Providence Equity Lines Up The Exits

Expect Providence Equity Partners to put several companies on the block this year.

The Rhode Island-based firm was active on the exit front in 2010, distributing about $2.2 billion to its investors. And Senior Managing Director Glenn Creamer told attendees of the Dow Jones Private Equity Analyst Outlook conference last month that he expects the trend to continue in 2011.

Companies for sale or slated for an initial public offering could include telecommunications software company Telcordia, which Providence Equity bought for $1.35 billion alongside Warburg Pincus in 2005 and which reportedly could attract $1 billion to $1.5 billion in an auction; Phones4U, a British cell phone company that Providence Equity looked into selling in 2010 but ultimately retained; and Com Hem, a broadband service provider in Sweden that Providence Equity teamed up with The Carlyle Group to buy in early 2006 (see table at right).

Providence Equity isn’t alone among buyout firms looking to generate distributions after a slow few years. In January, Nielsen Holdings NV, backed by the Blackstone Group, Carlyle, Kohlberg Kravis Roberts & Co. and Thomas H. Lee Partners, raised nearly $2 billion in an initial public offering. Other high-profile portfolio companies expected to go public this year include hospital operator HCA Inc, backed by Bain Capital, KKR and BAML Capital Partners; and energy company Kinder Morgan Inc, backed by a group of investors including Carlyle and GS Capital Partners, which is aiming to raise $2.3 billion.

Creamer pointed to several reasons why 2011 could be a big year for exits for the firm. The stock market has lately proven welcoming to IPOs of companies backed by buyout shops, and credit markets are still supporting dividend recapitalizations. On the deal side, buyout shops, big corporations and other strategic buyers are sitting on upwards of $1 trillion that could be invested in deals. Creamer declined to comment beyond his remarks at the conference.

Other Providence Equity companies that could be attractive candidates for a sale or IPO, based on an analysis of the firm’s portfolio and press reports, include Digiturk, a digital television services provider in Turkey in which Providence holds a 47 percent stake and about which the firm has reportedly held preliminary meetings with potential buyers. Another is NEW Asurion, a Nashville, Tenn.-based company that replaces lost, stolen and damaged wireless devices that Providence Equity teamed up with Madison Dearborn Partners and Welsh Carson Anderson & Stowe to buy in 2007. Last October, the firm’s sponsored a $900 million dividend recapitalizaiton of NEW Asurion. EBITDA at the company has increased more than 2.5x under Providence Equity’s ownership, and post-recap, leverage stands at approximately 4.4x EBITDA, down from more than 8x at the time of the firm’s acquisition, according to a source close to the firm.

Providence Equity’s funds have performed consistently, according to return data from top institutional investors such as the California Public Employees’ Retirement System and the Oregon Public Employees Retirement Fund. Its fifth fund, a $4.25 billion, vintage 2005 fund, has generated an investment multiple 1.1x as of June 30, according to CalPERS. Its third and fourth funds have also generated investment multiples of more than 1.5x, according to OPERF.