Strategic Variables in Private Equity Transactions

Lao Tzu, the ancient philosopher, said, “If your happiness depends on money, you will never be happy with yourself.” Why is it, then, that so many transactions focus so heavily on the economic terms? One of the lessons we at Coker impart to medical practice and hospital clients contemplating a private equity (PE) transaction is that both the economic and non-economic terms carry weight, and they should receive equal consideration before signing on the dotted line. Specifically, there must be consideration of the strategic, non-economic terms that will be in effect post-transaction, such as:

  • Who will sit on the organization’s governing committee/board?
  • What will be the extent of that board’s authority?
  • What will be their role in setting and operationalizing the strategic, clinical, financial, and operational aspects of the organization going forward?
  • Is there a shared responsibility for determining the organization’s overarching strategy, or will that primarily be established and then handed down from the PE entity?
  • Who maintains hire/fire authority for physicians within the organization? What is the process for adjudicating physician behavioral issues?
  • What will happen to the organization’s employees? Will all (or any) be retained, provided they pass background, drug, and other standard employment checks? Will the scope of their roles be maintained? Will any now have multi-site, regional, or otherwise more diffuse responsibilities than the single organization?

Numerous benefits can come with any transaction, and this is assuredly true for those that are PE-related. However, appropriate preparation, due diligence, and strategic consideration must occur in advance to ensure the full scope of these benefits are achieved for all parties. I repeatedly tell clients that their transaction’s economics will improve one day of their life, but the non-economic considerations could make them miserable every day for the rest of their professional life. Thus, do not hesitate to reach out to us as a trusted advisor and source of consultative assistance as you begin contemplating a PE transaction to ensure your transaction delivers the ultimate value.

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