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Teladoc Health And Livongo: Market Scrutinizes The Deal

Aug. 05, 2020 3:02 PM ETLivongo Health, Inc. (LVGO), TDOC467 Comments


  • Teladoc Health agrees to buy Livongo Health for $18.5 billion.
  • Livongo Health was already up 400% this year.
  • The stock trades at a very elevated 18x 2021 EV/S targets.
  • The risk to the story is that reduced virus fears reduce the virtual care growth curve.

After warning just last week of elevated risk at Teladoc Health (NYSE:TDOC), the stock is down nearly 15% following the announced merger with Livongo Health (NASDAQ:LVGO). The company has agreed to pay a massive $18.5 billion for the leading platform to monitor chronic conditions using their inflated currency. My negative investment thesis is further reinforced by the outrageous valuation of this acquisition.

Teladoc Health logo

Source: Teladoc Health website

Pricey Deal

The company agreed to pay $18.5 billion for Livongo Health on the day the company reported quarterly revenues of only $91.9 million to create a so-called leader in consumer-centered virtual care. Yes, revenues grew 125% YoY, but the company remains relatively small for the valuation paid in this deal.

For the YTD period, Livongo is still up over 400% even following the 7% decline following the deal news. The stock traded as low as $15 last October and Teladoc decided to buy the stock for a valuation of nearly $159 per share including $550 million in convertible debt.

ChartData by YCharts

The deal involves Teladoc paying Livongo shareholders 0.592 shares of Teladoc Health plus $11.33 per share in cash. With Teladoc trading around $220, each Livongo share is worth $141.57 or only a few dollars above where the stock trades now suggesting limited priced in risk to the deal closing.

The combined company forecasts sales reaching $1.3 billion this year on 85% growth. The adjusted EBITDA target for 2020 is $120 million.

A lot of the promise of the platform is from expectations for driving revenue synergies of $100 million by the second year following the close which would be roughly 2022. In addition, the new entity forecasts $500 million in cross-selling upside by 2025 which is the fifth year after the deal closes assuming a Q4 closing. The absurd mention of $60 million in cost synergies highlights

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