Dive Brief:
·
Teladoc Health is buying digital chronic disease management
company Livongo in an $18.5 billion cash and stock deal, the companies announced Wednesday. The deal is
expected to close by the end of this year.
·
The combined company will have expected 2020 revenue of $1.3
billion, an estimated growth of 85% over last year. Revenue growth of 30% to
40% over the next two to three years is expected, Teladoc CFO Mala Murthy told
investors on a call Wednesday morning.
·
Investors did not seem pleased with the deal's fine print,
sending shares of both companies down in Wednesday trading.
Dive Insight:
The acquisition
builds on the momentum the sector has seen as patients
and providers pursue more virtual care in light of the COVID-19 pandemic.
Teladoc last
week reported second quarter visits tripling to 2.8
million, spurring a hike to its full-year revenue guidance for the second time
this year. Livongo, which went public in July 2019, on Wednesday reported 125%
second-quarter revenue growth reaching $91.9 million.
Teladoc
shareholders will own about 58% of the combined company to Livongo
shareholders' 42%. The board of directors will include eight members of the
Teladoc board and five from Livongo's.
Teladoc CEO
Jason Gorevic will lead the combined company, which will retain the name
Teladoc and headquarters in Purchase, New York. Livongo shares will be
exchanged for 0.59 shares of Teladoc plus $11.33.
Shares of both
companies fell in late morning trading, perhaps on the price tag.
SVB Leerink
analysts said while the merger "makes sense for both assets," it
predicted market pushback on the high valuation, a 10% premium to Livongo's
prior close and 30 times the company's fiscal year 2021 revenues. The more than
90% stock mix, however, should lessen those worries, they contend.
The analysts
also said "the timeline comes as a surprise — like everything else virtual
care-related during this pandemic, the deal is coming 10 years earlier than we
would have expected."
Livongo,
founded in 2008, focuses on helping people manage chronic conditions like
diabetes and hypertension through data-driven tips given by health coaches
through a digital platform. It incorporates AI technology and connected
devices.
The company is
used by 30% of Fortune 500 employers as well as four of the top seven payers
and multiple pharmacy benefit managers. In the second quarter, it increased
clients by 75% year over year to 1,328.
Teladoc
reported more than 20,000 visits per day in March, when many people in the U.S.
were under stay-at-home orders from state and local governments in an attempt
to mitigate spread of the novel coronavirus.
Executives said
the combined company will aim to streamline care as Teladoc providers and
Livongo health coaches refer members to each other and with Livongo expanding
its international reach.
Future services
will include post-acute and hospital at home care along with medication
management, executives said. Last month, Teladoc closed its $600 million acquisition of InTouch Health, which contracts
with hospitals and health systems to offer telehealth services.
Livongo Founder
and Chairman Glen Tullman said on the call 50% of its members have reported an
increase in stress since the onset of the pandemic. "That would be a great
place for us to say, 'Hey, we have a place you can go now to address some of
those issues.'"
The combined
company will look to capitalize on increased exposure to telehealth and other
digital health services brought on by the COVID-19 crisis. Teladoc COO David
Sides recently told Healthcare Dive that in the
first months of the pandemic, 60% of its visits were new customers and he
expects the drive to virtual care will continue.
"People
are now just getting accustomed to it, but they may start to demand it,"
he said. "Why should someone in a rural area, in an underserved inner city
— why shouldn't they have the same level of care? I think telehealth can be
that great equalizer."
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