current prices. If it is that good why aren't the Morgans and Peter Thiel taking the company private and buying out all the other shareholders.
The jury is still out ( or should say the Drury is out ) on Zero.
Still a start up company in essence.
It's EPS growth that dictates business success and the long-term share price performance. The fund raising by Xero is diluting future EPS, and the current share price is based on promise.
This is not negative comment - it's plain fact.
Xero needs to deliver EPS growth for the share price to be sustained.
In response to different perspectives. The taxpayer is not funding Xero. The GST is a refund of GST paid, and the tax credits are only claimed when the company makes a profit - which it hasn't.
The governments Westpac account has not received $1 of tax since Xero's birth. When it does start making a profit how many years of trading will it take until the tax credits are exhausted?
While your worth on paper has increased so has the deficit due to lack of tax take from Xero.
Generally only exporting or start up companies would receive a GST refund, not a company that has been trading for 6 years with the majority of customers being in NZ.
A high share price is not a profit.
I wonder how long it will be until we read again that Xero has raised more capital?
There is no burden on the tax system. Quite the opposite. The majority of shareholder investment is used to pay nz employees, a large portion of which goes to the govt and the rest into the economy. Some of this cash injection into the economy comes from shareholders taking a risk. Most now comes from increasingly export oriented revenue.
I don't know where to start with your understanding of tax losses and gst refunds.
If Xero is the greatest thing ever then only revenue and shareholder investment would be needed. The taxpayer grant has propped up this underperforming company. Meanwhile Drury and his mates have cashed up the equal amount. How is that fair? Payment for service to NZ which wouldn't be possible without the grant?
I would like any NZ company to succeed but Christ only if it's truly sustainable without help from the State.
Apart from nationalising strategic assets no other company, especially after 5 years, has received the level of support Xero has.
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