I should have been more alert to the comment I received: "Morgan Stanley and Blackstone (the private equity investors in Vanguard) made out much better than the public shareholders who bought in at the IPO (there's a shocker!), since they had a much lower basis and I think may have taken some of their money off the table pre-IPO through a dividend recap."
It turns out that my anonymous source was correct. Check out this report from Dealb%k. Excerpts:
The Blackstone Group’s sale of Vanguard Health Systems to a rival hospital chain, Tenet Healthcare, for more than $1.7 billion is the latest example of a successful cash-out. The leveraged buyout firm, led by Stephen A. Schwarzman, more than doubled its money on the deal.
Private equity firms have long contended that successful sales are what counts. On that measure, things are going well. Leon Black, the chief executive of Apollo Global Management, said this year that valuations were so favorable that Apollo was selling everything “not nailed down.” Big deals done at the height of the leveraged buyout boom are finding buyers.
Vanguard’s sale is typical. In 2004, Blackstone injected just under $500 million of equity to acquire a majority stake in the hospital chain. The sponsor recouped essentially its entire investment via dividends. The sale announced on Monday mints another $650 million for Blackstone.
Well, what about the "normal" investors who might have purchased Vanguard stock during that IPO? As I noted, they have not done so well in the buyout compared to their alternative uses of money. Well, as someone else commented: "Generally speaking, beware when buying shares in an IPO where the company has had private equity ownership."
Indeed.
Just one question. How does any of this bring value to the patients served by the hospitals that are being passed around like chips during a Saturday night poker game?