In breaking news, Teladoc Health Inc., (TDOC) and Livongo Health Inc.,(LVGO), have agreed to merge in a deal valued at $18.5 billion which will be used to create a company that will serve a spectrum of health needs using virtual care.
Under the terms of the agreement, each share of LVGO will be exchanged for 0.5920x shares of TDOC plus cash consideration of $11.33 for each LVGO share. This represents a value of $218.5 billion based on TDOC’s closing price of $294.42 as of 8/4 which implies a purchase price of $158.98/share. Upon completion of the merger, existing TDOC shareholders will own~58% and existing LVGO shareholders will own~42% of the combined company.
Credit Suisse thinks that with $1.3 billion cash on TDOCs balance sheet, the two logical M&A areas seem to be remote patient monitoring/chronic care and telehealth solutions for the physician telehealth market. As such, the thinking is that a potential combination with LVGO makes strategic sense given TDOC’s limited presence in these two markets.
The combined company now sees their long term revenue growth at 30-40% over the next 2-3 years. The transaction is expected to close by the end of 4Q20. The revenue synergies of $100 million are expected by the end of the second year reaching $500 million on a run rate basis by 2025.
These opportunities include increased cross selling and penetration into each company’s client base with an estimated 25% overlap in the combined client base. This includes accelerating LVGOs international expansion through TDOCs existing footprint, improving combined company member retention rates, and the drive towards a more efficient enrollment.
The two companies also expect cost synergies of $60 million by the end of the second year after close, primarily related to activities such as vendor consolidations, streamlining corporate functions, and eliminating redundancies.
Credit Suisse https://credit-suisse.com also presented recent thoughts and actions related to Optum https://optum.com, a health IT and services firm, which is part of United Health Group (UNH), and Magellan Health (MGLN) https://www.magellanhealth.com
Optum noted in a release that early claims data indicate a significant shift in the use of telehealth for behavioral healthcare with their proprietary behavioral health virtual visit platform. In fact, the most recent claims data indicates that that telehealth visits continue to sharply increase.
Additionally, >200K Optum behavioral health providers are now able to deliver care through alternative technologies such as using telephone visits or video chat services. This policy applies to commercial Medicare & Medicaid members served by Optum and keeps members connected to applied behavioral analysis clinicians, group therapy, and intensive outpatient program sessions.
Last March, Optum began to recruit new providers and also accelerated approval of providers interested in offering virtual care through the online platform. Since March, the number of providers participating in the network has increased by >45%, bringing the number of certified virtual visit providers to >10K.
Magellan Health (MGLN) noted on its earnings call that it has seen telehealth utilization increase “over 20-fold”, representing almost half of all behavior outpatient services in April. Credit Suisse understands that MGLN partners with Talkspace for mental health services.
MGLN also noted that the general acceptance of telehealth by both providers and patients is a significant and lasting fame-changer because the use of telehealth improves access, efficiency, and productivity. Additionally, MGLN increased payments to providers to be on-par with in-person visit rates in cases where this had not already been done.
For more information and to provide feedback, email Jailendra Singh at jailendra.singh@credit-suisse.com or call 212-325-8121