Twilio (TWLO) announced a big acquisition last night with SendGrid (SEND) in an all-stock transaction valued at
approximately $2 bln. Twilio develops application programming interfaces (APIs)
that software developers can plug into applications to add voice, text, and
video communications to an existing platform. Its largest base customer is
Uber, which uses Twilio to communicate with drivers and passengers.
Basically, Twilio is a platform w that develops APIs that allow customers' software developers to add voice communications like phone calls, text messaging via SMS, video, and a wide variety of other types of communications into their software applications.
You probably use Twilio all the time but just don't know it, including calling a driver from inside the app. If you have two-factor authentication enabled on services like Box or many others and you get that six-digit code texted to you, that's Twilio sending that message. If you make a dinner reservation with services like OpenTable and you get a text message reminder when your table is ready, that's Twilio.
SendGrid is a developer of APIs that customers use to deliver emails to customers. About 80% of revenue comes from API Email, which is a user generated email or triggered email. It's getting a confirmation, reminder, receipt, or other email after the transaction, perhaps asking you to fill out a survey etc. Then about 17% of revenue comes from promotional email or marketing campaigns.
Turning to the details of the transaction, at the exchange ratio of 0.485 shares of Twilio per share of SendGrid, this price equates approximately $36.92 per share based on yesterday's closing price. The transaction is expected to close in 1H19. The boards of directors of Twilio and SendGrid have each approved the transaction.
In sum, so why do this deal? TWLO sees adding the leading email API platform to the leading cloud communications platform will drive tremendous value to the combined customer bases. The resulting company would offer developers a single platform to manage all of their important communication channels -- voice, messaging, video, and now email as well. Together, the companies currently drive more than half a trln customer interactions annualized.
Increasingly, customers are asking TWLO to solve all of their strategic communications challenges - regardless of channel. TWLO's share price is down quite a bit today (-12%) and that's dragging down SEND's stock price as this is an all-stock deal. Perhaps investors are concerned about the price being paid and the dilution it will create. TWLO has a market cap of $6.6 bln and they are paying $2 bln for SEND, so that is a big chunk to pay out in stock. Perhaps some investors are wondering if it's worth the price.
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