Twilio Segment Acquisition Might Make it an M&A Target

Customer communications platform provider Twilio recently acquired CDP (Customer Data Platform) provider Segment.

Twilio said that it will acquire Segment for an estimated $3.2 billion in Twilio Class A stock on a fully diluted and cash free, debt free basis. Segment will become a division of Twilio when the transaction closes in the fourth quarter of 2020.

The company says the purchase is aimed and bolstering Twilio’s customer engagement software suite.

Twilio Wants to Be the Go-To Engagement Platform

Twilio says that the transaction will quicken its development with a combined total addressable market of $79 billion, bringing Twilio a step closer to achieving the company’s vision of becoming “the world’s leading customer engagement platform trusted by developers and companies globally.”

“Data silos destroy great customer experiences,” said Jeff Lawson, co-founder and CEO of Twilio. “Segment lets developers and companies break down those silos and build a complete picture of their customer. Combined with the Twilio Customer Engagement Platform, we can create more personalized, timely and impactful engagement across customer service, marketing, analytics, product and sales. We are thrilled to welcome Segment to the Twilio team.”

Twilio's stock hit a record high after the deal was announced.

Twilio
Photographer: Carlos Muza | Source: Unsplash

Largest Acquisition of CDP Provider to Date

The Twilio move is by far the largest acquisition of a CDP vendor to date. It also breaks the streak of silence in the segment, as there were just two funding rounds over $10 million and only one acquisition in the first half of this year, according to data from the CDP Institute.

But Segment's exit is significant because it was the industry’s largest standalone provider with 574 employees and $284 million in funding. A ways behind is Tealium, with just over 500 employees and funding of $168M. Then there is Treasure Data (400-plus, $54M), according to CDP Institute research from last July.

Analysts say that by pure-play CDPs once dominated the market. But the market now also has CDPs from Microsoft, Adobe, SAS, Salesforce, Informatica, Oracle, and SAP—which only recently announced its CDP. In fact, Gartner Research has predicted that by 2023, larger marketing technology vendors will acquire 70% of independent CDP vendors. Either that, or they will diversify through M&A of their own to enter adjacent categories. These categories include personalization, multichannel marketing, consent management, and/or MDM for customer data.

Is Twilio an M&A Target?

However, Twilio’s acquisition of Segment could interest the likes of Salesforce, Amazon, Microsoft, and Adobe as a potential buyers of that company, according to Wall Street analysts said.

The San Francisco-based Twilio garnered strategic investments from Salesforce and Amazon five years ago, when it raised a $130 million Series E. Now it will be a direct competitor of Salesforce and Adobe.

RealTime Capture of Customer Activity

Segment’s technology will let Twilio clients capture their customers' activity in real time. For example, if a shopper places an item into their virtual shopping basket, Twilio’s communications platform alert the shopper that a discount is available. The company’s unique position in the communications platform as a service (CPaaS) market is a layer of the software stack in which most enterprise software vendors have no presence. And if the customer data and voice- and text-enabled digital communications layers start to merge as Twilio expects, larger vendors may see Twilio as a strategic target. In fact, both Amazon and Microsoft have already shown interest in this layer.

As one analyst noted, if large vendors start to see this market more strategically, they’re likely going to have to acquire the technology rather than invest in creating it. Twilio is the dominant vendor with a very large 10 million developers in its system.

However, interest in a Twilio-Segment union may be attractive nonetheless. The company was already a potential acquisition target for these companies, but Segment makes it a little more attractive, one analysist said.