The 1 Reason Why Teladoc Health and Livongo Were So Eager to Merge

The coronavirus pandemic has driven demand for telehealth services to an all-time high, but the U.S. market leader isn't resting on its laurels. Shareholders of Teladoc Health (TDOC -0.07%) recently approved the telehealth service provider's merger with Livongo (LVGO), an innovative digital health business that helps people manage chronic medical conditions.

These two businesses were performing well on their own, leading some investors to wonder if the deal will work out in their favor. In this Fool Live video, Healthcare and Cannabis Bureau Chief Corinne Cardina and longtime Motley Fool contributor Cory Renauer discuss the key reason these two digital health businesses were so eager to combine.

Corinne Cardina: Since the pandemic began, everyone's talking about telehealth. Teladoc Health saw record visits in the months that began the pandemic and it made a lot of headlines when it announced a merger with Livongo Health. Teladoc is of course focusing on the TeleVisits with doctor side of things, whereas Livongo is doing remote patient monitoring, where technology is communicating a patient's biometrics back to their care team. I think it's really made a lot of traction with diabetes. The deal is worth $18.5 billion and it's more of a merger than an acquisition and the new company is aiming to be a one-stop shop for digital healthcare. Cory, do you think these two companies are going to unlock value that was out of reach separately?

Cory Renauer: I think so, yes, I do. I think this deal will work for investors of both companies. When it comes to Livongo, they're developing a niche in diabetes. Right now, there are at least more than 20 million Americans living with diabetes. The closer you manage your blood glucose levels, that lowers the cost of healthcare for the plan sponsors that are Livongo's customers. In other words, if you are a healthcare plan sponsor, Livongo pays for itself, you know it's going to pay for itself, you can see it in the company's sales and marketing expenses compared to their revenue. It looks like the product is just selling itself.

Corrine Cardina: Absolutely. Its retention, its client retention is sky-high and their clients are not patients. Their clients are employers that want to see their workforce staying as healthy as possible, and those clients stick around. There's a lot of opportunity for cross-selling, I think, between Teladoc and Livongo. Teladoc's clients certainly benefit from Livongo's services and vice versa.

Cory Renauer: Exactly. There are still a lot of people that aren't aware that through a Teladoc visit they'll get tuned into Livongo.

Corrine Cardina: Right, and then the doctor you're actually seeing on your Teladoc telehealth visit could prescribe you to be on the Livongo program. It's just this really nice continuous journey of care that they complement each other really nicely. What do you think of Teladoc as a stock? I think it shot up partly because of the pandemic and then some people were excited about the Livongo deal, others we're not so sure. I think part of that had to do with the fact that Livongo investors thought that stock could actually grow faster, maybe on its own. What do you think of Teladoc as an investment?

Cory Renauer: We're going to talk about this a little more with the other IPOs that we'll discuss later today, but the digital health space is nervous. It seems there are so many competitors that investors are probably right to be nervous. Teladoc Health is in a terrific position right now, but you definitely want to keep an eye on the competition. There is a lot of it and it's growing fast.

Corrine Cardina: Absolutely. It can be hard to find a super sharp competitive moat in this business.