Onex Corp has called off its auction of medical imaging firm Carestream Health Inc after failing to find a buyer that was willing to meet its price expectation of as much as $3.5 billion, Reuters is reporting.
(Reuters) – Onex Corp has called off its auction of medical imaging firm Carestream Health Inc after failing to find a buyer that was willing to meet its price expectation of as much as $3.5 billion, three people familiar with the matter said this week.
Bain Capital LLC, the last remaining private equity firm that was talking to Onex about a possible deal, dropped out of the auction this week, the people said. Another interested party, Thomas H. Lee Partners LP, exited the process earlier, they added.
Onex is now considering other options for Carestream, with a dividend recapitalization the most likely outcome, one of the people said. Under that scenario, Carestream would borrow money to pay Onex, a Canadian private equity firm, a special dividend.
All the people asked not to be identified because the matter is confidential. Representatives of Carestream and Onex did not immediately respond to requests for comment, while Bain and Thomas H. Lee Partners declined to comment.
With interest rates at record lows, financing markets have never been more favorable for private equity deals. Still, a stock market rally has boosted the price expectations of sellers, even of private companies, and has made buyers wary of overpaying.
There have been 180 so-called secondary buyouts – involving the sale of a company from one private equity firm to another – announced since the start of the year, with a total volume of $16.3 billion, compared with 191 secondary buyouts worth $11.1 billion in the same period a year ago, according to Thomson Reuters data.
Rochester, New York-based Carestream was formed in 2007 when 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 the company for $2.35 billion, equivalent to less than five times its earnings before interest, taxes, depreciation and amortization (EBITDA), and was hoping to receive seven to eight times its EBITDA, the people said.
Carestream had annual EBITDA of $429 million and net debt of $1.5 billion as of December 31, according to a financial earnings statement from Onex. Onex and its funds collectively own 93 percent of Carestream.
Much of the investment case for Carestream hinged on it successfully making a transition from X-ray films – which currently account for about half of the company’s profits – to digital technology, people familiar with the matter told Reuters previously.
The challenges of making this transition, particularly in international markets, led other private equity firms to take a dim view of Carestream’s valuation, the people said. The lack of growth 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 of late. Last month, a consortium of private equity firms comprising Blackstone Group LP (BX.N: Quote, Profile, Research, Stock Buzz), KKR & Co LP (KKR.N: Quote, Profile, Research, Stock Buzz), Carlyle Group LP (CG.O: Quote, Profile, Research, Stock Buzz) and Temasek Holdings made an unsuccessful attempt to acquire Life Technologies Corp (LIFE.O: Quote, Profile, Research, Stock Buzz), a maker of genetic instruments that instead agreed to sell itself to Thermo Fisher Scientific Inc (TMO.N: Quote, Profile, Research, Stock Buzz) for $13.6 billion.
Carestream, which was working with Goldman Sachs Group Inc (GS.N: Quote, Profile, Research, Stock Buzz), Bank of America Merrill Lynch (BAC.N: Quote, Profile, Research, Stock Buzz) and Credit Suisse Group AG (CSGN.VX: Quote, Profile, Research, Stock Buzz) on the sale, had also attracted interest from Carlyle and KKR earlier in the process, people familiar with the matter have said.