Teladoc and Livongo: Match Made in Heaven?

Teladoc and Livongo: Match Made in Heaven?

One of MyWallSt’s best performers was part of a big merger yesterday and here’s all you need to know about the deal.

Telemedicine pioneer and fan-favorite here amongst the staff at MyWallSt, Teladoc, put pen to paper on a merger with high flying chronic-care management company Livongo yesterday. The cash and stock deal values Livongo at $18.5 billion, based on the share price of Teladoc on August 4th (this will be important later). Each Livongo share will be converted to 0.592 shares of Teladoc, as well as a cash consideration of $11.33 per share. For any subscribers who are holding Livongo, congrats on the free lunch.

The combined company will operate under the name Teladoc Health and CEO Jason Gorevich will remain at the helm, while Livongo CEO Glen Tullman will be granted a seat on the board of the new digital-health giant, which will be made of 8 Teladoc execs and 5 from Livongo. Teladoc shareholders will own 58% of the combined company and Livongo shareholders 42%. 

For a quick rundown of what Livongo actually does, it uses cellular-connected devices to track those who have chronic conditions. Originally just targeted towards diabetes, it has now extended its services to hypertension, pre-diabetes, weight management, and behavioral health. Through the use of data science and A.I., Livongo creates and delivers personalized insights, known as Applied Health Signals, to its members.

The business has moved from strength-to-strength in a very short period of time. In yesterday’s earnings call — it must have been a busy day for the guys at Livongo — it announced that it increased its revenue by 125% year-over-year to $91.9 million. This rapid growth has been matched by the stock price, which is up close to 500% year to date before news of the deal broke. Teladoc’s 150% increase since the start of the year seems paltry in comparison.

Here are some highlights from the announcement which you can access here:

  • The combined company will provide a more complete digital healthcare solution, combining Livongo’s data collection and A.I. capabilities with Teladoc’s market-leading virtual care platform.

  • From Livongo CEO Glen Tullman “adding virtual care is the natural evolution of our solutions.”

  • The company will have expected 2020 Pro-forma (calculated using presumptions from both individual businesses past results and expected performance) revenue of approximately $1.3 billion, representing year-over-year pro forma growth of 85%.

  • The merger will accelerate Teladoc’s growth rate for the next several years by leveraging the scope and footprint of the combined platforms. The intention is to cross-sell Livongo’s solutions across Teladoc’s networks and vice-versa. This will entail using Teladoc’s expansive international consumer base to leverage Livongo’s solutions, opening up an exciting new revenue stream for the combined business.

  • There is only a 25% overlap in the two companies’ pool of members.

  • 147 million people in the U.S. live with a chronic condition, 40% of those with 2 or more. 90% of healthcare spending is attributable to people with chronic conditions, costing the U.S. economy $3.7 trillion per year. Internationally, 1 in 3 people live with chronic conditions.

  • Livongo caters for 30% of the Fortune 500.

  • Mckinsey estimated $250 billion of healthcare spend could be virtualized.

For Teladoc shareholders, one of the most interesting parts of this deal is how it was paid for. A primarily stock-driven deal decided upon when the company is near all-time-highs means that the merger came at a relatively cheap price. While you will own less of a bigger company once the deal goes through, at first glance, Teladoc came out of this deal on top. This has been the cause of some ire from Livongo shareholders, who feel like the premium paid by Teladoc was not enough to validate a company that has been growing at breakneck speed since it went public last year.

We can recite synergies, economies of scale to the high moon but what are the long-term effects of this deal? Well, we’ve got the creation of a new virtual health giant that has the potential to revolutionize the way patients interact with healthcare. At a time when Amazon is sniffing its way around the healthcare sector, this could be huge news. We’ve also got the merging of two of the most exciting stocks of the year which provide very complementary services in a sector that is screaming out for disruption. If you’re a believer in Telemedicine and virtual healthcare then you should be loving this move.

While there is bound to be hiccups and perhaps Livongo shareholders will feel a bit put out that their runway has been cut short, I feel in five years investors will look back at this merger as a Eureka moment. The melding of technology and healthcare has been a long-time coming, and with these two companies joining forces, the possibilities are endless.

MikeMike

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