By: AJ Tomas (University of Chicago), Demi Akinjide, Saihejpal Ailwadhi, Ben Fobel, Zac Greenberg (University of Bristol)
Overview of the deal
Implied Equity Value: $37 Billion
Total Transaction Size: $18.5 Billion
Announcement Date: August 5th, 2020
Expected Close Date: End of Q4 2020
Acquirer advisor: Lazard
Target advisor: Morgan Stanley
Teladoc Health Inc, a market leader in virtual care delivery, and Livongo Health Inc, a pioneer of applied health signalling, have announced a merger valued at $18.5 billion. Both companies have seen huge surges during the Covid-19 pandemic, with Teladoc reporting a 203% increase in virtual visits in Q2 2020. Naturally, the Telehealth industry has seen massive growth over the last two quarters as consumers have opted to avoid non-essential in-person meetings at hospitals and clinics to prevent risking exposure to the virus. The rising demand for virtual healthcare has hence created a conducive environment for M&A deals given the pandemic tailwinds, as well as the industry’s current rate of growth and the long-term potential to disrupt conventional care delivery models.
Teladoc offered to acquire Livongo Health for 0.592 shares of its own stock valued at $125 at the time of offer, and $11.33 in cash. The offer values Livongo at $18.5 billion, and the combined entity would be worth over $37 billion. The deal terms value Livongo at 50x this year’s sales. Teladoc will own 58% of the combined entity, with Livongo shareholders owning the remaining 42%.
Through the acquisition, members will have direct virtual access to physicians (including their own primary care physician), to prescriptions written for them through a digital platform, and to health coaching. The merger will combine Teladoc’s focus on providing a broad range of virtual care services with Livongo’s highly personalised, data-driven approach to health signalling. Additionally, Teladoc’s market reach includes 70 million customers in the United States and is hence a strong platform for Livongo to reach new customers at risk of or living with a chronic disease, while also providing significant potential for Livongo’s international expansion. Similarly, Livongo’s focus on chronic conditions such as diabetes and hypertension open up a large addressable market for Teladoc to tap into. Teladoc says the merger would drive revenue synergies of $100 million in the next few years from cross-selling a broader range of personalised health-care services to the company’s current U.S. customer base.
This transaction is the largest healthcare deal of 2020 to date and will most likely be a catalyst for M&A in the digital healthcare vertical. Both the major technology and insurance players - such as Aetna, CVS, and Cigna - are expected to be active acquirers in the coming months. In fact, a couple of weeks after the deal announcement, Google invested $100 million in Amwell (f.k.a. American Well), a company that provides enterprise software solutions that enable virtual care delivery. Industry insiders expect heightened transaction activity ranging from large cap to middle market in terms of deal size.
“This highly strategic combination will create the leader in consumer-centered virtual care and provides a unique opportunity to further accelerate the growth of our data-driven member platform and experience,” - Glen Tullman, Livongo Founder and Executive Chairman
Teladoc-Livongo Market Capitalisation Comparison
Source: S&P Capital IQ as of Market Close 9/3/2020