REFILE-Bidders for Carestream down to Bain, THL -sources

Fri Apr 26, 2013 3:56am IST

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By Greg Roumeliotis and Soyoung Kim

NEW YORK, April 25 (Reuters) - The number of potential bidders for Onex Corp's Carestream Health Inc has fallen to two, several people familiar with the matter said, damping hopes of selling the medical imaging company for as much as $3.5 billion.

Bain Capital LLC and Thomas H. Lee Partners LP remain in the running, as other private equity firms that were in talks with Onex, including Carlyle Group LP and KKR & Co LP, withdrew from the sale process citing Carestream's uncertain outlook, the people said this week.

Onex was hoping to receive seven to eight times Carestream's earnings before interest, taxes, depreciation and amortization (EBITDA) but may now receive offers for up to six times, not valuing the company at more than $2.5 billion, the people said.

No formal date for final bids for Carestream has been set and it remains unclear if Onex would sell for less than its initial price expectations, the people added, declining to be identified because the sale process is confidential.

Onex, Carestream and Bain did not respond to requests for comment while Thomas H. Lee Partners, Carlyle and KKR declined to comment.

Rochester, New York-based Carestream was formed in 2007 when Canada's Onex bought Eastman Kodak Co's health group and renamed the business Carestream. The company provides digital x-ray systems, molecular imaging systems and dental imaging products, software and services.

Onex bought Carestream for $2.35 billion at a relatively low valuation multiple of below five times EBITDA, a person familiar with the matter previously said.

Onex was looking for as much as $3.5 billion when it contacted possible buyers in February after hiring Goldman Sachs Group Inc and Bank of America Merrill Lynch to run the sale process for Carestream, people familiar with the matter said at the time.

Much of the investment case for Carestream hinges on its successfully making a transition from x-ray films - which currently account for about half of the company's profits - to digital technology, the people said.

Carestream had annual EBITDA of $429 million and net debt of $1.5 billion as of Dec. 31, according to Onex's latest financial earnings statement. Onex and its funds collectively own 93 percent of Carestream.

The challenges of making this transition, particularly in international markets, have led private equity firms to take a dim view of Carestream's valuation, the people said. The lack of growth has reduced Carestream's appeal to other medical technology companies involved in the sector, they added.

Large private equity deals in U.S. healthcare have been few and far between as so-called reimbursement risk - the exposure of companies to government programs or public sector spending - has reduced the appeal of possible targets.

Earlier this month, a consortium of private equity firms comprising Blackstone Group LP, KKR, Carlyle and Temasek Holdings made an unsuccessful attempt to acquire Life Technologies Corp, a maker of genetic instruments that instead agreed to sell itself to Thermo Fisher Scientific Inc for $13.6 billion.

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