Twilio, the software as a service company that offers secure messaging platforms, is making a big bet on mass emailing, spending $2 billion to acquire SendGrid, which sends out emails on the behalf of companies.
The all-stock deal, which is expected to close in the first half of next year, wasn’t well received by Twilio investors when it was announced last week. The deal announcement sent shares down as much as 12% on the news initially but the stock was able to recover and only close down slightly on the day it was revealed. SendGrid’s stock fared much better surging on the news. With a share price around $69, Twilio’s stock is still much higher than the $25.76 a share it started the year at.
Combined Company Will Have It All
In a press release announcing the deal, Twilio said the combined company will be able to offer developers a single platform to manage all of their communication channels including voice, messaging, video and now email. Twilio said each company currently drives more than half a trillion customer interactions annualized and are both growing rapidly. “Increasingly, our customers are asking us to solve all of their strategic communications challenges – regardless of channel. Email is a vital communications channel for companies around the world, and so it was important to us to include this capability in our platform,” said Jeff Lawson, Twilio’s co-founder and chief executive officer said in a press release announcing the deal. “The two companies share the same vision, the same model, and the same values. We believe this is a once-in-a-lifetime opportunity to bring together the two leading developer-focused communications platforms to create the unquestioned platform of choice for all companies looking to transform their customer engagement.”
Little Customer Overlap Between The Two
In an interview with the Wall Street Journal when announcing the deal, Lawson said the combined company will reach more than 100,000 customers and generate more than $700 million in revenue. He noted that customer overlap between the two companies is “relatively small” presenting an opportunity to grow. The two do count each other as customers and have focused on the same market: developers. Twilio, which became a public company in 2016, is centered on integrating voice calling, text messaging, video, web and mobile chat while SendGrid is focused on mass emails. SendGrid went public last year. The Wall Street Journal noted that both have annual losses as public companies.
As for the decline in Twilio’s stock immediately after the announcement was revealed, Lawson is unfazed. “In the short term, markets do what markets do, but in the long run, we are creating market value,” he said.