ELMO acquires UK HR platform Breathe

[UPDATED FEBRUARY 2021: The market-leading Breathe solution is now available in Australia to help small businesses digitise their critical HR processes.]

Sydney, Australia 7 October 2020: ELMO Software Limited (‘ELMO’) today announces the acquisition of Breathe, a fast-growing, scalable HR platform for small businesses, based in the United Kingdom (UK). The acquisition provides ELMO with entry to a new market segment, the small business market (<50 employees), while at the same time expanding ELMO’s footprint in the UK.

Founded in 2012, Breathe is a market leading self-service HR platform for small business. The self-service business model is highly scalable and makes it fast, easy and cost-effective for small businesses to digitise critical HR processes.

The transaction adds to ELMO’s revenue and customer base. Breathe’s annualised recurring revenue (‘ARR’) as of 31 August 2020 was £3.6 million (A$6.5 million), which has been growing at over 30% annually. Revenue is 100 per cent subscription-based and recurring in nature. Breathe has a large and growing customer base in the UK with over 6,700 customers. Customer retention is high at over 85%. Breathe is EBITDA neutral having invested for growth. Founder Jonathan Richards will continue on as CEO of Breathe UK.

The acquisition of Breathe facilitates access to a new market segment for ELMO: small business, with less than 50 employees. This new segment increases ELMO’s Total Addressable Market (TAM) by A$2.2 billion, to A$11.4 billion, across Australia, New Zealand and the United Kingdom.

The transaction presents significant new revenue opportunities for ELMO. Breathe will be launched into the Australian and New Zealand markets, accessing a new A$660 million market opportunity, leveraging ELMO’s infrastructure and expertise. In addition, Breathe will cross-sell additional existing ELMO HR modules into its large UK customer base.
The purchase consideration consists of an initial payment of £18.0 million (A$32.4 million) using a combination of cash and scrip. In addition, an earnout consideration is payable in cash subject to the achievement of financial targets. The earnout consideration is estimated to be £4.0 million (A$7.2 million).

ELMO CEO and Co-founder Danny Lessem said: “The acquisition of Breathe is an important step in ELMO’s evolution as a provider of cloud-based HR solutions. Strategically, Breathe is a very compelling, fast growing business. It provides ELMO with access to a new and attractive customer segment, complementary technology, and a significant UK footprint. The strategic crossovers and revenue opportunities are very meaningful, and our market opportunity has significantly expanded.

“We are now able to transform the way people are managed, either in office or remotely across all market segments, improving productivity, performance and overall wellbeing of millions of workers across Australia, New Zealand and also the United Kingdom.” As a result of the acquisition, ELMO provides the following updated guidance for FY21. Organic guidance provided in August is re-affirmed:

• Annualised Recurring Revenue (ARR): A$72.5-78.5 million (previously $65-70 million)
• Revenue A$61.0-66.0 million (previously $57-61 million)
• EBITDA A$(3.5-7.5) million (previously ($4-7 million))