Providence in 3x education exit

Providence Equity Partners’ $291m sale of Archipelago Learning to Thoma Bravo represents its second sizeable exit during the past few months and a much needed realisation as the firm tries to attract commitments for its next fund, targeting $6bn.

Providence Equity Partners has generated a 3x return on its sale of education company Archipelago Learning, a realisation that may help quiet skeptics who had previously expressed doubts regarding the firm’s ability to raise its seventh fund targeting $6 billion.

Providence invested about $84 million for a 77 percent stake in Archipelago, formerly known as Study Island, in 2007, according to documents filed with the US Securities and Exchange Commission. Prior to selling the company to Thoma Bravo for $291 million Monday, Providence had reaped returns on its investment via an $80 million credit facility Archipelago took out in 2007 and a $119 million initial public offering in 2009, which reduced Providence’s stake to roughly 46 percent. 

Providence was unavailable for comment at press time.

The firm invested in Archipelago from its $4.2 billion fifth fund that closed in 2004. Its sixth and largest fund collected $12 billion in 2007.

Providence has been in market with its seventh fund since 2011, and has raised about $3 billion toward its $6 billion target, according to Private Equity International data provider PrivateEquityConnect. The firm collected $100 million from the State of Wisconsin Investment Board last year. Other limited partners in the fund include the Massachusetts Pension Reserves Investment Management Board, the Washington State Investment Board and the Oregon Investment Council.

The sale of Archipelago represents the second strong return for the firm during the last few months, as Providence scored a 5x return multiple on its exit of Germany's largest cable operator Kabel Deutschland in October 2011, sources close to the transaction told Private Equity International at the time.

Some limited partners and professionals in the market had previously expressed skepticism of Providence’s target amount for Fund VII. Last year, sources told Private Equity International that Providence had yet to prove it could produce strong returns for investors through a mega-fund.

Education has been a strong sector of interest for Providence as of late. Last year, the firm invested in Italian fashion and design school Istituto Marangoni and acquired higher education communications platform Blackboard for $1.64 billion.

Providence was founded in 1989 and controls around $23 billion in assets under management, according to its website. The firm typically targets equity investments between $150 million to $800 million.