Twilio Acquires SendGrid in a $2-Bn Deal

Cloud technology company Twilio Inc. said on Monday that it would buy email technology firm SendGrid Inc. in an all-stock deal that is valued at around $2 billion, tying up the two firms that handle communications between apps and their users.

Twilio logo on screen

While Twilio’s technology aids its customers like Airbnb Inc and Lyft Inc send text and other types of messages to its users, SendGrid focuses on email.

“We started Twilio by building voice, then SMS, video, web, and mobile chat, channels like Facebook, Messenger, WhatsApp. Along the way, email has been something that customers have asked us about,” Twilio Chief Executive Jeff Lawson said on a conference call while explaining the acquisition.

Meanwhile, SendGrid CEO Sameer Dholakia said in an interview that many of Twilio’s products get a higher amount of revenue per user than do SendGrid’s.  The email firm, which will operate as a standalone unit within Twilio under Dholakia, could bolster its revenue by selling Twilio services to SendGrid customers. The two firms have few joint customers.

“A huge part of the calculus for both sides was the cross-sell opportunity,” said Dholakia.

Twilio will offer 0.485 share of its stock for each SendGrid Class A common share. The agreement is valued about $36.92 per share, a premium of 19.4 percent to SendGrid’s closing price on Monday.

Send Grid share increased 14.5 percent  to $35.40 during extended trading, while Twilio slipped 4.5 percent to $73.

“While it’s expensive at 10 times [SendGrid’s] 2019 revenue, I think it is a good deal for Twilio that should work out well over the long term,” said Pat Walravens, who is an analyst for JMP Securities, remarking that Salesforce.com Inc. recently acquired MuleSoft Inc. for a price that’s equal to 12 times MuleSoft’s future revenue.

Analysts’ also noted that it would have been difficult and expensive for Twilio to build out its own email capabilities.

“There are separate laws that are regulating email. So it’s outside of their wheel house, and in my opinion it would have taken them some time if they decided to do it organically,” said Stephen Barsey, who is a senior analyst at MUFG Securities.

Meanwhile, Twilio’s Lawson said to investors on the conference call that two partners of Bessemer Venture Partners, Byron Deeter, who is on the boards of the two companies, and Jeff Epstein, a Twilio board member, recused themselves from discussion of the agreement. Bessemer invested in both of the firms before they went public and owns about 13.7 percent of SendGrid’s shares.

“This decision was made between the two companies, without any involvement from anyone at Bessemer” said Lawson.

Goldman Sachs served as the financial adviser to Twilio, while Morgan Stanley acted at SendGrid’s financial adviser.

The firms expect the deal to close in the first half of 2019, subject to approval by shareholders of both companies.

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