- Teladoc's purchase values Livongo at $18.5 billion.
- It's the third-largest deal for a U.S. company this year, behind 7-eleven's purchase of Speedway gas stations and Analog Devices' acquisition of Maxim Integrated.
- Teladoc and Livongo both traded lower on Wednesday after the announcement.
Teladoc, a provider of virtual doctor visits, announced on Wednesday that it's acquiring digital health company Livongo, in a cash and stock deal that values Livongo at $18.5 billion. According to Piper Sandler, the combination gives the companies a joint enterprise value of about $37 billion.
Telehealth has been one of the massive growth stories of the Covid-19 era, as patients — particularly in older age groups — avoid clinics and hospitals where they risk exposure to the coronavirus. Teladoc is among the leaders in the space and said last week that visits in the second quarter surged 203% from a year earlier.
Livongo, a provider of coaching services that help people manage chronic conditions, falls in the category of remote health management, which is also seeing soaring demand during the pandemic. The companies said in Wednesday's press release that the merger will help people everywhere get "high quality, personalized, technology-enabled longitudinal care that improves outcomes and lowers costs across the full spectrum of health."
Both stocks fell sharply after the announcement on concern about the high price of the deal and the integration risks as competition rapidly picks up. Teladoc fell 19% to $202.01, and Livongo dropped 11% to $128.06
But as of Tuesday's close, Teladoc had tripled in value this year and Livongo was up almost six-fold.
"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," said Jake Dollarhide, CEO of Longbow Asset Management. Teladoc, which Dollarhide owns in his portfolio, "is really getting a nice boost to diabetes and mental health services with Livongo," he said.
Teladoc is paying $11.33 for each Livongo share and exchanging 0.592 shares of Teladoc for each share of Livongo, which amounts to a 58% to 42% split in terms of control. The purchase price comes out to $18.5 billion and makes the deal the third-largest acquisition of a U.S. company this year, behind 7-eleven's purchase of Speedway gas stations and Analog Devices' acquisition of Maxim Integrated. Those were both $21 billion deals.
Teladoc CEO Jason Gorevic will run the company and the board will consist of eight directors from Teladoc and five from Livongo.
The combined company will have a multiple of about 19 times revenue based on 2021 estimates, according to Glen Santangelo, an analyst at Guggenheim. That's high relative to where Teladoc has traded historically, but Santangelo, who rates the stock a buy, said it's reasonable based on the company's expectation for annual sales growth of 30% to 40% over the next few years.
"We believe TDOC's announced acquisition of LVGO is an interesting strategic deal that deepens the competitive moat of the combined company," Santangelo wrote. "But we caution investors will need to be patient as valuation is likely to draw significant scrutiny."
— CNBC's Christina Farr contributed to this report.