FORTUNE MAGAZINE Private Money 2008
Last Updated: May 19, 2008: 8:28 AM EDT
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Inside a record-breaking $51 billion buyout

Bagging Bell Canada put Providence Equity Partners into the top tier of private money firms. Now Jonathan Nelson has to keep it there.

By Stephanie N. Mehta, global editor

Hometown hero: From his private perch in Providence, Nelson oversees a winning media and telecom portfolio
Regular guys: Creamer (left), Salem and Nelson maintain a low-key atmosphere, which may be a competitive advantage

(Fortune Magazine) -- Alarms sounded all over Wall Street in March of last year when word leaked that BCE, parent of phone giant Bell Canada, was in buyout talks with Kohlberg Kravis Roberts. The news that such a rich prize - BCE had a market cap of $25 billion - was in play set KKR competitors like Blackstone, Cerberus, and Carlyle scrambling to get in on the action.

Watching this drama unfold with a measure of both confidence and concern was Jonathan Nelson, CEO of Providence Equity Partners, a smaller and considerably less flashy firm based, yes, in poor little Rhode Island's capital. Providence had been quietly courting BCE, paying friendly visits to the management team since 2004. (Providence had put money into MetroNet, a Bell Canada rival, and had seen firsthand how dominant the larger firm was.) Providence also knew that local law required the company to be majority-held by Canadians, and in 2006 it had started exploring a BCE buyout with the Ontario Teachers' Pension Plan - a longtime Providence investor and also BCE's largest shareholder. The fact that KKR was now in the hunt did not surprise Nelson - naturally BCE was going to shop itself to drive up the price. But he immediately got on the phone with Jim Leech, the head of Ontario Teachers', to review their strategy. "Of course we were concerned," he tells Fortune, in a rare interview. "But we had spent two years studying the company, we had the ideal partner in Teachers', we had three times before invested in a national phone company, and our banks were underwriting all the debt financing. For these reasons we believed that we should come out on top."

Sure enough, most of the other major equity shops soon backed away when they were unable to secure sufficient Canadian backing. And in late June of last year BCE agreed to be acquired by Providence, Ontario Teachers', and a third partner, Madison Dearborn, for a record-setting $33 billion, or $48.5 billion including debt. The decline in the U.S. dollar has raised the total to $51.5 billion (as of May 8).

The deal was a triumph. Not only had Providence pulled off what would be the biggest leveraged buyout in history, it had outmaneuvered KKR to boot. The coup validated Nelson's strategy of focusing on media and communications and cultivating deep, long-term relationships with the industry's key players. And it launched Providence into the top tier of private equity firms.

But don't schedule the victory parade just yet. Just as Providence snagged its prize, the credit markets started to unravel. With the deal slogging through a regulatory review, Providence's partners have had to reassure investors that their newly cautious lenders, folks like Citigroup (C, Fortune 500), Deutsche Bank, and RBS, will honor commitments to finance the huge buyout (The New York Times reported Monday, after press time, that the Wall Street banks are seeking new loan terms, possibly imperiling the deal).

Meanwhile Nelson has his own headaches. Providence had to sue one of its lenders, Wachovia, to ensure financing of its $1 billion acquisition of 56 television stations from Clear Channel Communications. And he has been working overtime on Metro-Goldwyn-Mayer, the movie studio that Providence bought in 2005 with Sony, Comcast, and other partners. MGM has missed financial targets, struggled to find a winning strategy, and released bomb after bomb, a streak that could well continue with the forthcoming Valkyrie, in which Tom Cruise plays an eye-patch-wearing Nazi.

So Jonathan Nelson finds himself at a crossroads. His firm has morphed from boutique to megafund: It now ranks No. 9 on Fortune's private-money power list, ahead of well-known names like Cerberus and Thomas H. Lee. And it's a major player in the media business, with a portfolio of 41 companies, including MGM, television network Univision, and several cable TV and wireless phone companies. Nelson, 51, a mild-mannered man who has enjoyed working in relative obscurity far from the bustle of Wall Street, concedes that he will no longer be able to maintain the low profile and underdog status that was a competitive advantage for so many years. Moreover, Providence's strong track record and mega-investment pool (at $12 billion, its newest fund is three times larger than the previous one) brings intense scrutiny and outsized expectations. Will Nelson thrive under this unaccustomed pressure? One friend, media billionaire (and Univision chairman) Haim Saban, thinks the answer is yes. Don't be fooled by his "gentle, soft-spoken" style, says Saban. "This is a guy who goes helicopter skiing in Greenland, who once dove under his boat because a propeller got caught in seaweed. This is a guy who enjoys a real challenge."

An unexpected path

You could call Jonathan M. Nelson the accidental investment banker. He didn't plan on becoming a master of the universe la KKR's Henry Kravis or Blackstone's Steve Schwarzman. In fact, he says proudly, he didn't plan to do much of anything at all. "You can't at the outset connect the dots," Nelson told a group of students and parents at a Brown University parents' weekend last year. "Life does not and should not work that way." This surely dismayed some parents, who probably had hoped a successful financier would have more practical advice for the young Ivy Leaguers. But the random path certainly worked for him.

The son of an orthodontist, Nelson grew up comfortably middle class in Providence. When it came time for college, he didn't go far, choosing Brown, where he was Mr. Liberal Arts, supplementing his economics studies with music courses and a stint at a local radio station as a jazz deejay. After graduating in 1977, he stumbled into a job at Wellman, a Boston-based specialty-chemical maker. A friend who worked there set him up on a job interview - Nelson claims he just went to practice his interview skills - and he ended up spending about three years helping manage the company's Asian operations.

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