Fund Closes: Providence Forms Small-Deal Fund –

While The Blackstone Group prepares to launch a telecommunications fund intended for mammoth deals (see story p. 3), Providence Equity Partners has decided to focus more attention on the small deals within the space. The telecommunications specialist last month held a first and final close on a $250 million fund that will target deals deemed too small for its main fund, which rounded up $940 million last January (BUYOUTS Jan. 11, 1999, p. 10).

Providence Growth Investors LP will seek to invest between $3 million and $20 million in equity per deal and will target growth and control transactions in the telecommunications and Internet sectors, said Jonathan Nelson, president of Providence Equity. Providence Equity’s main fund typically targets deals requiring between $20 million and $150 million in equity.

Nelson said almost all of the limited partners in Providence Equity Partners III LP also made commitments to Providence Growth. Although he declined to name the L.P.s, investors in Providence Equity’s third fund include Ontario Teachers’ Pension Plan, Oregon Public Employees’ Retirement System, California Public Employees’ Retirement System, New York State Common Retirement Fund, Rhode Island Employees’ Retirement System Fleet Equity Partners, Alliance Capital Management, GE Equity and Toronto Dominion Capital.

Providence Equity is one of a number of private equity firms to raise a separate fund for small deals. Other firms that have taken this approach include Summit Partners, which earlier this year launched the Summit Accelerator Fund LP, and Saunders, Karp & Megrue, which in August formed SKM Growth Investors, an affiliated firm that will invest in small, profitable companies (BUYOUTS Aug. 16, 1999, p. 3).

“We continued to see transactions of all sizes, which we were routinely passing on,” Nelson said. “It seemed to us that many of them were quality deals and complementary to our base business.”

Providence Equity’s most recent deal was a $50 million investment in First Telcom, a privately held company in the U.K. that provides local and long-distance telephony.

Providence Equity has done well in the telecommunications large-deal space. For example, the firm in 1996 made a $40 million investment in Canada’s MetroNet Communication Corp., which subsequently was acquired by AT&T Canada Corp., valuing Providence Equity’s investment at approximately $600 million.