Twilio announced that it will be acquiring SendGrid, the world’s first cloud-based email delivery platform, for $2B in an all-stock transaction. SendGrid has around 75,000 customers who use the platform to send roughly 45B emails per month, even handling APIs for companies like Uber and Spotify. The deal is expected to close in the first half of 2019, leaving Twilio with over $730M in annual revenue and a total addressable market of $66B, up $11B from pre-acquisition. Here are our thoughts on Twilio acquiring SendGrid:
1. Twilio Is Consolidating Into A One-Stop Shop, Which Could Disturb Some Third-Party Aggregators. The move to consolidate makes a lot of sense for Twilio and presents an opportunity to generate even more revenue. API aggregators like Cloud Elements, Xplenty, and Zapier were developed out of a need to integrate existing APIs and all had offerings that brought together SendGrid and Twilio. The most recent data available shows Cloud Elements has $21.2M in total venture funding, XPlenty has $7M, and Zapier has $1.3M. Twilio acquiring SendGrid shows API aggregators need to keep in mind the companies they focus on could merge, eliminating a target market.
2. Post Acquisition Integration Should Be Relatively Smooth. As we’ve mentioned in prior posts, both about Adobe acquiring Marketo and Mulesoft joining Salesforce, post acquisition integration is usually the biggest challenge and can cause a lot of channel and product conflict. However, as SendGrid CEO Sameer Dholakia noted, the SendGrid unit will function on its own. Dholakia will retain control of the division, seeking to boost revenue by capitalizing on the cross-sell opportunity. Despite some third-party aggregators targeting both companies, Twilio and SendGrid acknowledge they have relatively few joint customers. Expect smooth post acquisition integration as Twilio and SendGrid help their current joint customers and prepare to onboard more.
3. Their Consolidation Could Become The Model For Building Market Share In Cloud-Communications. Twilio acquiring SendGrid will allow both companies to maintain their emphasis on reducing customer friction. Had Twilio attempted to expand into email communications on its own, it likely would have faced significant integration issues. Stephen Bersey, a senior analyst at MUFG Securities, noted that there are separate laws regulating email communications that Twilio would have needed to comply with. The decision to merge at 10x SendGrid’s revenue appears a good deal for Twilio, especially when you consider Salesforce’s acquisition of MuleSoft at 12x Mulesoft’s future revenue, or 21x enterprise value to trailing twelve months revenue, as noted in a prior post.
All in, Twilio acquiring SendGrid demonstrates the dynamism and consolidation in the cloud-communications ecosystem. While it could spell trouble for some third-party aggregators, the move will position Twilio and SendGrid to continue to deliver to their customers and continue to innovate.
If you liked “Quick Thoughts on Twilio Acquiring SendGrid” and want to read more content from the Bowery Capital Team, check out other relevant posts from the Bowery Capital Blog. Special thanks to Robbie Linck for his help with this post.