Another exit strategy may also be through an initial public offering or a straight sale. This past spring, Vanguard Health Systems, which since 2004 has been majority-owned by private equity firm Blackstone Group, filed with the U.S. Securities and Exchange Commission to raise $600 million via an IPO.
The filing came not long after for-profit health system HCA raised $3.8 billion through the largest private equity-backed U.S. IPO on record. Due to the status of the pending IPO with the SEC, representatives from Vanguard Health Systems were not able to offer comment.
Regardless of how and when the profit is parceled out, once a private equity firm has made the investment, its primary objective is to generate a rate of return for its investors. To ensure some control, many private equity agreements require a majority stake in the partnership. In doing so, they may supplant or supplement the healthcare organization's management team or change the governance structure.
"We do an assessment of the quality of management team," says Brideau of how Oak Hill partners and Ascension approach managing the organizations they acquire. "If our assessment is that there is strong management but they are not succeeding because they are capital starved or because of some historic decision that put them in the hole, then those things are fixable—then you're crazy to want to turn over the leadership. High-quality leadership is scarce in healthcare."