twilio confirms it is buying segment for $3.2b in an all-stock deal

Twilio has announced its largest acquisition to date, signaling a greater emphasis on customer data management in addition to its current suite of API-based communication tools.

The company will acquire Segment, a technology firm that enables organizations to consolidate customer data from various applications through APIs, for a total of $3.2 billion. This acquisition will allow businesses to exert greater control over the flow of customer data, which is vital for marketing and other applications reliant on customer identification and segmentation.

This transaction will be completed entirely in Twilio Class A common stock, on a fully diluted and cash-free, debt-free basis, and is anticipated to finalize in the fourth quarter of 2020. Following the acquisition, Segment will operate as a division within Twilio, according to statements from both companies.

Reports regarding the potential deal initially surfaced on Friday. (It’s worth noting that we also received similar information and were investigating the possibility when the initial story was published. Sources indicated the deal’s value would be between $3 billion and $4 billion, with a potential announcement occurring today.)

This move highlights Twilio’s expanding role in customer engagement services, encompassing both marketing data and other applications, thereby increasing its competition with companies like Adobe.

“Customer data existing in isolation hinders exceptional customer experiences,” stated Jeff Lawson, co-founder and CEO of Twilio. “Segment empowers developers and businesses to overcome these obstacles and develop a comprehensive understanding of their customer base. When combined with Twilio’s Customer Engagement Platform, we can deliver more personalized, timely, and effective interactions across customer service, marketing, analytics, product development, and sales. We are excited to welcome Segment to the Twilio team.”

“Twilio and Segment, working together, have a significant opportunity to establish the leading customer engagement platform for the future,” added Peter Reinhardt, Segment’s co-founder and CEO. “We founded Segment to assist businesses in differentiating themselves in the digital landscape and providing enriched, interconnected customer experiences built on reliable data. By integrating our customer data platform with Twilio’s engagement cloud, we can streamline the entire customer journey.”

This acquisition represents Twilio’s most substantial to date, exceeding the $2 billion spent to acquire SendGrid in 2018, which added email capabilities to its communication tool offerings. Segment’s most recent valuation stood at $1.5 billion following its last funding round.

The acquisition of Segment represents a logical step in Twilio’s evolution over the past decade.

Twilio initially gained recognition in 2008 by offering a straightforward method for companies to integrate text and voice services into their applications. Through the use of APIs and minimal coding, businesses could readily access the rapidly expanding world of smartphones and app usage, directly incorporating communication tools into their offerings.

Over time, these foundational tools have evolved to encompass a broader range of communication channels, including email and chatbots, alongside a more targeted set of applications for specific industries. This expansion also includes enhanced tools for managing and improving customer relationships, as well as those for identifying, segmenting, and engaging with customers.

Strategic acquisitions have been instrumental in building this aspect of the business. A source indicates that Twilio previously attempted to acquire Intercom, a customer relations messaging service, in both 2014 and 2015. However, the companies were unable to reach a mutually agreeable price at that time. (Further developments may be forthcoming?)

Currently, Twilio’s Solutions business concentrates on applications within marketing, customer service, and customer identity. These areas all represent significant use cases for Segment, which serves approximately 20,000 customers utilizing its platform to “collect, clean, and control” customer data.

For Segment, this acquisition provides increased scope and access to a larger pool of potential customers for its tools:

The acquisition of Segment also has the potential to attract new customers to the Twilio platform, creating opportunities to offer them additional Twilio services. Furthermore, given Segment’s commitment to responsible customer data handling, particularly in an era of growing awareness and data breaches, it strengthens Twilio’s product offerings in this critical area.

https://techcrunch.com/2020/10/12/equity-monday-twilio-buys-segment-and-airkit-raises-28m-for-its-low-code-platform/

There are notable synergies between the two companies. Both are built on an architecture that utilizes APIs to integrate services and transfer data between locations, and an existing integration between the two platforms is likely already in widespread use.

Additionally, as one source pointed out, a significant number of former Twilio employees, referred to as “Xwilions,” are currently working at Segment.

These individuals include CFO Sandy Smith, advisor Sandy O’Gorman, and CSO Colleen Coolidge, who has also recruited numerous former Twilio engineers.

While customer service and customer experience may appear distinct, they are inherently linked. Communication generates data, and businesses are seeking improved methods for connecting data creation with its subsequent utilization. In essence, the two areas are complementary.

This post has been updated to include insights from the Twilio/Segment conference call held earlier today.