When business software companies Twilio and SendGrid announced they were joining forces in October, to many industry trackers, the deal felt like a no-brainer. But the all-stock acquisition of SendGrid — worth about $3 billion at the prices of Friday's close — came closer to falling apart than the logic of the combination would suggest.
"Three days before the deal was announced, I felt the probability it would get done would round down to 0%," says SendGrid CEO Sameer Dholakia. Or as Twilio CEO Jeff Lawson puts it: "It was like docking two ships in a hurricane."
The details of Twilio's acquisition — somewhat revealed in regulatory SEC filings, but never publicly discussed by either CEO until now — are part courtship, part crisis management. They reveal how much the relationships of the leaders of a tech company, even a public one, can dictate decisions that affect hundreds of employees, and thousands of customers. And they demonstrate that even plans that can be years in the making can almost fall apart when the stock market turns.
Given their respective products, Twilio and SendGrid combining through acquisition wasn't a surprise. San Francisco-based Twilio built a business with $400 million in sales, as of 2017, by offering enterprise software systems that make it easy for companies like Airbnb and Netflix to reach their users through text messages, push notifications and more—pretty much every way to communicate except email. (Those calls or texts you get from an Uber driver? Those are powered by Twilio's tech.)
Denver-based SendGrid, meanwhile, grew to a business with $112 million in sales offering its own APIs to help companies reach their customers through automated emails, processing more than 45 billion such emails each month.
Public since June 2016, Twilio was the bigger company, worth about $10 billion as of last fall. SendGrid had gone public later, in November 2017, growing from a $725 million market cap to more than $1 billion by April 2018.
Twilio had tried to circumvent email, preferring to build features for video, WhatsApp and Google Home devices. But email hadn't gone away. "It was always the missing channel from Twilio," Lawson says. "It's the most basic form of communication that is still growing in its relevancy."
The company made three bids to acquire SendGrid in 2017, before its IPO. Dholakia, who lives in Menlo Park, California, says he walked the half-mile loop of his neighborhood for hours (14 loops, to be exact) before deciding the price on those offers wasn't good enough and SendGrid should forge ahead with going public. Most of SendGrid leadership never knew how close they were to getting gobbled up. "Plan A is Plan A until it's no longer Plan A," he says. "The last thing I wanted was to have my team distracted with something we assumed was a low-probability event."
Lawson and Twilio backed off as SendGrid's stock climbed modestly in its first day of trading, then again in a secondary offering in the spring of 2018. But around that time, both CEOs attended a ski trip of cloud and business software leaders sharing a mutual investor, Bessemer Venture Partners (partner Byron Deeter, a board member to both, stood to gain from their deal and recused himself from all merger talks, according to an SEC filing). On the trip, Dholakia stayed behind from a pre-ski breakfast to take a call; Lawson showed up at his door with a coffee and a breakfast burrito. The gesture had a lasting impact on SendGrid's CEO, who'd last spoke to Lawson to tell him they didn't have a deal.
A few weeks later, the two saw each other at a press event in San Francisco. The handful of reporters in the room asked them about their APIs and the future of software development; nobody asked about a possible deal. But when the two decided to go for a walk together after on the nearby Embarcadero, that possibility heated back up.
Over the summer, Twilio began the work to research and price a "more serious" offer for SendGrid. One wrinkle: Twilio's annual conference for customers and employees was set to start in mid-October. Another: SendGrid had a new Plan A, this time to make its own startup acquisition to expand beyond email. That pursuit of "Company A," as it's called in the filings, lasted until the week before SendGrid and Twilio's acquisition was announced. SendGrid declined to comment on which company it was looking to buy. Twilio also declined, though Lawson says the assumption it was a smaller direct competitor to Twilio, such as MessageBird, is "an assumption that's not quite right."
By September 2018, a Twilio-SendGrid deal had momentum. But then factors neither CEO could predict almost derailed the process. Tech stocks got crushed in October, seeing their worst losses as a group since the recession ten years before. On October 24, more than a quarter of Twilio's market cap from one month before was wiped out. SendGrid's value was slashed by one-fifth over the same period. "Between the time the board communicated a price and you talked to the other party, the stock had moved 10%," Lawson says.
The deal would be announced on a Monday, October 15, just two days before Twilio's user conference began. The previous Friday, SendGrid still hadn't told the startup it had been courting what was in the works. Dholakia gave the prospect of a deal with Twilio less than a 50% chance. Both CEOs credit their trust, and personal relationship, for weathering the storm. During the negotiations, Lawson waited one night for Dholakia to put his kids to bed back in Menlo Park before bringing over his favored Japanese whiskey to compare company values for an hour. "We always took the long view that even if we couldn't get it done, let's make sure we feel really good about the relationship," Lawson says.
Today, both CEOs flew to Denver to meet with SendGrid staff, drink champagne and host breakout sessions to talk about the integration to come. The deal, which worked out to all-stock and a conversation rate into Twilio shares that value SendGrid more around $3 billion (and Twilio at $11 billion), is not without risk. Both companies will need to integrate their offerings without losing a step in their pursuit of a market that bears a number of challengers. And any combination of hundreds of employees, especially when one company isn't much larger than the other, can come with the chance of culture shock.
Lawson argues that given Twilio and SendGrid's similar business models (both Twilio and SendGrid woo developers, then look to sign on whole teams and ink larger contracts), going to market together carries less risk. His message to companies wondering if an acquisition or other "really big investment in the future" might make sense: don't get complacent. "We think ten years ahead in our planning," Lawson says. "You can never be content with where you stand."
