Head of Insight AccountingWEB
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Xero captures Hubdoc in $70m deal

1st Aug 2018
Head of Insight AccountingWEB
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Hubdoc founder Jamie Shulman meets AccountingWEB in 2014
Hubdoc_AccountingWEB
Hubdoc founder Jamie Shulman meets AccountingWEB

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.

The app was given a big endorsement by American accountants at the 2015 Xerocon in Denver and it won the Xero app partner of the year award at the same event the following year.

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.”

Ecosystem reverberations

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*

Replies (3)

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RedFive
By RedFive
01st Aug 2018 14:22

Interesting.

I trialed HubDoc earlier this year and asked Aweb over in AnyAnswers this:

https://www.accountingweb.co.uk/any-answers/anyone-using-hubdoc-yet

And received no response. So not much of a UK take up yet it seems.

From my side I binned it off after trialing for a month.

The dashboard is hopeless compared to AE. You can't see client uploads at a glance. In other words you would have to login to each client to see whether they had uploaded anything.

To compound that flaw you can't turn notifications on (for uploads) per client as you can with AE.

And you can't upload Sales invoices (same as you can't with RB) which you can with AE.

While AE still has it's own frustrations (including the new Partner Program which is bobbins and makes me fear AE don't understand their customer base) I'm convinced it is a far better solution.

Hence why I find the buy out by Xero as .....interesting.

Thanks (2)
Nigel Harris
By Nigel Harris
02nd Aug 2018 13:20

Yes, an interesting development. I had to smile at ReceiptBank's congratulatory tweet to Xero yesterday!

With Xero bringing on HubDoc and it's own improved expenses app it does seem to be competing more and more with the established app providers, despite the official word from Gary Turner. How long before they buy a dashboard/reporting app too?

Thanks (0)
avatar
By C.Y.Nical
03rd Aug 2018 14:45

Xero is of course a New Zealand company, which recently transferred its listing to the ASX.
Here is an interesting financial appraisal of Xero from a well-known Australian fund manager:-
https://brontecapital.blogspot.com/2018/08/xero_1.html

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