Onex bought Kodak's unit for $2.35B — Carestream filed for bankruptcy 15 years later

In 2007, Eastman Kodak sold its Health Group to Canadian private equity firm Onex Corporation for $2.35 billion in cash. The division was renamed Carestream Health and became a standalone company with approximately 8,100 employees. Onex financed the acquisition through a leveraged buyout, loading Carestream with significant debt that the company would have to service from its operating cash flow.

The LBO structure assumed that Carestream's revenue from medical and dental imaging would remain stable enough to cover the debt payments. But the imaging market was in transition from film-based to digital systems, and the shift compressed margins across the industry. Carestream's revenue declined as hospitals and clinics moved to digital radiography and away from the film products that had been Kodak's core business. The company also faced competition from GE Healthcare, Siemens Healthineers, and Philips, all of which had deeper pockets for digital R&D.

By 2022, the accumulated debt burden became unsustainable. Carestream filed for Chapter 11 bankruptcy protection in June 2022, listing the bankruptcy as a financial restructuring. The company emerged from bankruptcy later that year with reduced debt under continued Onex ownership. The case is a textbook example of a leveraged buyout that failed because the acquired business could not generate enough cash flow to service the acquisition debt in a changing market.

Onex bought Kodak's health imaging unit for $2.35B in 2007, but the shift from film to digital eroded revenue, forcing Chapter 11 in 2022.

The $2.35B leveraged buyout loaded Carestream with debt that assumed the medical imaging market would remain stable, but the shift from film to digital eroded revenue and margins.

Onex underestimated the competitive pressure from GE, Siemens, and Philips in digital imaging — all three had stronger R&D budgets and could outspend a debt-laden Carestream.

The LBO was structured at the peak of the pre-2008 buyout boom, when private equity firms were paying top prices with borrowed money that looked reasonable only in favourable market conditions.

A leveraged buyout of a business in a technologically transitioning market is a bet that the transition will be slow enough for the debt to be paid off first — and that bet usually loses.