In the past, the home medical equipment (HME) space accounted for much of the health-care M&A activity that took place each year. But in recent times, there has been a precipitous drop on HME-focused transactions, leading some to believe the glory days of dealmaking are over.
Owens & Minor’s (NYSE: OMI) $1.36 billion mega deal for Rotech Healthcare Holdings suggests that’s not the case.
On July 23, Owens & Minor announced a deal to buy Rotech for that whopping total minus about $40 million in tax benefits from the transaction. Immediately, the transaction became one of the larger health-care buys of 2024 – a positive sign for the HME industry.
“We are excited to acquire a high-quality company like Rotech – an opportunity that doesn’t come along very often,” Edward Pesicka, president and CEO of Owens & Minor, said during a special conference call going over the deal.
As a company, Owens & Minor provides products and services to a range of health-care entities, as well as patients in their own homes, with its patient-direct segment becoming an increasingly important part of its growth strategy. Its affiliated brands include Apria, Byram and HALYARD.
Rotech, meanwhile, is a major HME provider that does roughly $750 million in annualized revenue. The business has been around for more than 40 years, and, today, it has a footprint that spans roughly 325 locations in 46 states.
“The acquisition of Rotech aligns with our strategy to strengthen and expand our existing patient-direct business as one of the premier suppliers to support home-based care,” Pesicka said. “Combining our organization allows us to improve our capabilities, broaden our reach, and, ultimately, improve our service levels to patients, providers and payers.”
There have been several billion-dollar health care transactions to take place in 2024, with many of them on the health-care technology of life-sciences side.
In April, for example, Johnson & Johnson (NYSE: J&J) announced a deal to acquire Shockwave Medical for $13.1 billion.
In February, health care analytics company Cotiviti was bought out by KKR for a reported sum of $5.6 billion.
And at the start of the year, Cardinal Health (NYSE: CAH) announced it was buying Specialty Networks, a technology-enabled multi-specialty group purchasing and practice enhancement organization, for $1.2 billion.
Owens & Minor’s purchase of Rotech now joins the list of 2024’s splashiest deals, reflecting the compelling tailwinds around HME and home-based care. The deal is expected to close later this year.
“This transaction presents a fantastic opportunity for Owens & Minor to continue its growth expansion in the home-based care space,” Interim CFO Jonathan Leon said on the conference call.
Strategic value
Strategically, the purchase of Rotech boosts Owens & Minor’s patient-direct segment – a key goal.
As part of Owens & Minor’s “Vision 2028” plan outlined during its investor day, the company hopes to grow the patient-direct segment to $5 billion in revenue.
Buying Rotech gets Owens & Minor closer to that goal by expanding the company’s product offerings across complementary portfolios, providing access to the durable medical equipment (DME) market, including hospital beds, wheelchairs and mobility aids. It also strength’s offerings in the areas of respiratory, sleep, diabetes and wound care.
“The addition of Rotech both strengthens and expands our existing suite of products and services, improving patient access to these solutions, resulting in the generation of robust opportunities for growth across chronic conditions,” Pesicka emphasized.
What’s more, the transaction has appeal to Owens & Minor’s payer partners.
“Our combined customer base gives us the kind of platform payers want across one network,” Pesicka continued. “This will facilitate improved efficiencies for claim approval and payments, while also providing more flexibility for patients.”
Also on July 23, Owens & Minor released preliminary financial results for its second quarter ended June 30, 2024.
On the quarter, Owens & Minor is projecting revenues between $2.65 billion and $2.67 billion. For the full-year 2024, the company is forecasting revenues to be in a range of $10.5 billion to $10.9 billion.
For context, most of Owen & Minor’s revenue has come from its other, larger business segment: the products and health-care services segment.
“I think at a high level, we’re really bullish on the opportunities within … the whole patient-direct space,” Pesicka said. “You know, and this was just a critical and a key asset that came up that created the opportunity for us to go after and capture.”
Graphic: Owens & Minor