Livongo Health acquired by Teladoc Health: fairness opinion by Lazard and Morgan Stanley
Deal terms
Each Livongo share converted into 0.5920 of a share of Teladoc common stock plus $4.24 in cash. In addition, prior to the effective time Livongo will pay a pre-closing special cash dividend of $7.09 per share. Implied per share merger consideration of approximately $158.98 based on the $249.42 Teladoc closing price on August 4, 2020 ($4.24 cash + $7.09 special dividend + ~$147.65 stock value); implied exchange ratio of 0.637x.
Implied value per share by method vs. $4.24 offer
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of Lazard to the acquirer board
Discounted cash flow assumptions
Livongo DCF: $118-$187 per share without synergies; $160-$251 with synergies (vs. implied per share merger consideration of $158.98). Present value as of June 30, 2020; net present value of NOL tax savings added. Teladoc DCF implied $156-$250 per share vs. $249.42 closing price. For reference only, using Wall Street research forecasts for Livongo: $99-$159 without synergies / $141-$223 with synergies.
Selected public companies (17)
Livongo Health, Inc. · Teladoc Health, Inc. · 1Life Healthcare, Inc. · Inovalon Holdings, Inc. · HMS Holdings Corp. · Tabula Rasa HealthCare, Inc. · Veeva Systems, Inc. · Health Catalyst, Inc. · Phreesia, Inc. · DocuSign, Inc. · RingCentral, Inc. · HubSpot, Inc. · Zendesk, Inc. · AppFolio, Inc. · Q2 Holdings, Inc. · SVMK Inc. · LivePerson, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| Livongo: EV / CY2020E Revenue | 4.4x | 12.4x | 36.3x | 19.3x–36.3x | $61.00–$112.00 |
| Livongo: EV / CY2021E Revenue | 3.8x | 9.5x | 28.0x | 15.3x–28.0x | $77.00–$138.00 |
| Teladoc: EV / CY2020E Revenue | 4.4x | 12.4x | 49.4x | 12.4x–19.5x | $129.00–$201.00 |
| Teladoc: EV / CY2021E Revenue | 3.8x | 9.5x | 32.4x | 9.5x–15.9x | $134.00–$223.00 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Present value of future share price - Teladoc | Discounted to June 30, 2020 theoretical future Teladoc share prices as of Jan 1, 2021/2022/2023 by applying regression-implied forward NTM revenue multiples of 20.5x, 14.7x and 16.3x to Case 1 revenue, at an 8.5% equity discount rate. | $234.00–$299.00 |
| Present value of future share price - Livongo | Discounted to June 30, 2020 theoretical future Livongo share prices as of Jan 1, 2021/2022/2023 by applying regression-implied forward NTM revenue multiples of 34.2x, 32.4x and 29.9x to Livongo forecasts as adjusted by Teladoc, at a 9.0% equity discount rate. | $154.00–$213.00 |
| Premia paid analysis | Premia in 15 all-stock transactions since Jan 1, 2016 involving U.S. targets with transaction values of $7.5-$15 billion. Median premia of 14% (1-day), 15% (30-day VWAP) and (2)% (52-week high); high premia of 42%, 49% and 30%. Applying median and high premia to Livongo prices as of Aug 4, 2020 implied $165-$205 (1-day), $118-$153 (30-day) and $141-$188 (52-week high). | $118.00–$205.00 |
| Analyst price targets | Wall Street research price targets on or prior to August 4, 2020: $88-$132 per Livongo share; $150-$275 per Teladoc share. | $88.00–$132.00 |
| 52-week trading range | 52-week period ended August 4, 2020: Livongo low/high closing prices of approximately $16 and $145; Teladoc approximately $55 and $249. | $16.00–$145.00 |
| Relative value / implied exchange ratio analysis | Implied exchange ratio ranges (after adjusting Livongo values downward for the $4.24 cash consideration and $7.09 special dividend): DCF with synergies 0.5938x-1.5328x; DCF without synergies 0.4278x-1.1213x; selected companies EV/2021 revenue 0.2962x-0.9495x; EV/2020 revenue 0.2454x-0.7809x, versus the 0.5920x stock consideration exchange ratio. | — |
Aggregate fee of $31.5 million; $6.5 million payable upon the earlier of rendering of the opinion, announcement of the transaction or execution of the merger agreement; $25 million contingent upon consummation. Lazard previously advised Teladoc on its acquisitions of Advance Medical (2018) and InTouch Technologies (2020).
Opinion of Morgan Stanley to the target board
Discounted cash flow assumptions
Livongo implied value per share: street case $65.43-$112.98; Plan A $131.51-$222.60; Plan B $115.14-$195.33 (vs. $158.98 implied consideration). Teladoc: street case $155.75-$237.49; Case 1 $204.30-$311.10; Case 2 $252.89-$380.66. Implied exchange ratio ranges: street case 0.271x-0.715x; Plan A 0.345x-0.880x; Plan B 0.370x-0.956x vs. implied 0.637x.
Selected public companies (23)
Alteryx, Inc. · Atlassian Corporation Plc · Avalara, Inc. · Coupa Software Incorporated · CrowdStrike Holdings, Inc. · Datadog, Inc. · DocuSign, Inc. · Dynatrace, Inc. · Okta, Inc. · RingCentral, Inc. · ServiceNow, Inc. · Shopify Inc. · Slack Technologies, Inc. · Splunk Inc. · The Trade Desk, Inc. · Twilio Inc. · Veeva Systems Inc. · Zoom Video Communications, Inc. · Zscaler, Inc. · 1Life Healthcare, Inc. (One Medical) · DexCom, Inc. · iRhythm Technologies, Inc. · Schrodinger, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| Livongo: AV / CY2021E Revenue | 9.9x | — | 41.0x | 19.6x–30.4x | $101.40–$153.60 |
| Livongo: AV / CY2022E Revenue | 8.0x | — | 31.2x | 15.9x–23.3x | $130.58–$186.93 |
| Teladoc: AV / CY2021E Revenue | 9.9x | — | 41.0x | 14.6x–25.4x | $209.78–$357.83 |
| Teladoc: AV / CY2022E Revenue | 8.0x | — | 31.2x | 10.9x–18.3x | $204.82–$337.77 |
Selected precedent transactions (44)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2020-07-13 | Maxim Integrated Products, Inc. | Analog Devices, Inc. | — |
| 2020-06-10 | GrubHub Inc. | Just Eat Takeaway.com NV | — |
| 2019-06-10 | Tableau Software, Inc. | Salesforce.com, inc. | — |
| 2018-10-15 | SendGrid, Inc. | Twilio Inc. | — |
| 2018-10-14 | L3 Technologies, Inc. | Harris Corporation | — |
| 2018-10-03 | Hortonworks, Inc. | Cloudera, Inc. | — |
| 2016-05-03 | IMS Health Holdings, Inc. | Quintiles Transnational Holdings Inc. | — |
| 2016-03-21 | Markit Ltd. | IHS Inc. | — |
| 2014-12-01 | Spansion Inc. | Cypress Semiconductor Corporation | — |
| 2014-07-28 | Trulia, Inc. | Zillow, Inc. | — |
| 2014-02-24 | TriQuint Semiconductor, Inc. | RF Micro Devices, Inc. | — |
| 2019-08-22 | Pivotal Software, Inc. | VMware, Inc. | — |
| 2018-11-09 | Finisar Corporation | II-VI Incorporated | — |
| 2018-03-20 | MuleSoft, Inc. | salesforce.com, inc. | — |
| 2018-03-19 | Orbotech Ltd. | KLA-Tencor Corporation | — |
| 2018-03-12 | Oclaro, Inc. | Lumentum Holdings Inc. | — |
| 2017-11-20 | Cavium, Inc. | Marvell Technology Group Ltd. | — |
| 2017-09-04 | Rockwell Collins, Inc. | United Technologies Corporation | — |
| 2017-08-28 | IXYS Corporation | Littelfuse, Inc. | — |
| 2017-07-04 | Worldpay Group PLC | Vantiv, Inc. | — |
| 2016-11-21 | Applied Micro Circuits Corporation | MACOM Technology Solutions Holdings, Inc. | — |
| 2016-07-26 | Linear Technology Corporation | Analog Devices, Inc. | — |
| 2016-06-15 | QLogic Corporation | Cavium, Inc. | — |
| 2016-05-26 | Siliconware Precision Industries Co., Ltd. | Advanced Semiconductor Engineering, Inc. | — |
| 2016-04-04 | Ruckus Wireless, Inc. | Brocade Communications Systems, Inc. | — |
| 2015-12-11 | Atmel Corporation | Microchip Technology Incorporated | — |
| 2015-11-04 | HomeAway, Inc. | Expedia, Inc. | — |
| 2015-10-21 | SanDisk Corporation | Western Digital Corporation | — |
| 2015-10-19 | PMC-Sierra, Inc. | Microsemi Corporation | — |
| 2015-10-12 | EMC Corporation | Dell Inc. | — |
| 2015-08-10 | Yodlee, Inc. | Envestnet, Inc. | — |
| 2015-05-28 | Broadcom Corporation | Avago Technologies Limited | — |
| 2015-04-15 | Alcatel-Lucent | Nokia Corporation | — |
| 2015-03-01 | Freescale Semiconductor Ltd. | NXP Semiconductors N.V. | — |
| 2015-02-06 | Exelis Inc. | Harris Corporation | — |
| 2018-12-24 | MINDBODY, Inc. | Vista Equity Partners | — |
| 2018-06-11 | Adaptive Insights, Inc. | Workday, Inc. | — |
| 2016-08-01 | Fleetmatics Group PLC | Verizon Communications Inc. | — |
| 2016-07-28 | NetSuite Inc. | Oracle Corporation | — |
| 2016-06-13 | LinkedIn Corporation | Microsoft Corporation | — |
| 2016-06-01 | Demandware, Inc. | salesforce.com, inc. | — |
| 2016-05-31 | Marketo, Inc. | Vista Equity Partners | — |
| 2016-04-18 | Cvent, Inc. | Vista Equity Partners | — |
| 2014-09-18 | Concur Technologies, Inc. | SAP SE | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| AV / NTM Revenue (selected software transactions 2014-2020, AV > $1bn, NTM revenue growth > 20%) | — | — | — | 10.8x–15.7x | $46.18–$65.92 |
| Precedent transaction premium - 1-day (applied 5%-25% to $144.53) | — | 0.2x | — | 0.1x–0.3x | $151.76–$180.66 |
| Precedent transaction premium - 30-day average (applied 10%-40% to $110.28) | — | 0.3x | — | 0.1x–0.4x | $121.30–$154.39 |
| Precedent transaction premium - LTM high (applied (10)%-20% to $144.53) | — | 0.1x | — | -0.1x–0.2x | $130.08–$173.44 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Discounted equity value analysis - Livongo | Future equity value per Livongo share as of Aug 4, 2021 computed by applying AV/CY2021E revenue reference range of 19.6x-30.4x to CY2022E revenue, discounted to Aug 4, 2020 at a 9.4% cost of equity. Street case $115.37-$174.42; Plan A $150.81-$229.25; Plan B $144.92-$220.13. | $144.92–$220.13 |
| Discounted equity value analysis - Teladoc | Future equity value per Teladoc share as of Aug 4, 2021 computed by applying AV/CY2021E revenue reference range of 14.6x-25.4x to CY2022E revenue, discounted at a 7.5% cost of equity. Street case $231.02-$393.16; Case 1 $253.25-$431.73. Implied exchange ratios: street 0.293x-0.755x; Plan A 0.315x-0.817x; Plan B 0.336x-0.869x. | $231.02–$431.73 |
| Historical trading ranges and historical exchange ratio (reference only) | Livongo trading ranges: 1-month $77.63-$144.53; 3-month $38.90-$144.53; 12-month $15.92-$144.53. Teladoc: 1-month $209.22-$249.42; 3-month $157.15-$249.42; 12-month $55.30-$249.42. Historical exchange ratios: 1-month 0.356x-0.579x ($88.82-$144.53 implied), 3-month 0.223x-0.579x ($55.67-$144.53), 12-month 0.126x-0.618x ($31.52-$154.15). | $31.52–$154.15 |
| Analyst price targets (reference only) | Undiscounted analyst targets of $55.00-$132.00 for Livongo and $150.00-$275.00 for Teladoc; discounted one year at costs of equity of 9.4% and 7.5% gives $50.29-$120.71 for Livongo and $139.59-$255.91 for Teladoc. Implied exchange ratio ranges 0.200x-0.880x undiscounted and 0.197x-0.865x discounted. | $50.29–$132.00 |
Fee of approximately $106 million; approximately $21 million payable upon the earlier of execution of the merger agreement and delivery of the opinion, remainder payable upon consummation. Livongo may in its sole discretion pay an additional discretionary fee of up to approximately $11 million contingent on consummation. Morgan Stanley and affiliates provided financing services to Livongo in the prior two years, receiving aggregate fees of approximately $10-$20 million.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | CAGR |
|---|---|---|---|---|---|---|
| Revenue | $981M | $1.6B | $2.4B | $3.4B | $4.8B | 48.7% |
| Revenue growth | 64.0% | 58.1% | 52.0% | 45.7% | 39.6% | |
| EBITDA | $186M | $344M | $599M | $982M | $1.5B | 69.2% |
| EBITDA growth | 109.0% | 84.9% | 74.1% | 63.9% | 55.3% | |
| EBITDA margin | 19% | 22% | 25% | 29% | 32% | |
| Implied EV / EBITDA | 74.4x | 40.2x | 23.1x | 14.1x | 9.1x |
Year-1 growth is against LTM at announcement ($598M revenue, $89.0M EBITDA); later years are year over year.
Livongo management prepared two short-term cases in July 2020 (Plan A, optimistic stable growth; Plan B, more conservative reflecting new market entrants), with Q3/Q4 2020E and 2021E-2022E projections extrapolated through 2030. Plan B: revenue of $586m in 2021E rising to $9,978m in 2030E with Adjusted EBITDA of $78m to $3,492m; Plan A: revenue $598m (2021E) to $11,351m (2030E) and Adjusted EBITDA $89m to $3,973m. The Livongo board directed Morgan Stanley to rely on Plan B. Teladoc management provided Case 1 and Case 2 (Case 2 assuming higher revenue growth) through 2022, with Case 1 used by Lazard: Teladoc revenue of $988m in 2020E to $2,192m in 2023E and Adjusted EBITDA of $89m to $362m; Teladoc management-adjusted Livongo projections showed revenue of $351m (2020E) to $1,257m (2023E) and Adjusted EBITDA of $37m to $229m.
Process notes
Other Digital / HealthTech fairness opinions
- HMS / Gainwell Technologies 2020 · 18.4x EV/EBITDA
- Cerner / Oracle 2021 · 15.2x EV/EBITDA
- Inovalon Holdings / Nordic Capital / Insight Partners 2021 · 26.9x EV/EBITDA
- Nuance Communications / Microsoft 2021 · 45.9x EV/EBITDA
- Change Healthcare / Optum 2021 · 13.8x EV/EBITDA
- Medidata Solutions / Dassault Systemes 2019 · 32.4x EV/EBITDA
All Digital / HealthTech opinions → · Lazard opinions · Morgan Stanley opinions