After a rocky year and a half on the public market, digital behavioral health company Talkspace (Nasdaq: TALK) may soon have a new owner. Multiple reports say the company is again the acquisition target of telehealth giant Amwell (NYSE: AMWL).
According to those reports, Amwell has offered to buy the company for $1.50 per share – a premium for the struggling Talkspace. In response, Talkspace’s stock price has surged by more than 40% from about $0.60 per share on Friday to $0.81 per share Monday.
Sources have described the discussions as “advanced,” with the deal for Talkspace totaling around $200 million.
This news comes as the New York City-based Talkspace faces the possibility of being delisted from Nasdaq. Earlier this month, Nasdaq sent the digital health company a letter noting that the company’s stock price has been below the $1.00 per share minimum needed for the last 30 days. The company has until May 17, 2023, to regain compliance.
A deal could save Talkspace from this fate.
As for Amwell, the M&A poses to help it further its goal of becoming a full continuum of care provider. Virtual care providers are increasingly looking to be the one-stop-shop for all care needs.
“This deal could signal an increasing trend in the industry towards an all-in-one solution in behavioral health that encompasses all touch points in the patient lifecycle,” Ezra Simons, co-founder and managing partner at Physician Growth Partners, told Behavioral Health Business. “Additionally, it could indicate a trend of tech/telehealth platforms growing their user base through acquisition of a large patient/provider network. I think we are going to continue to see vertical integration looping behavioral into broader care networks.”
Physician Growth Partners is a boutique investment banking firm that represents independent medical groups.
But some investors are skeptical that this deal would make sense for virtual provider Amwell, which reportedly attempted a purchase of Talkspace earlier in 2022 but was rejected.
Like Talkspace, Amwell has struggled on the public markets. And its recent efforts have been focused on its unified virtual platform Converge, which saw visits jump during 2022’s third quarter, instead of a possible behavioral health expansion.
“Momentum continues in Q4, and in fact, we are approaching our 1 millionth visit on Converge,” Amwell Chairman and co-CEO Ido Schoenberg said during a recent earnings call. “Converge is proving it can scale powerfully, even for our largest customers.”
Talkspace and Amwell declined to comment for this story.
“While TALK is cheap and could make sense for a strategic buyer, we have difficulty understanding how a potential transaction would fit with AMWL’s strategic priorities of ramping Converge and deemphasizing visit revenue,” a note from diversified financial services company Jefferies said. “Additionally, a transaction would likely delay AMWL’s ramp to profitability, fueling incremental investor concerns.”
Changing tides
Founded in 2012 by Oren and Roni Frank, Talkspace was one of the early pioneers in the virtual mental health space. It went public in 2021 via a SPAC merger.
At the time, its worth was estimated to be about $1.4 billion. Its market capitalization is now worth roughly $121 million.
This isn’t the first time rumors of a Talkspace acquisition have spread. Earlier this year, reports emerged that Sacramento, California-based mental health operator Mindpath Health was in deal talks with Talkspace. Again, no deal materialized.
Amwell’s previous interest in acquiring Talkspace was apparently short-lived, as Seeking Alpha reported that Talkspace passed on the offer “before any numbers were discussed.”
Timing wise, the stars may be better aligned for Amwell and Talkspace to connect on a deal. Talkspace has made a number of recent leadership changes, which could mean the organization is heading in a new direction.
Earlier this month, it announced Dr. Jon Cohen as its CEO. He took the reins from interim CEO and Board Chair Doug Braunstein, who stepped in after founder Frank Oren resigned following worse-than-expected financial results in 2021.
While still at Talkspace, Braunstein had publicly shot down the idea of an acquisition, instead pitching a turn-around plan to grow the business. Specifically, Braunstein put an emphasis on growing the company’s B2B business.
In Q3, Talkspace’s B2B revenue accounted for 57% of its total revenue. And it’s likely that under Cohen’s leadership, the company will continue to prioritize B2B.
“The way I view [it] is not B2B versus B2C. I view it as, ‘How do you get consultative mental health services to the most … people in whatever fashion you can,’” Cohen said during Talkspace’s Q3 earnings call. “B2B is a much more efficient way to get people services that they need than B2C.”
What the acquisition would mean for Amwell
Boston-based Amwell is a pure-play telehealth company that offers a large range of services including urgent care, primary care and specialist care. It operates on a primarily B2B model and has contracts with payers and employers.
In 2020, Amwell went public for $18 per share. The company has faced challenges on the public market and now trades for about $3.40 per share. Its recent efforts have been concentrated on its unified platform Converge, which accounted for 16% of its total visits in Q3.
A deal with Talkspace could help Amwell expand its offering and patient network.
“Talkspace represents an expansion of Amwell’s patient and provider network (a highly competitive area on both sides) as well an expansion of its total access to that network,” Simons said. “A patient who signed up with Talkspace might now text their therapist, then jump on a video session via the Amwell platform, and then continue the care ad hoc between appointments via messaging, etc.”
However, Amwell already has a pretty substantial footholding in the behavioral health space. In 2021, it acquired digital behavioral health platforms Silvercloud Health and Conversa Health for a combined $320 million.
Silvercloud is a digital platform that provides users with coaching and self-guided support programs. Conversa is an electronic health record manager that also provides patient engagement tools via text messaging services.
“SilverCloud Health delivers a range of evidence-based and clinically validated digital cognitive behavioral health programs and expanded the breadth of Amwell’s virtual care platform,” the Jefferies’ note stated. “While we understand that there has been increased demand for behavioral health in recent years, we question if these acquisitions are in line with mgmt’s strategic priority of ramping Converge.”
In May, Amwell announced a new behavioral health offering dubbed Amwell Comprehensive Behavioral Health program, which combines SilverCloud programs and virtual care provided by Amwell’s clinical partner, Amwell Medical Group.
It has also made a number of big-name partnerships. In August, CVS Health (NYSE: CVS) announced that it selected Amwell to provide its virtual primary care offering, which includes on-demand behavioral health services.
Acquiring Talkspace could give Amwell a larger market share of telebehavioral health and expand its services. Talkspace’s B2B pivot also has the potential to complement Amwell’s business model, according to Truist analyst Jailendra Singh.
“We believe TALK’s B2B business could be relatively more attractive asset for AMWL as the company should be able to generate some revenue synergies from the combination given their payer relationships across the two companies,” Singh wrote in a note.
Meanwhile, Amwell’s rival, Teladoc, has also made a number of behavioral health plays. In 2015, Teladoc acquired D2C provider BetterHelp for $17.2 million. The company has previously reported that BetterHelp generates roughly a third of its revenue.
