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Twilio’s $3.2bn Acquisition of Segment

By Oishee Chakrabarti, AJ Tomas, Sidd Jain (University of Chicago) & Sally Marshall, Max Raso, Izer Onadim, Valeriya Shreyber (Imperial College London)


Overview of the deal

Acquirer: Twilio

Target: Segment

Implied Equity Value: $3.2 billion

Total Transaction Size: $3.2 billion

Closed date: October 12, 2020

Target advisor: Q4 2020

With an aim “to build the customer engagement platform of the future,” Twilio announced the acquisition of the customer data platform Segment on October 12th. Twilio will acquire Segment for approximately $3.2 billion in Twilio Class A stock (which allows for a fully diluted and cash-free/debt-free transaction), thereby making Segment a division of Twilio. The transaction will allow for an acceleration of Twilio’s growth with a combined total market value of $79 billion, bringing the communications company closer to its vision of becoming the leading customer engagement platform trusted by developers and companies around the world. Twilio’s acquisition of Segment promises to not only enable businesses to understand customer data and tear down data silos that hinder customer satisfaction but to also allow for a better platform for engagement through effective communication. This transaction is expected to close in the fourth quarter of Twilio’s fiscal year 2020, subject to satisfactory closing conditions, with financial advising from Morgan Stanley & Company LLC.

“The one thing that’s always been missing from Twilio as we’ve been building up this customer engagement platform is understanding of the end users themselves. We power the communications, but we don’t actually know who the customers are.” - Jeff Lawson, Co-Founder & CEO of Twilio

Company Details: Acquirer – Twilio

Twilio is a cloud communications platform that enables developers and innovators to build and operate communications within software applications across the globe. The communications company enables innovators, across industries, to engage with their customers in revolutionary ways. Twilio has virtualized the world’s communication infrastructure through APIs that are developer-friendly yet robust enough to power the most demanding applications.

Founded: March 13, 2008

Headquarters: San Francisco, CA

CEO: Jeff Lawson

Number of Employees: 4,500 (as of 2020)

Market Cap: $48.38 billion (as of 10/19/20)

EV: $47.17 billion

LTM Revenue: $1.39 billion

LTM EBITDA: - $260.42 million

LTM EV/Revenue: 33.89x

Company Details: Target - Segment

Segment is a leading customer data platform that allows for access to reliable data and offers a toolkit for standardized data collection, unifies user records, and links customer data into any system. Segment is used by more than 20,000 companies including Intuit and FOX to accelerate growth and offer extraordinary user experiences.

Founded: 2011

Headquarters: San Francisco, CA

CEO: Peter Reinhardt

Number of Employees: 596

Projections and Assumptions

Short-term consequences

As the world enters the new normal of online classes and home offices, the importance of cloud companies has soared, with customer experience high on the list of priorities. Twilio’s primary solutions business focus on applications involving marketing, customer experience, and customer identity, all of which increasingly rely on reliable, high pace data streams. Combining two market leaders in the cloud communication and customer data platform (CDP) spaces, in the biggest acquisition seen in the CDP space will enable a much more personalised and engaging customer experience, which only supports Twilio’s long term focus. Increasing customer engagement through the acquisition will potentially increase usage in Twilio’s other lines of service. Additionally, access to cleaner, more complex data on the platform will allow developers to create more varied applications using Twilio’s API.

Wrangling consumer insights can be extremely difficult, specifically when combining data & software from different architectures and systems. The merger between the two companies' services will allow Twilio to integrate these processes in data collection and analytics, into one unified system that allows companies to better understand their customers. The current integration between the two is rather known, with many customers already using both companies’ services due to their similar method of using APIs to transfer other services/port data from place to place, so the combining of services will only allow for further loyalty from these customers. With many rumoured ex Twilio engineers now working for Segment, the streamlining of the two’s services is more than likely to be not too far in the future.

Finally, as J.P. Morgan’s Murphy highlights, shareholder voting influence is concentrated with a small group of investors. Twilio has a dual-class common stock structure wherein voting power is concentrated with the company’s class B shares (10 votes per share; ~96.8%). This group is composed of directors and pre-IPO investors. However, Segment equity holders will be getting class A shares (1 vote per share) therefore meaning they will have limited influence on the future direction.

Source: Twilio Investor Relations

Long-term Upsides

When companies are becoming increasingly aware of the need for responsible data handling, data protection is a clear area of emphasis for customers of the industry. Given Segment's recent statement on their focus on data protection, Twilio will provide a much more robust product set in this area. With the prospect of much stricter regulation, it is likely Twilio will be able to weather this better than many of its competitors.

Completing this transaction will mean that Twilio can further accelerate its already sizable growth, providing them with a total addressable market of $79 billion. This will bring Twilio closer to its future vision of becoming the world's leading customer engagement platform trusted by developers and companies globally.

In the long term, Twilio and Segment ought to build a customer engagement platform of the future. Segment focuses on delivering connected customer experiences built upon high-quality data. Therefore, by joining forces and applying their customer data platform to Twilio's engagement cloud, the combined entity should be able to offer a full, end-to-end experience for their customers.

Risks and Uncertainties

There are several apparent risks associated with the proposed deal, both to the deal itself and to the companies. To begin with, it is still unclear whether the COVID impact is short-lived or long-lived. Vaccine research is happening at breakneck speed. If the threat of COVID passes away, there will be less need for online classes and home offices, resulting in lesser demand for cloud services and recurring revenue. If use cases fail to expand by the time everyday life continues, this will present challenges to the net expansion, and synergies will not be realised to the full potential.

A further uncertainty going forward is the possibility of investors placing a larger premium on margins - which could impact the combined entity down the line. Other factors that could cause trouble are the ability of Twilio and Segment to successfully integrate their technologies, products, and operations; the ability to coordinate strategy and resources and the capability of achieving all the prospective synergies and efficiencies.


Cowen & Company: TWLO to Acquire Segment

JMP Securities LLC: Twilio Inc.

J.P. Morgan: Twilio - $3.2B All-Stock Transaction Marks Entry into Customer Data Platform

Morgan Stanley: Twilio Announces Segment Acquisition as Customer Engagement Platform Goes Vertical


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