Xero is on the hunt for new acquisitions and plans to raise US$300 million through an issue of convertible notes it will list in Singapore. 

The software developer expects to break even on a cashflow basis in the March 2019 year excluding merger and acquisition activity, with any surplus ploughed back into the business. Xero has already started putting its feelers out for potential acquisitions, buying Canada’s Hubdoc in August for up to US$70 million and yesterday said it planned to build a war chest for other investments. 

The company will sell the senior unsecured notes through a subsidiary and plans to list them on the Singapore Exchange Securities Trading. The notes will be settled for cash in October 2023 at a 30 percent premium over the reference share price unless Xero opts to issue shares instead. The interest rate on the notes hasn’t yet been set. 

“We see the additional financial flexibility provided by this offering as supporting the significant opportunity we have to enhance and extend Xero’s small business platform and ecosystem capabilities through the pursuit of complementary targeted acquisitions,” chief executive Steve Vamos said. 

The Singapore listing follows Xero’s decision to quit the NZX earlier this year while retaining its Wellington headquarters. The stock’s sole ASX listing was a means to enhance liquidity and attract a broader range of analyst coverage and a wider pool of investors. Xero listed on the NZX in 2007 at $1 and left at $34 in February this year. The shares last traded at A$49.69. 

Xero also said it was comfortable with analyst forecasts for 2019 revenue of between $528 million and $558 million and earnings before interest, tax, depreciation and amortisation of $66 million to $94 million. 

The company also has a $100 million stand-by banking facility with Bank of New Zealand and ANZ Bank New Zealand to draw on for M&A, which will focus on strategic and complementary businesses and assets. Xero said it doesn’t have any agreements or understandings lined up. 

Goldman Sachs and Morgan Stanley are the joint lead managers for the convertible note offer. Xero will enter into a call option with the firms to reduce the dilution of existing shareholders.

Craig Winkler’s Givia, which owns about 10 percent of Xero stock, will enter into a stock lending agreement of more than 1 million shares with a Goldman unit, ending in 2023 when the notes mature. At that point the borrowed shares will have to be returned. 

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