My take on theTwilio acquistion of SendGrid

My take on theTwilio acquistion of SendGrid

My Initial Impressions
First: Twilio is growing 60% per year. What do they need to acquire an email company for?

Second: Jeff Lawson is a gifted guy who has brought them this far. He knows more about what’s best for the company than I do. So I went to the:

SendGrid Investor Presentation where I learned:

They have been adjusted profitable for the last eight quarters.

They are a SaaS company growing revenue at 40% last year.

Their annual revenue is roughly a quarter of the size of Twilio’s so they are definitely a smaller company.

They have 75,000 customers (growing 35% yoy), and process about 45 billion emails per month! No customer with over 2% of revenue.

Their S&M spend is about 25% of revenue (like Twilio) while most SaaS companies spend an average of 54% of revenue.

They have an average of less tha 0.01% down time.

They have a 94% delivery rate versus an 80% industry average.

They have 39% international revenue.

Large customers are about one third of revenue (and rising) with their percentage increasing and a small churn rate.

Small customers are about a third of revenue too (but falling) and a higher churn rate.

Net dollar retention rate is 114%, inspite of churn among smaller customers.

In 2016 they grew revenue at 37%
In 2017 they grew revenue at 40%

Last quarter revenue was up 32%, they were operating cash flow positive and free cash flow positive, and gross margin was 75.3% up from 73.1% a year ago.

I may have made some minor mistakes in copying, but this is approximately correct. All sounds good so far, so I read the

Twilio Conference Call transcript about the Acquisition

"The rationale is quite simple, by adding the leading email API provider to the Twilio family, we believe we can create the unquestioned platform of choice for developers and businesses looking to transform their customer engagement…

The two companies have a great deal in common. We share the same vision, the same model, and the same values. We share the same vision to create powerful communications experiences for businesses by enabling developers to easily embed communications into the software that they are building.

Since the launch of our Engagement Cloud, we are increasingly having higher level, more strategic conversations with executives about how to reinvent their customer engagement. And more often, these discussions are touching upon email as well…

This has become even more apparent since the launch of Flex, our contact center application platform, as email is consistently one of the top requests from customers in our Beta program….

Our two companies have a powerful financial profile. If you annualize the Q2 2018 Non-GAAP results for both companies, you get revenue of $734 million, gross margin of 59%, and an operating profit of $18 million…

Our two companies have a powerful financial profile. If you annualize the Q2 2018 Non-GAAP results for both companies, you get revenue of $734 million, gross margin of 59%, and an operating profit of $18 million."

The CEO of SendGrid said that having an all stock deal was important to them as they want to participate in the future growth of the value of Twilio stock.

And someone asked Why pay so much? If we gave you $2 billion, couldn’t you have built something similar?

Jeff Lawson responded “Well, I think the value that we see in this combination is the sizable customer base that SendGrid has…. And so in addition to the technology here, there’s also the sizable customer base momentum that SendGrid has that makes this combination particularly powerful to create the unquestioned leader in the space. Sure, anything with time and money is possible, but it just pushes out the timeframe for you to get that value and we see this is as an opportunity to accelerate our lead in the market and to create that platform for customer engagement that will just be unquestioned as the leader.”

And the CEO of SendGrid said “The complexity in building that e-mail infrastructure at scale to be able to deliver 45 billion emails per month to ISPs with various sophisticated machine learning systems that sit at the edge of their networks to ensure that a customer’s email makes it into the inbox is not trivial, and that’s taken us nearly a decade to build out, to get the coverage and the long tail of these inbox service providers around the world, and I think a huge part of why each of us respectively never went into the other market, we looked over at building a super network with hundreds of carriers globally around the world and that looked very difficult to do, and I think the same is true on the other side.”

Made sense to me. Then I saw that Bert had written on it for his subscribers. I shouldn’t give out any details of his post, except to say that he was quite positive.

Finally, an announcement that SendGrid will pay a break-up fee of $69 million to Twilio if they change their mind. This meant to me that they really want this deal. It also meant that Twilio felt they were getting a good deal too, for them to insist on this.

My Conclusion: I feel positive about the deal and if Twilio wasn’t my largest (and oversized) position, I probably would have added to it this morning.

Hope this helps,



After spending a brief time searching it looks like a pretty standard break-up fee.

"According to a report by Paxton Law Group, between January 1, 2010 and June 30, 2014, “The average size of termination fees as a percentage of transaction value was 2.91% in public merger agreements, 3.00% in private merger agreements, 4.49% in stock purchase agreements and 3.76% in asset purchase agreements while the average size of reverse termination fees as a percentage of transaction value was 4.49% in public merger agreements, 4.28% in private merger agreements, 5.22% in stock purchase agreements, and 5.20% in asset purchase agreements.”


This episode with Twilio’s acquisition, and the stock hitting a low in the morning of down 12, 13, 14%, I don’t know exactly, and then finishing just down less than a percent, has me thinking how the world has changed and how lucky we are:

First – within minutes of the announcement I received an alert from Seeking Alpha, and a few minutes later another from my broker, telling me about the acquisition, and even linking me to the press release. I was thinking how magical this would have seemed to me just 25 years ago.

Second – I was immediately able to go to the Internet and read SendGrid’s last earnings report AND look at the thirty slides of their Investor Presentation. Talking about magical just 25 years ago! This would have been Science Fiction!

Third – To be able to read the Conference Call transcript about the acquisition the very next morning! (Thanks to a free service from Seeking Alpha). I just can’t tell you how valuable that is.

Fourth – To then have Bert’s take and analysis of the acquisition, also the very next morning! I wrote to him and told him that his newsletter is worth so much more to me than what I am paying him, and that I was going to send him an additional check, just in appreciation.

Fifth, and final – How lucky we are to have this wonderful board maintained for us for free by the Motley Fool! The subscription prices I pay are nothing compared to what this board is worth.

What a different world from 25 or 30 years ago, and how lucky we are to have all these wonderful sources of information, and this wonderful board.

Best to you all,



Well, I bought a smidgen more about 4 hours earlier after reading Dreamer Dad’s NPI post)

Subject: TWLO on sale!
Date: 10/16/2018 9:45 AM

Long Saul, Long Dreamer

1 Like


Only problem I have with your post is…stop telling Bert his info is worth more. He may take you up on it!

Unless generous young men like yourself keep sending him nice extra checks.

There are a lot of people that add great value to this board and we all have TMF to thank as well…but seriously Saul look at what YOU started and created. Look at all the wealth you have helped create and the knowledge you’ve helped spread.

This board changes lives. It is literally the only reason our family is in a position to very comfortably by the exact house in the exact place we want…using about 30% of my returns from this year.

Think about it this way. Even after I deduct 30% of my returns for a down payment on a home, I’m still up 20-30% on the market this year.

That’s what you have done Saul!!!


I made about 15 grammatical errors in that post…bed time!


Great post Saul. I’ve been looking at this acquisition. Also good to hear Bert likes it. I think I have to get a Bert subscription.

I know Twilio could easily build this, but SendGrid does have a great product - I’ve been using it for years, and it is very user friendly and great at helping marketing-challenged founders like me to get my content out to prospects without making it seem like spam.

I guess Twilio wanted the great design and all the customers from day 1. From a product point of view, these two companies are a great fit.

I am concerned about the price - did Twilio overpay, and if so, does it matter in the long run?

I also wonder why they paid with stock. I guess they considered that Twilio stock was more highly valued than SendGrid stock?

What does this do to dilution, revenue growth, and eventual profitability?


I also wonder why they paid with stock. I guess they considered that Twilio stock was more highly valued than SendGrid stock?

Apparently, it was essential to SendGrid that the transaction is stock-based because they want to have a stake in the future value creation from the company they are selling. I take that as a positive.…

"Sameer Dholakia

Yeah. Thanks, Mark. The decision for us and there’s a very important part of this, which is it’s 100% stock transaction, and that was critical to us. We were not looking to end the value creation. We’re looking – we believe that deeply that this pro forma company is going to create a lot of shareholder value in the future and as owners in the company of this new pro forma company, we’re going to be able to enjoy in that or all of our existing shareholders. So that was a big part of the logic in doing the transaction."



I also wonder why they paid with stock. I guess they considered that Twilio stock was more highly valued than SendGrid stock?

It’s actually really simple. On Monday’s valuation if you were holding 1 SEND share, you were holding a vaule of $30, or 0.4 times the value of one TWLO share at $75. Twilio is going to pay a premium to get control of SEND so they offered the customary +20% on the current price which is $36 per SEND share or 0.48 of one TWLO share. Unsirprisingly, SEND’s share price went to $36 on Tuesday.

The 20% premium is a good price to pay to get control of a publicly traded company. There are cases where shareholders refuse it and demand more.

Other than those 20% it’s not really stock dilution, but simply a merger of the TWLO shares with the SEND shares. In other words there will be more shares but only proportionally to owning the merged TWLO+SEND company.

The more I think about it the more it seems like a pretty good bargain.


As I read the discussion, I think they said it will be slightly accretive to revenue per share, adjusted earnings per share, and cash flow per share, all before any cross-selling, or other integration.

Also Jeff Lawson indicated that the larger enterprises were asking for email to be integrated into the offering, which made it somewhat of an imperative to them.




Saul look at what YOU started and created. Look at all the wealth you have helped create and the knowledge you have helped spread. This board changes lives.

Hi Austin, Thanks so much for your kind words!


A opinion from Gary Alexander published on


Twilio rocked the markets when it announced it was buying SendGrid for $2 billion for all stock.

Admittedly, SendGrid’s product is a strong fit, adding email capabilities to Twilio’s broad API portfolio.

However, this blockbuster acquisition is a departure from Twilio’s typical strategy of growing organically.

The purchase price also represents a ~12x revenue multiple for SendGrid, an unjustifiable premium during a period of volatility for tech stocks.



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Hi Starrob,
As far as I can tell, what Gary Alexander does is take a superficial look and then say that everything is too high. Since he almost always says the same thing, I don’t find his articles very useful and I find it hard to take him seriously.


As usual your insights are of deep value. Not just with respect to this particular merger between Twilio and SendGrid, but as a teaching tool in how to analyze at any merger. Thanks again for sharing, I along with many in this community have materially benefitted from your selfless contributions.