Contrary to what the market would have you believe, the recent merger between Teladoc and remote health management provider Livongo is huge news – and huge business. Teladoc Heath (NYSE:TDOC) acquired Livongo Health (NASDAQ:LVGO) in the country’s 3rd biggest acquisition of the year, yet stocks closed 10% down, as some investors weren’t so keen on the announcement.
The terms of the deal are that Teladoc pays 0.592 shares for each of Livongo’s, with $11.33 per share on top. This deal splits ownership 58% to 42% and gives the newly merged company a combined value of around $37 billion. Regardless of the stock’s value closing down, this is a major move in the healthcare sector.
Both telemedicine and remote health management are two areas that have been advancing rapidly in recent years. The events of 2020 have reinforced the belief that more at-home care solutions are required in the healthcare sector. This is why we have to look at this as hugely positive news, and not just for the market.
Teladoc is the leading provider of virtual doctor appointments, and they have seen a 203% increase in Q2 compared with 2019. Remote health provider Livongo offers a service that helps people suffering from chronic diseases manage their conditions and they have been one of the market’s darlings for some time. The remote health management company saw a revenue jump in Q2 of 125%.
There are a number of reasons why investors didn’t get excited about this acquisition, despite its scale and perfect match when it comes down to delivering a unified health solution to patients. The fact that these stocks are diluting shareholders is a key reason for the lack of excitement about the move. Teledoc and Livongo are up on the year by 150% and 400% respectively. Leveraging the stock price makes sense for Teledoc, but if it fails to hold its value that will no longer be true.
Another reason for a lack of confidence is that companies that jump 400% don’t fit the bill as acquisition targets. This merger then certainly gives the impressions that decision-makers at Teladoc and Livongo know something about the company and market which investors don’t.
Investors will be concerned that this is very much a ‘top’ and that growth will soon slow, aka they are paying a premium for the merger which won’t see a positive ROI for a long time. Despite the lack of confidence from investors right now, many industry insiders believe that this is an important move for the health IT market. Jason Dollarhide, CEO of Longbow Asset management has this to say on the merger when speaking with CNBC:
“Stock prices have gotten so high with these tech companies and Covid-19 plays that they’re going to use their stock as currency to make acquisitions like this,”
In the wake of this year’s pandemic, many in the healthcare industry are looking to seize investment opportunities. Teladoc was already geared up for this going into 2020, with multiple acquisitions on the company’s radar. We reported in January of their takeover of rival InTouch Health for $600 million, and this report from last year clearly shows the company’s desire to dominate the market.
As reported in July of last year when Livongo went public, growth was always on the cards for this remote health management startup.
The firm was growing at breakneck speed thanks to their voice-enabled blood pressure monitor, as covered here, and going public was something they could no longer avoid. Following the IPO the firm announced a deal with the Federal Government to give employees access to their service, which we reported last fall. This move solidified market support for the company. The hope is that this merger strengthens what Livongo is doing in the healthcare sector.
President of Livongo Dr. Jennifer Schneider spoke to Mobile Health News about what this merger could mean:
“One of the things that we hold as firm tenet is the data we are accessing around the devices … collecting the biometric data really belongs to the members. It is really the members’ data, and we are going to continue to put the members at the center of that and continue to leverage the data only in a way to allow the best optimal care for that individual person.”
The notion of telemedicine is one that has been around for almost a century, and this move is one that puts it front and center. We discussed this exact topic earlier this year, and why telemedicine is so vital in today’s world. Looking past this particular deal, it is clear that this move will clearly advance at-home healthcare which will benefit everyone greatly in a post-pandemic society.