Teladoc received $ 18.5 billion from Livongo

• Teladoc Health will buy chronic Livongo in a financial services business for $ 18.5 billion, the company said on Wednesday. The business is expected to be completed by the end of the year.

• The merged company is expected to achieve revenue of $ 1.3 billion in 2020, an estimated 85% year-over-year growth. Sales growth of 30% to 40% is expected over the next two to three years, Teladoc CFO Mala Murthy said in a phone call Wednesday morning.

• Investors appeared dissatisfied with the fine print of the deal, which caused both companies’ shares to fall on Wednesday.

The acquisition builds on the momentum the industry has seen as patients and healthcare professionals seek more virtual care in the face of the COVID-19 pandemic.

Last week, Teladoc reported that the number of visits tripled to 2.8 million in the second quarter, increasing its full-year revenue forecast for the second time this year. Livongo, which went public in July 2019, saw second-quarter revenue growth of 125% to $ 91.9 million on Wednesday.

Teladoc shareholders will own approximately 58% of the combined company compared to 42% of Livongo’s shareholders. The council consists of eight members of the Teladoc council and five members of the Livongo council.

Jason Gorevic, president of Teladoc, will lead the joint venture, which will retain the Teladoc name and head its headquarters in New York. Livongo shares will trade for 0.59 Teladoc shares plus $ 11.33.

Shares of both companies fell during morning trading, possibly in price.

SVB Leerink analysts said that although the merger “makes sense for both businesses,” it predicted a market decline due to a high valuation, a 10% premium over Livongo’s previous deal, and 30x sales. of the company in the fiscal year 2021. However, the combination of stocks above 90% should reduce these concerns, they say.

Analysts added that “the timing is amazing: like anything else for emergency care during this pandemic, the business will come 10 years ahead of time.”

Founded in 2008, Livongo focuses on helping people manage chronic conditions such as diabetes and hypertension through data-driven advice from health coaches through a digital platform. Includes AI technology and connected devices.

The company is used by 30% of Fortune 500 employers, as well as four of the seven largest payers and several pharmacy performance managers. In the second quarter, the number of customers increased 75% year-over-year to 1,328.

Teladoc reported more than 20,000 visits a day in March when dozens of people in the United States received orders from state and local governments to stay home to help contain the spread of the novel coronavirus.

Executives said the merged company will aim to streamline care as Teladoc’s suppliers and Livongo’s health coaches send members and Livongo expands its international reach.

Future services will include home hospital and post-acute care and drug delivery, executives said. Last month, Teladoc completed the $ 600 million acquisition in InTouch Health, which has contracts with hospitals and health systems to provide telemedicine services.

Livongo founder and president Glen Tullman said on the conference call that 50% of its members have reported increased stress since the start of the pandemic. “It would be a good place to say, ‘Hey, we have a place you can go now to solve some of these problems.’

The merged company will seek to capitalize on the increased exposure to telemedicine and other digital health services caused by the COVID-19 crisis. David Sides, COO of Teladoc, recently told Healthcare Dive that 60% of his visits were from new clients in the first months of the pandemic and he expects the push towards virtual assistance to continue.

 “Why would anyone be in a rural area, in a neglected urban center? Why shouldn’t he be as careful? I think telemedicine can be a great balance.