Telehealth Consolidation: Talkspace (TALK) and SOC Telemed (TLMD) Best Positioned as Potential Acquisition Targets - Baird

July 23, 2021 11:14 AM EDT
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Baird analyst Vikram Kesavabhotla has weighed in on possible consolidation in the tech healthcare sector.

The analyst and his colleagues ​​reviewed the recent history of telehealth transactions and took a look at the strategic values of main players in this space.

“Telehealth has already experienced meaningful consolidation, and we expect this to continue. In the past ~6 years, we count 21 publicly disclosed transactions in the space. Additionally, we highlight 10 other publicly traded companies that have actively invested in virtual care. Even with this extensive list, there are probably some deals, products, and investments that we are missing. We expect the trend toward consolidation to continue moving forward as companies attempt to broaden portfolios and achieve scale,” Kesavabhotla says in a note to clients.

The analyst also outlines 5 drivers of acquisitions and the strategic value and in this category:

1) strength of end-market customer relationships, 2) access to physician networks, 3) specialty expertise, 4) access to consumers, and 5) data assets.

Following an analysis of strategic value, the analyst says Talkspace (NASDAQ: TALK) and SOC Telemed (NASDAQ: TLMD) are best positioned as potential acquisition targets.

“In the case of TALK, we think the company's strong brand recognition and specialty exposure (behavioral health) make it an attractive asset in an area of the market where companies are rapidly trying to capture first-mover advantages. In the case of TLMD, we think the company's strong physician relationships and specialty expertise (e.g., psychiatry, neurology) make it an attractive asset in an area of the market that is still underpenetrated. In both cases, we would suggest that there are a handful of potential acquirers in the market that could make sense.”

Kesavabhotla reiterates he doesn’t expect any imminent transactions but TALK and TLMD do offer strategic value.

“These stocks are two of the cheapest names with the two of the fastest growth rates. Beyond peers, we also note that these companies are trading below almost every publicly disclosed telehealth transaction multiple in the past ~6 years. We therefore believe both of these names continue to reflect attractive risk/reward opportunities at current valuations,” he concludes.

The most logical acquirers, according to the analyst, would large and diversified telehealth platforms like Teladoc Health, Inc. (NYSE: TDOC), American Well Corporation (NASDAQ: AMWL), and Doctor on Demand. Others like GoodRx (NASDAQ: GDRX), Accolade, Inc. (NASDAQ: ACCD), could also make sense he said. Managed care companies like Cigna (NYSE: CI), Humana (NYSE: HUM) and UnitedHealth (NYSE: UNH) could also be interested. In addition, large tech companies like Amazon (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT), Google (NASDAQ: GOOGL) and Apple (NASDAQ: AAPL) could make sense as "several of them have been entering into partnerships in the telehealth space or making other efforts to grow in healthcare."

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