Twilio’s $3.2 Billion Takeover

API Companies Grow Through Acquisitions

API companies Twilio (TWLO) and Segment will join forces in a $3.2 billion deal. The merger was rumored to be in the works over the weekend and was confirmed on Monday morning. Twilio will acquire Segment using its Class A common stock by the end of the year. After the announcement, Twilio’s stock jumped over 7% on Monday.

“By joining forces and applying our customer data platform to Twilio’s engagement cloud, we’ll be able to make the entire customer experience seamless from end-to-end,” Segment CEO Peter Reinhardt said in a statement. Reinhardt said the deal will help Segment speed up its growth by “five to 10 years.”

Twilio Spends Record Amount

For the first 10 years after its 2008 launch, Twilio focused on communications services. In 2018, it pivoted to the cloud with the launch of its Flex customer service API and with the acquisition of email marketing API company SendGrid. Now, Twilio will be able to use Segment’s customer data with SendGrid and Flex to help companies understand even more about their customers.

Twilio paid a premium for this power. Segment is the eighth company Twilio has acquired, but this deal will close for over $1 billion more than what it paid for SendGrid. However, it’s projecting the big price tag will pay off. In an investor presentation, Twilio said the Segment purchase will grow its total addressable market, or TAM, by $17 billion.

Cloud Companies Expand in Pandemic Market

The pandemic has increased the value of companies like Segment, which gathers customer data from a bunch of different sources and then pulls all of that information into a single view.

Since the start of COVID-19, it’s been more than just businesses that need to communicate with customers online. As schools and non-profit organizations shift their operations to the internet, the demand for cloud software has skyrocketed.

The BVP Nasdaq Emerging Cloud Index, which tracks publicly traded software companies like Twilio, has grown 82.8% in 2020. Twilio shares have ballooned by 235% so far this year.

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