By Greg Roumeliotis and Soyoung Kim
NEW YORK, April 25 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
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.