Providence looks to cash out LPs in Fund VII, get fresh capital into Fund VIII

Providence Equity is running a process that would allow limited partners in its seventh fund to cash out of their interests in the pool, three sources told Buyouts.

Around five buyers are competing in the process, known as a tender offer, one of the sources said. In such a process, a GP lines up a buyer who sets a price to buy stakes, and LPs can choose to sell or not.

As part of the deal, Providence also is seeking an injection of fresh capital into its eighth fund, which is in the market seeking $5 billion with a $6 billion cap, sources said. The capital injection is known as a staple.

Tender offers hinge on whether existing LPs choose to sell; if they don’t, the deals often fall apart. Buyers generally have a minimum amount of selling LPs they want to see to make the deal worth their time.

Providence closed its seventh fund on $5 billion in 2013. Fund VII, a 2012 vintage, was generating a 21 percent internal rate of return and a 1.74x multiple as of Dec. 31, 2017, according to performance information from Oregon Public Employees Retirement Fund.

Park Hill Group is adviser on the transaction, sources said.

A spokesman for Providence declined comment. Park Hill did not return a request for comment.

Providence was formed in 1989 as a sector specialist, focused on media, communications, education and information.

It raised $12.1 billion in 2007 for its sixth fund at the height of the credit-bubble era. That fund was generating a 6.3 percent IRR and a 1.46x total value to paid-in multiple as of Dec. 31, 2017, the Oregon pension’s data shows.

Providence has had a string of exits over the past year. In March, the firm agreed to sell its stake in Indonesian telecom-infrastructure provider KIN.

In March 2017, Providence agreed to sell Professional Association of Diving Instructors to a group of wealthy families and endowments, the Wall Street Journal reported at the time. The firm announced the sale of events and exhibits operator Clarion Events last July to Blackstone Group.

Providence is the latest in a run of high-profile private equity managers using the secondary market for ways to provide liquidity to LPs in older funds.

Last year, Warburg Pincus sold an about $1.2 billion strip of Asian investments from its 11th fund to a group of buyers including Lexington Partners and Goldman Sachs.

This year, TH Lee has been exploring a secondary process for its $8.1 billion Fund VI, which closed fundraising in 2007. The status of those talks is not clear.

And New Enterprise Associates is selling about $1 billion of stakes in 20 startup investments to a new firm it is creating, the Wall Street Journal reported. The new vehicle would operate independently from the firm, WSJ said. NEA General Partner Ravi Viswanathan would leave the firm to run the vehicle, WSJ said.

GP-led liquidity processes reached about $16 billion of total volume in 2017, Credit Suisse said in its full-year activity report. That’s out of total volume last year of about $48 billion, Credit Suisse said.

“The market is efficient and can move quickly. With innovations being driven by buyers, sellers, and intermediaries, we believe the capacity of the secondary market to solve for participants’ varying objectives is more robust than it has ever been,” the report said.

Action Item: Check out Providence’s Form ADV here: https://bit.ly/2HKeYnR