Telemedicine giant Teladoc Health is buying health technology company Livongo Health in an $18.5 billion cash and stock deal that comes as the COVID-19 pandemic drives patients to seek ways to manage their health from home.
Teladoc (NYSE: TDOC) provides “virtual healthcare services” that give patients the ability to visit with a doctor remotely. Most of its clients are large companies and health plans that offer Teladoc’s services to their employees or beneficiaries, though it does have individual users of its behavioral health services. Meanwhile, Livongo (NASDAQ: LVGO) sells software and devices that help patients manage chronic conditions, including diabetes, hypertension, and behavioral health struggles.
The agreement announced Wednesday calls for each share of Livongo to be exchanged for 0.59 shares of Teladoc, plus $11.33 in cash for each Livongo share, which values each share at just under $159. On Tuesday, Livongo shares closed at $144.53. When the deal closes, Teladoc shareholders will own about 58 percent of the combined company, while Livongo shareholders will own about 42 percent. The combined company is keeping the Teladoc Health name and will be led by Teledoc’s current CEO, Jason Gorevic. The business will be headquartered in Purchase, NY, where Teledoc is currently based.
Teladoc is the bigger company, reporting $553.3 million in revenue in 2019, a more than 32 percent increase over the prior year. Livongo reported $170.2 million in revenue last year, up more than 148 percent compared to 2018. But both companies have seen even stronger sales growth this year due to COVID-19. Speaking late last month on a conference call to discuss financial results for the second quarter, Gorevic said patient visits through the company’s software platform totaled 2.8 million—more than 200 percent greater than in the same quarter of 2019. As of that conference call, he said the number of visits is nearly double what the company expects in the historically slower summer months.
In a video presentation, Gorevic said the companies complement each other, and their combination will “truly unlock the potential of virtual care.” Glen Tullman, Livongo’s founder and executive chairman, added that the newly combined company will be able to offer users a full spectrum of services from a single source.
“As we look ahead, we believe the future is about keeping people healthy at home, and being able to do so at scale,” Tullman said. “Combining these two leading organizations creates the key to making that a reality for millions of people all around the world.”
Teladoc is no stranger to acqusitions as a way of broadening its service offerings and boosting sales. In 2017, it paid $440 milllion in cash and stock to acquire Best Doctors, a company that connects people to specialist physicians. The following year, Teladoc snapped up telehealth services provider Advance Medical in a $325 million cash and stock agreement.
Combined, Teladoc and Livongo are projected to have $1.3 billion in 2020 revenue from services that cover more than 70 million people. In an investor presentation, the companies forecast “revenue synergies” from the merger will total $100 million on a run-rate basis by the end of the second year after the deal closes, and $500 million in 2025. Anticipated sources of revenue include cross-selling services to each other’s clients; customers doing business with both companies comprise only about 25 percent of their combined client base, Teladoc and Livongo estimate. The deal will also give Livongo an opening to expand its reach beyond US borders by leveraging Teladoc’s global presence.
The boards of directors of both Teladoc and Livongo have approved the deal, which still needs shareholder and regulatory OKs. The transaction is expected to close in the fourth quarter of this year.
|Want more Xconomy content? Subscribe today for free newsletters, event and webinar alerts, whitepapers, podcasts, and more.|