Teladoc Health absorbs chronic care company Livongo in $18.5B merger

Each Livongo share will be converted Teladoc stock at an 0.5920 exchange rate, plus an additional $11.44 in cash per stock.
By Laura Lovett
09:46 am
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Digital health titans Teladoc Health and Livongo are merging under the Teladoc name. The deal values the 12-year-old digital chronic care-management company Livongo at $18.5 billion. 

Teladoc CEO Jason Gorevic is expected to remain at the helm of the soon-to-be joint company, while Livongo’s CEO and founder Glen Tullman will be taking up a seat on the Teladoc board. 

Teladoc plans to buy Livongo primarily with stocks. One Livongo share, which is valued at roughly $158.98, will be turned in for 0.5920 shares of Teladoc. The deal will also include a cash consideration where Teladoc will pay an additional $11.44 in cash per Livongo share. 

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Jointly the combined revenue of the two digital health companies is expected to come in around $1.3 billion, about 85% year-over-year pro forma growth. 

Just this morning Livongo announced its second-quarter earnings, revealing that in the second quarter it earned $91.9 million in total revenue, up 125% YoY. Teladoc also saw huge leaps in Q2, reporting that its revenue is up 85%, to $241 million this quarter. 

The deal, which is expected to close by the end of Q4 of 2020, will mean Teladoc shareholders own 58% of the combined company and Livongo shareholders will hold 42%. 

Before the deal closes, it must get the green light from both companies' shareholders and also antitrust clearance. 

WHY IT MATTERS 

Beyond the staggering size of the combined digital health entity, Teladoc is pitching this M&A as a way to provide “whole person care” offerings that change how people access healthcare. Teladoc and Livongo have traditionally had different functions. 

Teladoc focuses on providing virtual visits to patients – now in a variety of specialties and modes. Meanwhile, Livongo, which got its start in diabetes care, has created health-management programs for individuals with chronic conditions. 

The companies said that this merger will help offer more comprehensive insights into preventative care, since the companies will be integrating Livongo’s coaching services within Teladoc’s virtual care network. 

“Together, we will further transform the healthcare experience from preventive care to the most complex cases, bringing ‘whole person’ health to consumers and greater value to our clients and shareholders as a result,” Gorevic said in a statement. 

According to the company’s investor presentation, Teladoc is looking at Livongo as a way to speed up consumer adoption and drive engagement. Conversely, virtual care providers would be able to refer patients with chronic care conditions to Livongo's programs.

The deal is also expected to bring a staggering number of users together. The companies said that their combined client base has only a 25% overlap, and that together they will cover over 70 million people.

Of note, Teladoc's global reach will be crucial to helping expand Livongo's business overseas. The chronic care business would also be looking to push its offerings into new conditions, including congestive heart failure, chronic kidney failure, musculoskeletal conditions and COPD. 

Looking ahead, the combined company would be looking to reach $100 million in revenue synergies by the end of its second year, and $500 million by 2025. Meanwhile, it is expecting cost synergies of $60 million at the end of its second year, which it plans to reinvest to drive top-line growth and expand its margins.

THE LARGER TREND 

While Teladoc has been on the public markets since 2015, during the coronavirus pandemic it has seen virtual visits explode. According to its Q2 earnings report, YoY visits have increased by over 200%. It has also been on the move with acquisitions, having most recently absorbed InTouch Health’s enterprise telehealth business for $600 million. 

There has also been some hint that Teladoc was looking into the chronic care-management space. In December of 2018, it made a deal with a small startup named TelaDietitian, a consumer and enterprise platform for video consultations with registered dietitians.

Livongo is a new entrant to the public markets. Its first day on NASDAQ was in July of 2019, with an initial offering of $28 per share. The company has shared several glowing earnings reports in the time after that. 

Since then it’s had some big wins. Last October it inked a deal with the U.S. government giving federal employees insured by the government who have Type 1 or Type 2 diabetes access to the digital program. 

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