peHUB-Providence Equity raises $4B plus for media fund

Wed May 16, 2012 4:57pm EDT

* Private equity a tough sell right now

* Final close expected in third quarter

* Investors have enjoyed a run of exits

By Luisa Beltran

NEW YORK, May 16 (peHUB) - Providence Equity Partners has raised $4 billion to $4.5 billion for its seventh fund, which has a $6 billion target, and the firm will likely hold a final close in the third quarter. A recent flurry of exits appears to have given the media private equity shop's latest fund a shot of momentum.

Providence Equity, based in Providence, R.I., invests in media, communications, information and education deals. The buyout shop began raising Providence Equity Partners VII LP early last year and was initially hoping to raise $8 billion. But the firm "got blowback from LPs, so dropped the target to $6 billion," a source that specializes in marketing funds said. (LPs refers to the limited partners, primarily institutional investors, that invest in private equity funds.) A Providence Equity spokesperson did not respond to a request for comment.

Providence Equity previously raised $12.1 billion for Fund VI in 2007, which was nearly triple the size of its fifth fund, a $4.25 billion fund raised in 2004. Fund VI hasn't performed as well as its predecessor; it had a net internal rate of return of 3.6 percent as of Sept. 30, compared with a net IRR of 4.6 percent for Fund V, according to California Public Employees' Retirement System, a limited partner in both funds.

Sources said that they expect Providence Equity to hit the lowered $6 billion target for Fund VII. "Providence is one of the better large GPs out there," said a fund marketer who asked not to be named. "Their track record and their specialty focus - media - make it likely that they'll hit their target in what remains an extremely tough fundraising environment."

Meantime, Providence Equity continues to return money to prior fund investors. Today the firm announced it was selling Decision Resources, a research and advisory firm specializing in pharmaceuticals and health care, for about $635 million to Piramal Healthcare. The deal is expected to close by the end of second quarter. Providence Equity acquired a majority stake in Decision Resources in May 2007. The company also paid out a dividend to investors last year. It's unclear how much Providence Equity invested in Decision Resources, but the deal is expected to generate a return of a little more than 2x invested capital, sources said.

Providence Equity had another exit two months earlier. It announced in March that Chicago buyout shop Thoma Bravo would buy portfolio company Archipelago Learning in a deal valued at about $291 million. Archipelago Learning is expected to produce a return of 3x invested capital, one source said. Additionally, Providence Equity is reportedly selling its 10 percent stake in Hulu to the company's other investors, and last month it was reported that Providence Equity expects to get a chunk of a $400 million dividend from AutoTrader.com.

All told, the firm has distributed $7.8 billion to its limited partners since 2010, a source said. Of the $7.8 billion, $5 billion is gain, the source added.

And there's plenty left to sell. One limited partner said that Providence Equity is "doing all the right things," but noted that "none of us are in this business for a 2x gross return." Providence Equity's sixth fund represents a mix of realized and unrealized deals, the limited partner added. "It's definitely weighted toward unrealized."