Why the ELMO Software (ASX:ELO) share price surged 11% higher today

Here's why the ELMO Software Ltd (ASX:ELO) share price is surging higher on Thursday…

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The ELMO Software Ltd (ASX: ELO) share price has been a very strong performer on Thursday.

In afternoon trade the cloud-based HR and Payroll software provider's shares are up over 11% to $6.53.

Why is the ELMO share price surging higher?

Investors have been buying ELMO's shares today after it announced another bolt-on acquisition.

According to the release, the company has agreed an initial payment of 20 million pounds (A$35.3 million) to acquire UK-based Webexpenses.

This consideration comprises a combination of cash (51%) and scrip (49%). The deal also comes with an earnout consideration of ~13 million pounds (A$23 million), which is payable in the same balance of cash and scrip, and is subject to the achievement of financial targets.

What is Webexpenses?

Webexpenses is a high growth, cloud-based expense management solution.

Management notes that the acquisition provides ELMO with highly complementary technology, as well as a large customer base. It expects this to accelerate its mid-market expansion in the UK. It also adds to ELMO's revenue, customer base, and its market opportunity.

In respect to the latter, management estimates that the acquisition increases ELMO's Total Addressable Market (TAM) by A$1.4 billion to A$12.8 billion across the UK and ANZ markets.

"An exciting and significant step."

ELMO's CEO and Co-Founder, Danny Lessem, believes the acquisition of Webexpenses is an exciting and significant step for the company's growth.

He commented: "The acquisition of Webexpenses is an exciting and significant step in ELMO's growth journey. The Webexpenses platform is highly complementary to ELMO's existing offering. Customers will have the ability to manage employee expenses effectively and efficiently as part of our convergent HR and payroll solution."

Mr Lessem also sees the opportunity for cross-selling between the two companies' customer bases.

"The cross-sell opportunity for ELMO's comprehensive product suite into Webexpenses' large customer base is substantial. ELMO's market opportunity has increased markedly, and our strategic positioning is further strengthened," he added.

FY 2021 guidance.

The acquisition of Webexpenses has led to ELMO increasing its guidance for FY 2021.

It now expects annualised recurring revenue (ARR) of $81.5 million to $88.5 million and an EBITDA loss of $2.4 million to $7.4 million. This compares to its previous guidance for ARR of $72.5 million to $78.5 million and an EBITDA loss of $3.5 million to $7.5 million.

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Elmo Software. The Motley Fool Australia has recommended Elmo Software. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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