The Transformative Deal in Digital Health

WASHINGTON, DC — Over the past few months, I’ve shared several transformative technology deals in the financial sector on this site and in virtual presentations. From Visa acquiring Plaid to MasterCard picking up Finicity, big name players paid big time premiums to acquire technology companies to boost their games with consumers. As CEOs and their boards wrestle with competitive pressures and explore new paths to remain relevant, a huge announcement in the health space caught my attention. In fact, it reminds me of a recent bank M&A deal.

Why This Deal Matters: The Changing Competitive Landscape 

Much as last year’s deal between SunTrust and BB&T — which resulted in Truist — reflected the pressures of our digital-first world, so too does one struck in  another heavily regulated (and also incredibly important) industry. This one, between Livongo and Teladoc, impacts the whole digital healthcare market, creating a combined entity worth $38 billion.

As shared on CIO.com, Teladoc already has a significant presence in hospitals, many of whom are white-labeling the Teladoc platform for providing telehealth services, often using the Teladoc physician network to complement their network of doctors within the system.

In parallel, Livongo’s success in remote management of chronic care appears a natural complement to that business. Indeed, their whole-person platform empowers people with chronic conditions to live better and healthier lives.

As the merger release makes clear, “the highly complementary organizations will combine to create substantial value across the healthcare ecosystem, enabling clients everywhere to offer high quality, personalized, technology-enabled longitudinal care that improves outcomes and lowers costs across the full spectrum of health.”

Here, two words stand out: technology-enabled.

 Put another way, we are talking about digital transformation, which, as I recall, anchored SunTrust/BB&T’s deal.

Another Example That Scale Is Good — But How You Leverage It Is Key

Last February, BB&T and SunTrust Banks’ all-stock transaction (valued at $66 billion) was the largest U.S. bank merger in over a decade. It spawned Truist, the sixth-largest bank in the U.S. by assets and deposits. In the initial press release, both banks’ CEOs cited the desire for greater scale in order to invest in innovation and technology to create compelling digital offerings.

While Teladoc and Livongo have both been acquiring smaller startups to expand their capabilities in virtual care and digital patient engagement, it appears both are falling in Truist’s steps.  Together, the new organization promises to offer a broader set of digitally-enabled services and capabilities across an individual’s health journey. 

Given the incredible size of the combined digital health entity, I am reminded of a special episode of Looking Ahead with Keith Pagnani of the law firm Sullivan & Cromwell and Andrew Rymer of the investment bank Centerview Partners. Filmed last year at Nasdaq’s MarketSite, the three of us talked about what’s driving healthcare deals and what the regulatory process looks like for transactions.  While we focused on the combination of CVS and Aetna, I think you’ll find the rationale applies for Teladoc and Livongo.

*If you’re interested in M&A and IPO activity in the health sector, our DirectorCorps team recently introduced “The Deal on Healthcare.”  A bi-monthly communique, it rounds up the most notable announcements.  To sign up for this free newsletter, click here.

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