Boyden Executive Search

Seeing a key cross-selling opportunity, cloud technology firm Twilio will add email to its suite of communication APIs by acquiring SendGrid.

Twilio announced the $2 billion all-stock deal, its largest ever, on October 15. Both companies are cloud communications platforms for software developers, but with complementary offerings: Twilio is used to build voice, messaging and video into applications, while SendGrid focuses on email. The merged company will be able to provide a “single platform for all customer engagement,” according to a Twilio news release.

“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,” said Jeff Lawson, Chief Executive of Twilio. The email firm, once integrated, will operate as a standalone unit within Twilio, headed by SendGrid’s current CEO, Sameer Dholakia.

While both cloud technology firms are in the business of communication APIs, they have few customers in common. And as Dholakia pointed out, many of Twilio’s products bring in more revenue per user than SendGrid’s. Selling Twilio services to SendGrid customers should enable it to boost its revenue. “A huge part of the calculus for both sides was the cross-sell opportunity,” Dholakia said.

It would have been difficult and expensive for Twilio to build out its own email capabilities, according to analysts. “There are separate laws that are regulating email. So it’s outside of their wheelhouse, and in my opinion it would have taken them some time if they decided to do it organically,” Stephen Bersey a senior analyst at MUFG Securities, told Reuters.

“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, an analyst for JMP Securities, noting that Salesforce.com recently acquired MuleSoft for a price equal to 12 times its future revenue.

The deal between the two American cloud communications firms is expected to close in the first half of 2019, subject to approval by shareholders of both companies.

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