The biggest deal ever (pg. 2)

He left Wellman, lived in Europe for a year, and decided to go back to school. After earning an MBA at Harvard in 1983, Nelson landed at a private equity firm called Narragansett Capital, where his first deal was having Narragansett buy his former employer, Wellman. Founder Bud Wellman was ready to cash out, and the deal was a huge success: Narragansett made 20 times its original investment in about three years.

After several years at Narragansett, during which he focused on local media companies, Nelson decided to strike out on his own - but not too far, of course. In 1991 he and a few Narragansett pals, including Glenn Creamer, formed Providence with a plan to concentrate on telephone and cable companies, which were fragmented at the time and just starting to consolidate.

It was a tough time to raise money. The U.S. economy was in the tank, and while Creamer and Nelson had a strong track record at Narragansett, they nonetheless were asking investors to take a risk on a specialized firm. Most pension funds and institutions were more comfortable with big generalist outfits with diverse portfolios. But the ones that took a chance on Providence - including Ontario Teachers' and Calpers - were well rewarded. Providence would not provide the data and won't comment on returns. But according to documents seen by Fortune, its first four funds notched annual returns of 47%, 111%, 21%, and 56%, respectively, before fees (the typical Providence fund lasts about five years). One fund-of-funds manager says these results put Providence in the top decile of private-money players. "They have some of the best returns of any of the megafunds," this manager says. "It's a damn fine performance."

In its earliest days Providence mostly provided growth capital to growing businesses such as upstart cellular company Western Wireless or Brooks Fiber, a local phone company trying to take on the monopoly operators. Those young companies certainly enriched Providence. For example, it put $63 million into VoiceStream starting in 1992 and reaped more than ten times that amount when Deutsche Telekom bought the company in 2000. But the burgeoning firms also provided inspiration. Watching entrepreneurs like Western Wireless CEO John Stanton as they strove to build a business spurred Nelson and his partners to think about themselves as more than mere financiers. "It isn't just about money; it is about creating an enduring franchise," says Creamer earnestly, as we sit in Providence's modest offices, adorned with nautical paintings, in a downtown high-rise. "We think we've done that."

A key part of building that franchise has been maintaining an atmosphere of collegiality. Indeed, politeness seems to be a core value. Providence is only 180 miles from New York City, but it is light-years from the rough-and-tumble mentality of most Wall Street trading floors. Paul Salem, a senior managing director who joined the firm in 1992, tells the story of a CEO who was rude on the phone to one of the office assistants. "That's not a guy we want to do business with," Salem says.

But as the firm grows - it now employs 65 investment professionals in offices in New York, Los Angeles, Hong Kong, London, New Delhi, and of course Providence - Nelson frets openly about maintaining the more-than-moneymen culture he's tried to achieve. During our first meeting, at Providence's New York City offices in Lever House on Park Avenue, the word "institution" keeps coming up. So I ask if he'd be melancholy if, say, he came back 20 years after retirement and found Providence had become a big, faceless institution like a Goldman Sachs or a J.P. Morgan Chase. He thinks for a moment and says, "If I stopped someone in the hallway to ask directions and the person had no idea about my prior role at the firm but was polite and helped me out, I'd say, 'I am absolutely okay with this.'"

Providence's clients certainly seem to be okay with the firm's low-key vibe - indeed, it's something of a competitive advantage. "Those of us in regular business tend to think of private equity as having the mentality, 'What's mine is mine, and what's yours is mine,'" says Howard Stringer, CEO of Sony (SNE), which partnered with Providence in the MGM buyout. "The thing about Jonathan is that he maintains relationships, and that's what generates a level of trust for him that others don't enjoy."

Nelson's self-effacing style has won him friendships with media elite such as Stringer and News Corp.'s Peter Chernin. "Jonathan is somebody who is comfortable in his skin," says Dick Parsons, chairman of Time Warner, Fortune's parent. "He doesn't have that mogul or movie star gene that drives him to be the show, the story, the centerpiece." That probably is a competitive advantage too. "These big egos are not looking to partner with another big ego," says James B. Lee Jr., vice chairman of J.P. Morgan Chase. "They are looking to partner with someone who will work well with them." Indeed, Nelson is one of the few outside bankers invited to mingle with the media heavyweights at Allen & Co.'s annual retreat in Sun Valley, Idaho. Of course, controlling companies with combined annual revenue of $55 billion, Providence is arguably as significant a presence on the media landscape as, say, Time Warner or Viacom.

NEXT: The biggest deal ever (pg. 3)

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