Xero buys Australia’s Paycycle for $1.5m

Accounting software provider Xero yesterday afternoon revealed it had signed an agreement which will see the company acquire Australian-based payroll startup Paycycle.

Xero is a New Zealand-based accounting software company which has offices in Australia in Melbourne, Sydney and Brisbane, that offers a web-based accounting package for small to medium businesses. As part of its strategy to grow usage of its product in Australia, the company has today confirmed that they will pay a total of $1.5 million — $500,000 dollars in cash and $1 million in shares — to acquire Paycycle’s technology and team.

Paycycle was founded in 2009 by two Australians, Stuart McLeod and John Freeman, both of whom wanted to see simpler, easier to use payroll software for small businesses in Australia. “By no means have we achieved everything we set out to do, but I can say judging from some of our feedback, that we at least achieved that goal,” McLeod wrote on the company blog today.

“There’s no doubt therefore that the success of this bootstrapped startup fills us with a great sense of pride and achievement, having built Paycycle from just an idea through to the creation of value that is loved by customers and considered a desirable organisation, in what is a fairly barren level of acquisition activity in the technology landscape in Australia.”

Before today’s announcement, Paycycle was already closely integrated with Xero, which most likely played a key role in Xero’s acquisition of the Australian company. McLeod also mentioned that the Paycycle team suggested the acquisition to Xero as early as 2009, when they told Xero’s co-founder Hamish Edwards that Xero was their “exit strategy.”

Despite the acquisition, Paycycle will remain as is for now, with Xero to integrate payroll functionality into their product by early 2012 at which point users will have the option to remain as a Paycycle-only customer or switch to Xero with all Paycycle data able to be easily moved across.

The Paycycle team will also make the move to Xero, with McLeod to become General Manager for Payroll functionality, Freeman to join the payroll product development team and the rest of the Paycycle employees to assume positions under Xero’s new payroll arm.

Image credit: Max Romersa, royalty free