Avista, With CS Backing, Makes Splashy Debut

Firm: Avista Capital Partners

Fund: Avista Capital Partners I LP

Target: $1.5 billion

Amount Raised: $2 billion

Placement Agent: Merrill Lynch

Legal Counsel: Kirkland & Ellis

Nearly two years after Credit Suisse sponsored its spin-out, Avista Capital Partners has closed one of the biggest-ever first-time funds.

The New York-based buyout shop, which is led by Thompson Dean, former head of private equity for Credit Suisse, sailed past a $1.5 billion target to close June 13 on the $2 billion Avista Capital Partners I LP. Merrill Lynch placed the oversubscribed fund, the second closed by firms that splintered away from DLJ Merchant Banking Partners, Credit Suisse’s private equity arm.

Unlike mid-market specialist Diamond Castle Holdings, which closed on $1.8 billion in late 2006 without any support from Credit Suisse, Avista Capital counts the Swiss bank as one of its limited partners and an occasional source of deal flow. And the deals have been flowing. Avista Capital has already committed $1.1 billion of its debut fund to 14 transactions, 11 of which were deals exclusive to the firm.

Dean attributes the quick start to the strength of the team that migrated from Credit Suisse, a lineup that includes Steven Webster, who led DLJ’s energy division; James Finkelstein, who led media investments; and Larry Pickering, who oversaw health-care deals. All three now manage investments in the same sectors for Avista Capital.

“I brought a whole team that was up and running with the support of Credit Suisse,” Dean said. “We took the three best silos from DLJ. There was no reason, as long as we had the capital, to pass up proprietary deal flow.”

Of those 14 deals, Avista Capital has earned the most scrutiny for its $530 million purchase in December of the Minneapolis Star-Tribune at a particularly bearish time for metropolitan daily newspapers. Even with a 7 percent cut in staff, the paper has missed Avista Capital’s cash-flow target by 20 percent, according to The Wall Street Journal. Dean acknowledged the Star-Tribune has performed “below plan,” but he said Avista Capital always considered the paper a turnaround play that would take years to develop.

The rest of the portfolio, however, is in much better shape. Just as quickly as Avista Capital has put money to work, the firm is putting cash back in limited partner pockets. The buyout shop has already launched two debt recapitalizations—of Thompson Publishing, a trade publisher, and WideOpenWest, a cable operator. Two more refinancing transactions are in the works, Dean said, putting Avista Capital on track to return $400 million to LPs by the end of 2007. Moreover, the firm listed one of its portfolio companies, Houston-based GeoKinetics, on the American Stock Exchange in May, and shares have since risen by 10 percent.

Avista Capital was born in July 2005, when Credit Suisse joined a parade of investment banks shedding their private equity units amid complaints from sponsors that banks were encroaching on deals. Credit Suisse initially planned to wave goodbye to DLJ Merchant Banking Partners to focus on investment banking, lending and co-investments.

Instead, the bank kept the buyout shop, reorienting it as a mid-market player that would take part in big buyouts only by supplying passive equity. At the same time, Credit Suisse nurtured Avista Capital in its early months, Dean said, covering overhead costs while Avista Capital’s principals continued to help manage DLJ’s portfolio, a duty Dean and his colleagues still perform.—J.H.