Owens & Minor Terminates $1.36B Rotech Acquisition Amid Regulatory Hurdles

Owens & Minor, a leading healthcare solutions company, has announced the termination of its planned $1.36 billion acquisition of Rotech Healthcare Holdings, a major player in the home medical equipment sector. The decision comes after both companies mutually agreed to abandon the deal due to insurmountable regulatory barriers.

Regulatory Challenges Prove Insurmountable

The acquisition, initially announced in July 2024, was set to close by the end of that year. However, the deal faced significant delays as the Federal Trade Commission (FTC) conducted an extensive review. Despite entering into a timing agreement with the FTC that extended the review period until June 10, 2025, both companies ultimately decided to walk away from the transaction.

Edward Pesicka, CEO of Owens & Minor, stated that securing regulatory clearance "proved unviable in terms of time, expense and opportunity." This decision reflects the growing scrutiny of merger and acquisition activities in the healthcare sector by regulatory bodies.

Financial Implications and Market Response

As part of the termination agreement, Owens & Minor will pay Rotech an $80 million fee, surpassing the previously disclosed $70 million termination fee. This payment, combined with acquisition-related costs of $22 million in 2024 and $16 million in the first quarter of 2025, brings Owens & Minor's total spending on the failed deal to over $100 million.

Despite the substantial financial outlay, investors responded positively to the news. Shares of Owens & Minor surged 14% to close at $7.61 on Thursday, suggesting that the market views the termination as a favorable outcome given the regulatory uncertainties.

Strategic Setback and Industry Trends

The termination represents a significant setback for Owens & Minor's strategic goals. The company had aimed to nearly double its patient direct sales by 2028, with the Rotech acquisition playing a crucial role in expanding its presence in respiratory and sleep apnea products.

This development occurs against the backdrop of changing market dynamics in the home medical equipment sector. Rotech reported a revenue decline of nearly 4% to $725.8 million in the previous year, which Owens & Minor CFO Jonathan Leon attributed to the waning of "COVID-era benefit that the industry got to realize that fell off in early 2024."

The failed acquisition highlights the challenges faced by healthcare companies in pursuing growth through mergers and acquisitions in an increasingly complex regulatory environment. It also underscores the ongoing adjustments in the healthcare industry as it moves beyond the peak of the COVID-19 pandemic.