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Providence Equity fund raises $12 billion

31-Jan-2007, Bloomberg

Providence-based Providence Equity Partners Inc. has raised $12 billion for the biggest-ever fund to buy media and communication companies, three people with direct knowledge of the matter say.

The company gathered the money in less than three months from institutions and wealthy individuals, said the people, who declined to be identified because the effort was private. The fund ranks among the world’s biggest takeover funds, the largest being the $20-billion pool put together by New York-based Blackstone Group LP.

“We’ve been very happy with their performance,” said Peter Kerwin, a spokesman for the General Treasurer of the State of Rhode Island, which has committed an unspecified amount of money to Providence Equity’s effort. “They are a mature, established firm.”

The fund, Providence Equity’s biggest, is almost three times the size of the $4.25 billion it collected in 2004, a reflection of how investors are increasingly turning to buyout firms for returns that can exceed stocks and bonds. The industry may raise a record $230 billion this year, up 8.5 percent from 2006, according to Private Equity Intelligence Ltd. in London.

Providence Equity’s $358-million fund raised in 1996 had average annual returns of 75 percent, Kerwin said.

The company has raised $21 billion through six funds since the firm was started in 1990 by chief executive officer Jonathan Nelson. It’s the largest buyout firm focused on the media and telecommunications industries.

Andrew Cole, a spokesman for Providence Equity, declined to comment.

Providence Equity has invested in more than 100 companies, including movie studio Metro-Goldwyn-Mayer Inc., German cable company Kabel Deutschland GmbH, Warner Music Group and Univision Communications Inc., the largest U.S. Spanish-language broadcaster. The firm this month opened its first offices in Hong Kong and New Delhi, adding to those in New York and London.

Buyout firms usually borrow up to 80 percent of the cost of an acquisition and hold the investment as long as five years before selling to a company or through an initial public offering. Their funds operate for about 10 years.

The industry announced more than $700 billion of acquisitions last year, data compiled by Bloomberg show. That included the largest leveraged buyout ever, the takeover of hospital chain HCA Inc. for $33 billion including debt by Bain Capital LLC, Kohlberg Kravis Roberts & Co., Merrill Lynch & Co. and co-founder Thomas F. Frist Jr.

Silver Lake Partners, based in Menlo Park, Calif., and Boston-based Thomas H. Lee Partners LP are raising $17 billion in new funds between them. Carlyle Group is seeking as much as $15 billion to more than double the size of its U.S. takeover fund.