Cloud accounting consolidation took another big step forward just before midnight UK time on Tuesday when Xero announced it had acquired Canadian data capture software developer Hubdoc.
Reports from ZDNet suggest the deal will be worth US$70m, with around 30% payable in cash up front, backed with 55% in Xero shares and a further $10m in equity to be released to Hubdoc shareholders in 18 months, depending on achieving agreed targets and conditions.
With its ability to retrieve transactional data from 700 US banks and store it in a web portal alongside OCR invoices and other client documentation, Hubdoc has become a phenomenon in North America since it launched in 2014. Hubdoc’s biggest selling point is to help accountants collect and manage data around the tax busy season.
An all-American deal
Xero's Hubdoc announcement makes it very clear that the focus of the deal is North America. The Hubdoc team (referred to internally as Hubdogs) will remain as a separate outfit in Toronto and founders Jamie Shulman and Jamie McDonald will report to Xero Americas president Keri Gohman.
Xero has struggled to make the same impact in North America that is has had in New Zeland/Australia and the UK. Aside from bringing new capabilities into the Xero stable, Hubdoc will strengthen Xero’s credibility with American accountants and act as a lure to tempt them away from the QuickBooks camp.
According to Xero, Hubdoc complements its “financial web” strategy by combining its financial data-fetching and online archive with automatic syncing and matching with transactions in Xero, so that businesses and their accountants will always have access to an up-to-date set of books.
The Hubdoc approach worked well in America and encouraged the company to expand into the UK at the beginning of the year. Ironically, Hubdoc chose to introduce itself to local accountants at a frosty QuickBooks Connect event in February.
The UK view
Xero UK managing director Gary Turner played down the significance of Hubdoc’s banking integrations. “That’s probably more reflective of American banking industry because we’ve already built direct integrations,” he told AccountingWEB.
“The trade supplier connectivity is more important in the UK – pulling in invoices from suppliers and sucking in mobile phone bills and the like so you can eliminate the inflow of paper. That’s one of the most interesting aspects for this market. “You can connect your Hubdoc account to Xero and then Hubdoc connects to your mobile phone company or trade supplier and their bills automatically download and pass into Xero.”
“For the first 10 or so years, Xero’s mission has been to get you onto a different platform. Now our vision for accountants is to connect these services together in an automated way. We’ve got an opportunity to accelerate that by acquiring Hubdoc,” Turner said.
Sunderland-based sole practitioner Stephen Gibson of NE Accountancy is among the early adopters of Hubdoc in this country. In a message relayed by his client and software industry commentator Dermot Hamblin, Gibson responded positively to Turner’s rationale for the deal: “My reason for purchase was simple – if it can save me time, then I’m interested. With MTD just around the corner, tools like Hubdoc will be essential if I want to be able to cope with the increase in workload. I’ll be looking forward to additional UK companies being integrated with Hubdoc – for example, builder’s merchants. Being part of the Xero family can only speed that up.”
One of the key technologies within Hubdoc is the fetch facility that plugs into bank feeds, online bills and statements from online services such as Uber and PayPal. Coincidentally, data and expenses management market leader Receipt Bank introduced a similar capability last week.
Seeing Xero moving onto its patch is unlikely to sit well with Receipt Bank and will send a ripple of anxiety through the cloud accounting ecosystem. In the past, Xero always emphasised that it was only interested in “horizontal” financial applications and that it would leave vertical markets such as accountancy practice open for other developers.
During the past year, Xero has introduced its HQ app platform for practitioners and gained a new CEO, Steve Vamos, who is now putting his own stamp on the organisation. The Hubdoc acquisition could also be a response to ecosystem expansionism at Intuit, which snapped up the timesheet app T-Sheets in December.
With so many apps circulating around the big cloud accounting engines, observers including Xero executives have been predicting a wave of consolidation for many years. But what they didn’t tell us was that they would be the ones acquiring the front-runners.
As the US editor of AccountingWEB.com Seth Feinberg put it, “The ecosystem is up for grabs.”
In response, Gary Turner presented the acquisition as part of the accepted give-and-take of the Xero-connected app world. “We massively value the pioneering work organisations like Receipt Bank, AutoEntry and datamolino have done in past few years, which we’ve benefited from and so have many accountants,” he said.
“Receipt Bank is a very mature product and that hasn’t changed because we bought Hubdoc. While those apps serve a really important function in the ecosystem, they aren’t globally scaled. Receipt Bank and AutoEntry have established themselves in the UK, but we don’t see the same presence in other territories. We see Hubdoc as complementary to what they’re doing. Those are the conversations we’ve been having and that’s the way they’ve been received.”
*1 Aug 2018: This article was edited to correct a spelling error*